Property and cash rate predictions for 2024

In the first cash rate announcement of the year, the Reserve Bank of Australia (RBA) has held the cash rate at 4.35%. This follows the release of inflationary data that shows the rate of annual inflation decreased in November (4.3%) compared to October (4.9%).

As 2023 becomes a memory and we are full swing into 2024, let’s reflect on the challenges we encountered and consider what lies ahead in 2024.

Contrary to the expectations of economists forecasting a decline in house prices, the opposite trend unfolded. As per Ray White data, the national median house price increased by 8.2%, while the median unit price experienced a 5.7% increase. Notably, Perth emerged as the most robust market, experiencing a 15.3% surge in house prices over the year, while Adelaide saw the most substantial increase in unit prices, increasing by 10.4%.

According to Nerida Conisbee, Chief Economist at Ray White, various factors like population growth, fluctuations in interest rates, and economic growth attracting investors could influence prices in 2024.

“The probability of a rate cut is now far higher than it was less than six weeks ago. If this does happen, it is likely to fuel price growth in not only our largest cities but also other parts of the country,” she said.

The major banks have forecast an expectation that property prices will increase at a slower rate in 2024. A report released by CBA predicted a 5% lift in home prices this year saying “constrained supply and robust underlying demand” 

A recent CoreLogic survey collected responses from 1,400 real estate agents and found 59% strongly believed rising interest rates would have the biggest impact on property prices in 2024. 

The cash rate has increased 13 times since May 2022 – increasing by 4.25 percentage points. Last year alone saw the cash rate grow from 3.10% in January to 4.35% by the year’s end. That’s an increase of 1.25 percentage points that was then passed onto interest rates on products such as home loans.

The big four have all predicted the cash rate has hit its peak with a chance the RBA will begin making cuts in the last quarter of the year. The predicted rate in December ranges from 3.60% up to 4.10% with further cuts predicted by economists through 2025.

According to the RBA, the average home loan rate before the cash rate increases in May 2022 was 2.86%. By November 2023 it was 6.39% (keep in mind this is existing loans, which includes fixed-rate). According to recent data, the average home loan in 2023 was $642,555*. On a 25-year term paying principal and interest, that is a difference of $1,292 a month with the monthly repayments today being $4,292.

It is hard to predict where interest rates will be by the end of the year as some banks may compete more aggressively by cutting rates or offering deals. If we look at the cash rate predictions by the big four of cuts between .75 to .25 percentage points and apply that to the average interest rate in November of 6.39%, it would bring the interest rate to between 5.64%-6.14%, if the lender passed on the cash rate cuts in full. This would save the above scenario between $292 to $97 per month.

*Loan Market survey 2023