RBA holds cash rate at 4.35%

The Reserve Bank of Australia (RBA) has opted to hold interest rates steady at 4.35%. This move reflects the RBA’s cautious approach, as it closely monitors key economic indicators such as inflation, unemployment, and consumer spending. Overseas, the Federal Open Market Committee (FOMC) has cut interest rates by a larger-than-expected 50 basis points (bps), bringing them to a range of 4.75–5%, and has signalled further cuts through 2026.

Economic commentators expected the RBA to hold rates for now, citing the need for more evidence of cooling inflation before any cuts are made. Some predict the first rate cut could occur on Melbourne Cup Day in November, given the RBA’s historical rate movements on that date. ANZ economists argue that the RBA’s decisions will not be directly influenced by the Fed, as Australia continues to grapple with high inflation. RBA Governor Michele Bullock has emphasised that tackling inflation remains the priority, even warning that entrenched inflation could increase recession risks and lead to further rate hikes.

Time to refinance?

For Australians with mortgages, this means repayment levels will remain unchanged for now. While some hoped for a rate cut, the RBA has made it clear that this will not happen in the near term. Higher borrowing costs will continue to impact homebuyers, making affordability a challenge. However, the absence of another rate hike may offer some relief to borrowers, especially those with variable-rate loans, who have seen their repayments rise steadily over the past year.

What impacts does a rate hold have on the property market?

While high borrowing costs continue to discourage first-time buyers and investors, contributing to slower price growth, sellers could benefit from reduced competition in the market. Mike Torcasio from WHITEFOX Real Estate in Melbourne says, “High borrowing costs and negative interstate migration have kept Melbourne’s market stagnant, leading to slower price growth compared to other Australian capitals. A limited supply of quality homes has emerged as sellers face financial challenges in transitioning or upsizing. However, reduced competition now offers sellers a chance to negotiate with serious buyers who have fewer choices.”

What about rate hikes?

While Melbourne has seen slower growth, Perth has averaged 2% monthly growth in 2024, with median prices expected to catch up to Brisbane within two years. Sentiment in Perth Metro is that, should there be an extended hold or potential RBA rate rise, the market in Perth might finally start to cool, says Trent Vivian, from Vivian’s Real Estate. “Sellers in Perth do need to be wary of what an interest rate rise could cause. Whilst its not tipped to send the market into a decline, it could mean that the growth rate does slow down or that selling time frames may push out a little bit as the affordability of majority of buyers will continue to make it tougher for most people to buy a property.”

Looking ahead: Optimism for 2025

Despite the current challenges, the outlook for the property market is more optimistic in the long term. The RBA’s forecasts indicate that rate cuts could begin in early 2025, once inflation returns to the 2-3% target range. “Inflation is now relatively under control, unemployment is on the rise, wages growth has stabilised and with the banks reducing their fixed rates over the past month, all indicators are looking towards a rate cut,” says Shane Petros Director of Australian Finance Hub

“We are predicting to see our first rate cut by 25 basis points in February 2025, with a possibility of 3 more by the end of 2025, according to some economists,” continues Shane. “Now is the time to start planning and reviewing your options, so you’re ready to take advantage when rates do begin to fall.”

For now, the focus remains on stabilising inflation. However, the forecasted rate reductions offer hope for homeowners and investors. These potential cuts could reignite the real estate market by making borrowing more affordable and stimulating buyer activity. Stay across the property market by setting up a Homely Alert today.