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When can mortgage holders expect rates to fall?

Predicting interest rate movements is notoriously difficult. Plenty of pundits have got it wrong.

The Reserve Bank has kept rates in a holding pattern – for now at least. While there is speculation around the future path of rates – up or down, what matters is that homeowners are able to navigate changing interest rates throughout the term of their home loan.

The past two years have been a tough grind for many Australians, as we navigate a cost of living crunch coupled with higher home loan rates. The reality is that it’s anyone’s guess as to when relief may be in sight, although a number of economists are expecting rates to fall 1 .

The rate picture is becoming cloudy

Predicting interest rate movements is notoriously difficult. Plenty of pundits have got it wrong in the past.

This time around we know the Reserve Bank of Australia (RBA) has a laser-like focus on bringing inflation down to 2-3% 2 . Right now, inflation is sitting at 3.4% 3 . That’s a whisker shy of the RBA’s target range.

However, in a twist, household spending has jumped 3.6% in the last 12 months 4 .

It’s a fair bet this is not what the RBA expected. The risk is that increased spending could push up prices, increase inflation, and thereby dash hopes of an imminent rate cut.

We won’t know how the cost of living is tracking until the Australian Bureau of Statistics (ABS) releases its latest inflation data in late April. From there, the RBA meets in early May to decide the official cash rate.

Property values continue to rise

What’s really amazing, and possibly frustrating for the RBA, is that despite a cost of living crunch and a string of rate hikes, home values have continued to soar.

CoreLogic's national Home Value Index (HVI) notched up its 14 th straight month of growth in March 5 , with home prices skyrocketing 10.2% since January 2023.

In dollar terms, that’s seen home values nationally gain an extra $71,832!

It’s great news for homeowners as a rise in property values means a rise in your personal wealth.

Even the ABS has joined the conversation, noting that household wealth has enjoyed a big boost thanks to home values that have “continued to grow significantly” 6 .

What can we expect if rates fall?

While cuts to interest rates are not guaranteed, it’s a no-brainer that lower rates are likely to see property values rack up further gains.

CoreLogic expects housing values to “continue trending higher, with the potential for conditions to accelerate if interest rates come down”. That said, CoreLogic also points to some “headwinds” 7 , notably declining housing affordability and ongoing cost of living pressures.

PropTrack, the research arm of REA Group, which runs listing site, says housing demand is being buoyed by population growth, tight rental markets and a strong job market 8 .

On the other side of the ledger, PropTrack says new supply is being hampered by high construction costs coupled with labour and materials shortages that have slowed the delivery of new builds.

All these different variables explain why no one can accurately predict future rate movements.

That’s why it makes better financial sense to focus on what you can do to manage interest rates, and loan repayments, which will inevitably move – both up and down – over the course of your loan term.

It’s not just about possible belt tightening when rates rise. You also need to prepare for long term life changes such as starting a family, or planning to be an empty-nester.

On the plus side, with demand for homes continuing to outstrip supply, there’s a good chance the value of your property is set to climb higher.

Last updated: 1 May 2024

The information contained in this article is only correct at the point of time of publication. It is general information and has been prepared without taking into account your personal circumstances, objectives or needs. Please consider if this information is right for you before making a decision to acquire any product.