Are We in the Last Days of Rate Hikes?

interest rate hikes

There have been a few tough Tuesdays over the last year. As expected, after convening on the first Tuesday of February as they do every month, the Reserve Bank of Australia has just raised the cash rate by .25%. You’d expect we’d be used to this by now, as this is the ninth straight raise by the RBA, bringing the cash rate up from its record low of 0.1% last year to a whopping 3.5%.

The banks have been passing these raises on in full to borrowers, and it’s really putting pressure on Aussie families and their cash flows each month. It’s the highest interest rate since September 2012!

We could be closing in on the end of these rises though. To understand that we need to understand WHY the RBA has been so drastically increasing the cash rate.

Why Does the RBA Keep Raising the Rate?

In a nutshell, it’s to curb inflation. Inflation is the increase in prices of things around us, which causes a fall in the purchasing power of our money. Due to world events… we’re talking the war in Ukraine, global logistics issues, etc… inflation rates around the world have skyrocketed.

Australia hasn’t been spared, and in the 12 months leading to December 2022, our inflation was 7.8%.  Now a bit of inflation is expected in an economy, with an expected level in Australia level set at between two and three per cent.

The rate rises are designed to reduce demand in the market and bring the inflation level down. According to the RBA board statement:

“The board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later.”

Why Could Rate Rises Be Coming to an End?

There are signs beginning to indicate inflation could be reaching a peak. Energy price rises are slowing, and there’s a slowdown in producer prices growth. According to PropTrack’s Cameron Kusher we’ll probably get one more rise in the interest rate by another .25%, bringing the cash rate to 6.6%.

After that, Mr Kusher says “Should the slowing continue and if economic growth comes in lower than expected, this might be the last of the hikes. Either way it appears we are nearing the end of the rate-hiking cycle.”

Look, we’re not getting the party poppers out just yet. Let’s look at what banks are predicting – NAB thinks that the rate will go up to 3.6% in March and stay there for the rest of the year. Westpac believes there will be another hike in June, taking it to 3.85%, after which rates will start to decline in 2024.

The good news is, we definitely aren’t staring down the barrel of another nine consecutive months of increases. The aggressive tightening by the RBA will likely slow down, but there will still be at least one or two rises to deal with for consumers.

The Impact of the Rate Rises on House Prices

With borrowing power diminished and mortgage costs going up, there has been an impact on the housing markets. Home values across the country are 4.51% lower than they were at their peak.

But, according to PropTrack senior economist Eleanor Creagh, ‘the worst of the downturn appears to have passed. The rapid pace of price falls seen in June and July 2022 when interest rates first started rising have subsided and price falls have eased in recent months.’

Although there’s been a dip, property prices are in a very healthy position when you compare them to pre-Covid prices.

Speak to the Brisbane Real Estate Experts

If you have any questions on the property market, or the effect of the latest rate rises, please get in touch with The Henry Wong Team®. Henry has been selling real estate in Brisbane for many years now and would love to help you out!