Today’s interest rate decision signals that we are likely to now be entering a period of little to no interest rate changes for a considerable time which is a significant shift from the material reductions and increases we have seen over the last few years.

We have only seen 2.7 per cent of the 4 per cent rate increases work their way through the market due to two main factors:  

1. The mortgage cliff phenomenon which has only just begun in July 2023 (where over 1.1 million fixed rate loans of circa 2 per cent are moving to circa 6.25 per cent)  and will continue to March 2024 and; 
2. The fact that the banks have been moving out of sync with the RBA, in some cases not passing on the increases in full -  in an effort to try to win market share.    

Despite not yet seeing the full impact of interest rate rises, we are beginning to see significant increases in volumes of homes coming to market both in terms of investment properties and principal places of residence, that trend started in earnest in June and it is continuing. The same cannot be said for WA where new listings remain 5 per cent below the prior year. 

Already we have seen a tapering off in the rate of price increases in metropolitan house prices although they did continue to increase nationally at a rate of 0.9 per cent for the month of August. That rate of increases in property prices is tapering off and we expect that trend to continue with some falls in prices at the lower levels over the next 6-12 months, creating an opportunity for new and first home buyers.  

The new environment we are seeing will likely create improved confidence for Australians to transact their homes in a market with less pricing volatility and greater stability in pricing.   

Increased unemployment is likely to further increase the supply of homes coming onto the market and potentially reduce buyer demand in some parts of the market and reflect the softening of prices we are likely to see in the next 6-12 months.   

Looking at the premium end of the market, we are seeing continued record strength with is being exacerbated by the low levels of supply.  Sydney in particular is continuing to record staggering increases at the super premium level. 

Services inflation remains a concern for the economy and this combined with cost of living pressures and higher for longer interest rates are expected to continue to increase the unemployment rate further than the recent increase from 3.5 per cent to 3.7 per cent.   

Notwithstanding an expected period of lower volatility, should services inflation remain elevated, we believe there is a chance of one final 25 basis point increase prior to Christmas.