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The Agency’s managing director and group CEO has reflected on the Reserve Bank of Australia’s (RBA) decision to keep the cash rate on hold for end-2023, and what it will mean for the year ahead.
After much anticipation, the RBA held the official cash rate at 4.35 per cent for December 2023. It effectively keeps rates on pause until at least February 2024, when the board next meets, which Mr Lucas said “provides an opportunity for great stability in the property market”.
Mr Lucas acknowledged the RBA’s decision was “largely expected” following encouraging Consumer Price Index (CPI) figures of 4.9 per cent, but did also raise that “while it was positive news in the fight against inflation, it is far too early to draw conclusions of success”.
He detailed: “There remains concern, however, that a small amount of tightening may still be required, and the January CPI data will be key. The fight against inflation is not over as it remains well above the RBA’s target rate.”
Looking back at the year that was, and how it will have an impact moving forward, Mr Lucas pointed out the contradictions that have been at play over the past 12 months. While many commentators predicted rate hikes, they also saw the potential for property price falls.
And while we saw a 125-basis point increase to the cash rate, property prices went the other way – by 8.3 per cent, according to CoreLogic and cited by Mr Lucas.
This is attributable to a number of factors, according to the CEO, “including limited supply and continued demand fuelled by stronger than expected immigration [that] have ensured a very tight residential market”.
“Added to this, and importantly, the unprecedented pandemic relief of $300 billion has not yet fully been exhausted, with a large component sitting in borrowers’ offset accounts,” Mr Lucas expressed, explaining that this has sheltered many borrowers from interest rate increases.
Turning attention to 2024, the CEO expects “these balances will gradually be drawn down over the coming six to 12 months, which will negatively impact mortgage serviceability and property affordability”.
So what is Mr Lucas expecting will happen to property prices over the coming 12 months?
“Notwithstanding increasing positive commentary regarding the potential for interest rate cuts, we expect higher rates for longer which will mean subdued price activity for the majority of the residential real estate market with minor gains only in 2024 and falls in some area,” he remarked.
Expounding further, Mr Lucas reminded the industry that Australia is made up of a number of different markets.
“Whilst these expectations are at a national level, there will continue to be area specific over and underperformance.”
In what will be considered as positive sentiment by many, “after four years of unprecedented price volatility, we are entering a period of greater stability and a safer transactional environment for those both buying and selling real estate”.
Mr Lucas believes “the top of the interest rate cycle and subsequent price stability should signal a return to the fundamentals whereby quality real estate in good quality areas will outperform”.
“Higher interest rates for longer will see more investment properties come to market, as investors seek higher cash returns. This will create an opportunity for more first home buyers entering the market place in 2024, especially as rental markets become more challenging.”
In addition, the executive offered: “The prestige market should outperform being insulated from interest rates and benefitting from escalating international demand fuelled by the weak Australian dollar.”
ABOUT THE AUTHOR
Grace Ormsby
Grace is a journalist across Momentum property and investment brands. Grace joined Momentum Media in 2018, bringing with her a Bachelor of Laws and a Bachelor of Communication (Journalism) from the University of Newcastle. She’s passionate about delivering easy to digest information and content relevant to her key audiences and stakeholders.
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