Forecast Interest Rate
On 7 February 2023, the Reserve Bank of Australia (RBA) delivered a 9th consecutive interest rate rise to 3.35%.
The headline consumer price inflation was 7.8% over 2022. In its February 2023 Statement of Monetary Policy the RBA indicated that the Board’s priority is to return inflation to its 2-3% target range and therefore expects that further increases in interest rates will be needed to ensure that the current period of high inflation is only temporary.
The Australian Financial Review (AFR) reported on 7 February 2023 that there was now a risk the RBA could increase the cash rates as high as 4.1 per cent, according to Tapas Strickland, head of market economics at National Australia Bank .
Forecast Impact of Interest Rate on House Prices
On 9 February 2023, the AFR reported that Jarden analysts have downgraded their previous forecast – for a 15-20% fall from peak to trough in house prices nationally to a 20-25% fall whilst Morgan Stanley is expecting falls up to 20%.
The AFR reports that the country’s largest capital cities led the sharpest peak-to-trough decline. However, whilst Brisbane’s prices tumbled 10 per cent, house prices in Brisbane are still worth 28.4 per cent more than they were before the pandemic after the hefty 43.5 per cent jump in the past two years.
However, the AFR reported on 7 February 2023 that the full effect of rate rises are not yet reflected in the prices for a number of reasons.
Only about a third of the 3 percent of interest rate rises have flowed through to mortgage rates. Jo Masters, chief economist at investment bank Barrenjoey, noted to the AFR that it is well documented that thousands of borrowers will roll off cheap fixed rate loans (averaging around 2.5 per cent) on to much more expensive variable rates loans (likely somewhere around 6 per cent). She also noted that variable borrowers have so far been spared much of the pain of rising rates, largely due to mortgage processing delays.In other words, just under two thirds of the pain of higher mortgage rates is still to come for variable rate borrowers.
That resilience has also been underpinned by the $260 billion of savings that was built up during the pandemic.
However, AFR reported on 9 February 2023 that if Jarden’s forecast plays out in full, a recovery may be around the corner with a 10% or more gain in prices forecast through 2024, rate cuts, an easing on borrowing rules and tax cuts combine to improve borrowers capacity.
Brisbane Property Market
Michael Yardney reported on 11 February 2023, that whilst Brisbane’s property market is experiencing a flat patch, the long-term fundamentals are strong which creates a window of opportunity to get into the property market before the Brisbane market picks up again.
He reports that here has been significant internal migration (particularly northwards from Victoria and NSW) into Queensland with Australians looking for more affordable property in lifestyle suburbs. This interstate migration in addition to factors such as overseas migration, employment growth, forecast population growth of more than 16 percent by the time Brisbane hosts the Olympic games in 2023 as well as the long-term benefits of hosting the Olympics and the extra infrastructure building, means the Queensland housing market is looking particularly positive.