Holding pattern!

On Tuesday, the Reserve Bank of Australia announced its decision to hold the official cash rate steady at 4.35%. This move, while not entirely unexpected, has significant implications for various aspects of the economy.

But how about the housing market?

Until recently, there was still forecasts of at last one, if not more, interest rate rises on the horizon. However, with the latest inflation figures returning a better than expected result, much of the pressure came off the RBA to lift rates. While this was good news for borrowers, it may not be enough to lift consumer sentiment which, with its close relationship to property sales, would normally see higher prices.

As interest rates rose over the past couple of years, bafflingly so did house values, so there must have been more at play than the cost of borrowing. Coming off the back of the COVID years, supply was unseasonably low. Couple that with tight rental conditions and demographic factors such as immigration, it seems the demand aspect has underpinned housing values over the past few years.

However, many of these factors are now losing their potency, with the trend rate of home sales easing as affordability becomes more challenging, migration slows, and momentum leaves the upswing in rents. Even if sentiment lifts, an improvement in affordability barriers or strengthening in household balance sheets isn’t likely until interest rates start to fall.

While housing values have continued to rise through these years, the rate of growth is clearly slowing.

The RBA hasn’t made any definitive statement on the next interest rate move but if the inflation trajectory continues to ease, the next movement should be downwards.  Whether this will be enough to revitalise the housing growth cycle is open for debate. There is a possibility that affordability pressures and, eventually, a housing supply response, will keep a lid on price growth even as rates come down.

As to when rates will come down, that’s open to conjecture and considerable conversation. The earliest forecasts have a rate cut pencilled in for November, while market pricing has also been brought forward to November 24.

As the economic landscape continues to evolve, homeowners, buyers, and investors will need to stay informed and agile. While the RBA's current stance provides some certainty, the housing market remains subject to a complex interplay of factors that will shape its trajectory in the coming months.

Be careful when seeking advice on property!