Relief for borrowers: When will Australian interest rates stop rising?

The Reserve Bank of Australia.

Higher borrowing costs have taken a large bite out of property prices in recent months, and with more rate hikes to come we likely haven’t seen the bottom of this current downturn.

But when will the Reserve Bank of Australia next make a move? And when will its aggressive monetary policy tightening finally come to an end? We take a look below. 

Interest rates set to go up in December

The RBA has lifted interest rates at seven consecutive meetings this year, including a devastating four-month stretch of 50 basis point hikes from June to September.

The cash rate is now 275 basis points higher than it was when the tightening cycle began – nearly matching the 3% buffer banks tack onto their rates when assessing borrowers’ serviceability.

While limits are certainly being tested, the good news is that with unemployment currently at all-time lows, a material increase in mortgage arrears seems unlikely.

The central bank is widely expected to continue lifting rates, with Westpac economists pencilling in four more 25 basis point hikes in December, February, March and May and a terminal rate of 3.85%.

Meanwhile, CommBank believes the RBA will deliver just one more increase in December, which would leave us with a cash rate of 3.10% going into next year. 

How do we account for such different forecasts? For one, CBA has been much less hawkish on rates than its big bank peers, calling for caution in light of lags in the transmission of rate hikes.

Westpac, on the other hand, has emphasised the need for strong action to keep inflation from getting out of hand.

“The risk is that a ‘high inflation’ psychology emerges and is allowed to be sustained for longer, potentially making the challenge of bringing inflation back to target more difficult than necessary,” said Westpac chief economist, Bill Evans.

How far have property prices fallen?

Seven months of rate hikes have taken a heavy toll on the property market, with Sydney prices falling -10.2% since January and Melbourne prices down -6.4% since peaking in February.

But CoreLogic research director, Tim Lawless said the current downturn has been “orderly,” at least when compared to the frenzied growth the market experienced last year.

“This is supported by a below-average flow of new listings that is keeping overall inventory levels contained,” he said.

“There’s also tight labour market conditions, an accrual of borrower savings and a larger than normal cohort of fixed interest rate borrowers, who have so far been insulated from the rapid rise in interest rates.”

RELATED: Australia’s housing downturn enters its sixth month

Among other capital cities, home values dropped by -5.4% over the quarter in Brisbane, -4.3% in Canberra, and -4.1% in Hobart. Perth and Adelaide prices have been much more resilient in comparison, falling just -0.7% and -0.6%, respectively.

According to CommBank’s Household Spending Intentions (HSI) index, plans to buy a home declined by -3.1% in October and were down -27.3% over the year. 

The bank says the impact of this year’s rate hikes hasn’t yet been fully felt, warning that further weakness will begin to show in the market in the coming months. 

It expects a 15% fall in home values from peak-to-trough, though the downturn could be steeper if the RBA pushes the cash rate beyond CBA’s 3.10% forecast.

For more information on property and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

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