Property and Interest Rates Update - August 2023

With the RBA putting on hold interest rates the past two months… are we through the worst of it?

Property and interest rate update from Michael Harvey

Recent commentary would indicate that we have certainly been through the worst of it for interest rate rises. That is not to say interest rates wont rise, but it appears that the RBA will adopt a wait and see approach over the the short to medium term.

They seem to be indicating with discretionary spending reducing in Australia, a potential slowdown in the Chinese economy, that without any new major surprises that where we are at now for interest rates may do the trick for a “soft landing” (whatever that really means).

So whilst mortgage holders are still doing it tough, and may continue to do so for a while, some of the so called doomsayer commentary of interest rates climbing considerably, or the “mortgage cliff” where mortgage holders coming off great long term fixed interest rates, appear not to be as extreme as forecast. The banking commentary on the mortgage cliff appears to be that people know it’s coming and overall have been getting ahead on their mortgage payments accordingly.

Property prices in general I would say will be lumpy to some extent whereby purchases made in the past 2-3 years may result in some form of forced sale at a reduce price point, just so people can reduce their mortgage debt. Also I am starting to see some property investors sell, enticed by better immediate returns in term deposits etc. They are effectively saying ‘why would I stay with property investment that may have seen the capital growth over the past few years, and instead do I just take my money and run?’ That is where the intended forced rent caps will not work in my view. It will force unintended consequences of what the intent is.

At a macro level, basic economics of supply and demand tell me that property prices and rents will be going up in the medium term.

A recent report forecast that Australia requires 570,000 new apartments over the next 3 years, and we are currently building around 55,000 pa, a shortfall of around 400,000 apartments over the next 3 years.

What I do know is that overall Australia loves property. It is the BBQ conversation that keeps giving.

The macro picture tells me that generally property prices and rents will increase.

For interest rates, the market is forecasting a reduction in May 2024. I dont necessarily agree that there will be a reduction, but instead I think we might just be in the “new normal” and that rents will increase and property prices will increase over the medium term encouraging people to hang in there with their property investments.