RATES COULD FALL EARLIER THAN EXPECTED

Almost all sectors will reap the benefits of a fall in interest rates, which analysts predict will happen sooner rather than later.

Despite early predictions that a cut would not occur until late in the year, the latest predicts that the first fall could come as early as May.

Reports this month suggests that six rate cuts of 0.25 per cent could be possible from mid-2024 to the end of next year, sending the current rate of 4.35 per cent spiralling to 2.85 per cent.

A resilient labour market, booming migration, rising house prices, and a sharemarket at record levels, suggest that the RBA’s 13 rate increases – or a whopping 4.25 percentage points – since 2022 are still filtering through the economy.

In the latest quarterly survey, half of the respondents predict at least two rate reductions this year and more next year. The median forecast is for the cash rate to bottom at 3.1 per cent, which would be equivalent to five cuts of 0.25 percentage points each this cycle. The most aggressive predictions suggest a total of seven rate reductions and the most shallow have only two.

While Gold Coast property has remained relatively resilient in an environment of prolonged rate rises, the local market will see benefits once the rate begins to fall.

The latest data from CoreLogic shows house prices are already on the rise again, following a period of readjustment which has led to a return in market confidence.

A cut in interest rates will serve to boost confidence further, with greater serviceability on loans stimulating the upper end of the market.

At the lower end, a rate cut will alleviate the stress on some homeowners, who may have been feeling the pressure to sell. As more people hold onto their homes, the already restricted availability of stock will tighten, further shoring up house prices.

Investor activity in the market will also ramp up as lower loan rates entice this group of buyers back into the market. This will have a positive effect on the rental sector, freeing up housing stock and going some way to easing the Gold Coast’s housing crisis.

In the development space, falling rates will make funding more affordable, which will be a financial win for developers who have faced soaring labour and construction costs since the pandemic.

Ultimately the RBA will be cautious in declaring victory against inflation and will want a little time to assess the impact of tax cuts on the economy. The RBA has included in its projections a pending 1.5% increase in household income from the government’s stage three tax cuts coming 1 July 2024.

The RBA left its cash rate unchanged last month at 4.35 per cent for the third straight meeting, and softened its stance to neutral, saying that the outlook was highly uncertain, and it was “not ruling anything in or out”. This means that the next move in rates could be either up or down.

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