Reserve Bank leaves interest rates on hold, but for how long?

August 14, 2023

Experts have warned the Reserve Bank’s decision to keep interest rates on hold on Tuesday was not a sign future hikes were not on the horizon, but it has paved the way for buyer confidence to strengthen.

Real Estate Institute of Australia president Hayden Groves said the pause will give the property market a shot in the arm but the underlying supply shortage remained.

“If history repeats, or more recent history repeats itself, I would be not surprised to see a bit of confidence just instantly return to the market,” he said

PropTrack Senior Economist Paul Ryan said the current consensus was that the RBA was pretty close to the peak in the cash rate.

“People shouldn’t be waving celebratory streamers yet as more interest rates rises are expected to come,” he said.

“I think the broader thrust is everyone expects that interest rates have to go higher, and people will debate how much higher, but I guess the news yesterday was probably that the RBA had signalled that they maybe a little closer to the end of hikes in that they are choosing to pause again now.

“Its good news for buyers with certainty, and sellers for that matter as the certainty really helps. If you know the interest rate you are looking at now, maybe add 50 basis points to that and that’s kind of what you’re looking at hopefully for the next year or so.

Reserve Bank of Australia name on black granite wall in Melbourne Australia

The Reserve Bank kept the cash rate on hold at 4.10% on Tuesday. Picture: Getty

“Sellers will realise that prices are growing and demand is really strong and it’s actually quite a solid market people are selling into.”

AMP chief economist Shane Oliver said the cash rate pause made sense as the substantial increase in rates since May last year was clearly working to slow the economy and inflation, and now the RBA had more time to assess the outlook.

“But again that’s sort of what they said back in April as well, and they continued to hike,” he said.

Mr Oliver said mortgage holders should brace themselves for an August increase, with possibly another hike after that.

“But I do think we are getting closer to the top. It is causing a lot of pain out there, not just for homebuyers but the broader community and you hear more and more anecdotes about people cutting back their spending.”

The main factor for the property market currently was a shortage of listings, Mr Oliver said with the increase in migration driving a fear that people will miss out.

“There’s also the broader impact on the economy with an increased risk of recession,” he said.

“So, if you’re a home buyer who is prepared to wait, they will still get opportunities to buy a few months down the track as rates keep going up and the economy slows.”

Meanwhile, the previous 12 cash rate hikes has seen many Australian mortgage holders begin the process of refinancing for a better deal.

Mortgage Choice chief executive Anthony Waldron said his company’s home loan submission data showed the biggest spike in refinancing activity this year, with 52% of all loans submitted by Mortgage Choice brokers in June being refinance transactions.

Real estate agent with couple looking through documents.

Borrowers rushed to refinance in June, according to Mortgage Choice data. Picture: Getty

“Mortgage Choice data reveals borrowers are again chasing certainty,” he said.

“During June, we saw a surge in demand for fixed-rate products, with 14% of loans submitted by our brokers having a fixed portion, compared to just 7% in the month prior.”

Angus Raine, Raine & Horne executive chairman, said he believed the RBA should meet quarterly instead of monthly.

“We are one of the few countries in the world where interest rates are on the front page news, particularly directly correlated with our fascination or obsession, which is a great thing, because property is in our DNA,” he said.

“I have argued with the RBA that (the meetings) shouldn’t be monthly with all the data they have, it should be quarterly because compared to say the 1970s where they really didn’t have many indexes or much data, it should be quarterly because a lot of people hold their breath and wait and then it might take another one or two weeks to decide what to do.

“The market’s just sort of going ahead and stopping, stalling, going backwards and ahead again and its almost unfair.”



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