InSynergy looks at what leading economists say and why now is the ideal time to invest.
Since the Reserve Bank of Australia (RBA) began its tightening cycle in May 2022, the cash rate has risen by 4 per cent (up from a historic low of 0.10 per cent) to 4.10 per cent. This in turn has caused interest rates to rise by a similar amount. In great news for investors, over the past four months, the RBA has made the decision to hold the cash rate steady.
Minutes from recent RBA board meetings suggest the cash rate in Australia will remain stable in the near term. Economic momentum is slowing as household and business activity softens on the back of high inflation and high rates. This provides some peace of mind for investors currently in or looking to enter the market.
Dr Kevin Hoang, inSynergy’s resident doctor of economics agrees, saying: “As widely expected, at the RBA’s latest meeting on 3 October, the board decided to leave the cash rate unchanged at 4.10 per cent for the fourth consecutive month. The consensus among economists is that the cash rate has peaked and will remain on hold while continuing to contain inflation.”
At the time of writing, ANZ, Westpac, and Commonwealth Bank say 4.10 per cent is the peak for the cash rate during this tightening cycle. NAB anticipates we may have one more 25 basis point increase by December, bringing the final cash rate up to 4.35 per cent.
PREDICTIONS FROM THE BIG 4 BANKS
(as at September)
Westpac Chief Economist, Bill Evans
The view from Westpac economists is that the cash rate has peaked and will remain on hold for some time, before coming down in the second half of 2024 once inflation has returned to, or very close to, the target range.
“The RBA is more confident they are on top of inflation and are a little less concerned about the tightness in the labour market, giving even more confidence they will keep the cash rate on hold for quite some time. We’re right in the peak period now for where people are switching from those very low fixed rate loans that they acquired in 2020 and 2021, into the much high variable rates we are into now. This means that for the next six months or so, the average mortgage rate in the country will actually keep rising despite the fact the RBA isn’t going to need to raise rates any further.”
CommBank Chief Economist and Head of Global Economic and Markets Research, Stephen Halmarick
“Most economic data came in softer than expected, including the July monthly CPI rating leading to three months in a row with no changes to the cash rate. In hindsight, the June rate hike seems like the last one we will see during this tightening cycle due to expected ongoing weakness in consumer spending. Continued moderation in inflation over the next six months is anticipated, all adding up to the RBA being able to keep the cash rate on hold at 4.10 per cent.”
NAB Chief Economist, Alan Oster
“While the recent run of activity data including our business survey clearly show the economy is now slowing –as consumer spending begins to stall –inflation and wage data still show that price pressures remain elevated.
“The board appears willing to wait to be pushed to raise rates further. The longer they wait, the more we expect the economy to slow, limiting the need for further increases. However, we expect the strength of inflation through the Third Quarter will push the board to take out additional insurance against inflation remaining above target.
“Following this hike, NAB expects the RBA will leave the cash rate on hold until August 2024, when it will start cutting the cash rate, until it returns to around 3 per cent by early 2025.”
ANZ Chief Economist, Richard Yetsenga
Mr Yetsenga believes the Reserve Bank has finished tightening for the meantime, although he acknowledged that the decision making of the bank was unlikely to change much under incoming Governor Michele Bullock, despite the coming creation of a monetary policy board to oversee changes to rates.
“Our view is the bank’s probably finished tightening for the meantime. There is the risk they could go a little bit further, but when you think the RBA, like other central banks, has done a dozen rate hikes, the indicators are we’re getting much closer to the end of that story.
“We think 4.1 per cent probably represents the level where the RBA will have an extended pause for a while as it gives more time for the influence of policy to work through.”
Why now is a great time to invest in property
The key question at hand is when the RBA will initiate an easing cycle. To decide its next move, the RBA is keeping a close eye on various macroeconomic indicators, including the inflation rate, unemployment rate and GDP growth. Notably, the inflation rate has been consistently trending downward since December 2022. There is a prevailing sense of optimism that the first rate cut, and subsequent reductions may occur in the second quarter of 2024.
Furthermore, in addition to potential cash rate cuts, ongoing disruptions in the building industry and robust population growth are factors contributing to Dr Kevin Hoang’s prediction of a strong acceleration in the property market from this point forward, particularly in the affordable segments of capital city markets. However, it’s worth noting that overall growth rates may stabilise somewhat, but affordable areas in capital cities that offer accessibility to amenities and employment opportunities are expected to continue experiencing growth above the market’s average.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au