Latest RBA interest rates call creates new trap for home buyers

The RBA has announced its latest decision on the direction of interest rates, but it creates a surprising dilemma for anyone who wants a home.

Home seekers are at risk of falling into a new mortgage trap following the Reserve Bank of Australia’s decision to keep the cash rate on hold.

The announcement made at the RBA’s monthly board meeting Tuesday poured cold water on homeowners’ hopes of a Melbourne Cup Day rate drop and mean mortgage holders will endure record levels of housing stress for longer.

Economists are now pointing to early next year as the most likely timing for a cut given stubborn inflation in certain sectors of the economy.

And that expectation of a cut is where the problem could lie for those hoping to purchase property.

New research suggests aspiring home buyers are hedging their bets on a rate cut and are increasingly putting off plans to buy until rates go down – a move that could backfire, experts claim.

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RBA Governor Michele Bullock is facing increasing pressure to announce a cut. Picture: Martin Ollman

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The recent polling by finance group Mozo showed about two in five prospective buyers were waiting for rates to drop before purchasing property.

The consensus was that a rate cut would improve their financial position, but Mozo personal finance expert Rachel Wastell said this was a risky move.

“For some, waiting for lower rates might feel like a safe bet, but the stakes could be higher than they realise,” Ms Wastell said.

“(It) might backfire, potentially resulting in higher property prices once rates do drop and buyer demand spikes.”

Analysis from Ray White Economics, which examined the impact of interest rate cuts on prices over decades, showed a lower rate usually pushed up prices immediately.

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Property demand has remained elevated over spring but could intensify with a cut. Picture: Max Mason-Hubers

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The data indicated the average Aussie home price increased by about $7000 in the first month after the cut.

This is substantially more than the monthly savings mortgage holders would potentially get from lower rates – although their borrowing capacity would improve.

SQM Research director Louis Christopher previously told The Daily Telegraph rate cuts had the potential to cause a big rebound in property markets that had recently been weaker.

This included Melbourne and, especially, Sydney – the latter of which is the city most sensitive to rate changes because of the higher amounts of debt carried by homeowners.

Ray White’s data indicated Sydney prices would rise by an average of about $15,000 in the first month after a cut if historical trends continued.

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Economist Eleanor Creagh said a cut next year was more likely.

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Ms Wastell said home seekers who were serious about buying may be better off buying sooner rather than later.

“The reality is, in an environment where prices have surged by 50 per cent over the last five years, even a small delay could mean paying significantly more down the line,” she said.

“For those waiting for lower rates, staying informed and making a decision based on what you can manage now, not just on what might happen down the track, is crucial.”

Ms Wastell said trying to time the market was tricky.

“It’s great to be cautious, but sometimes opportunity doesn’t wait for rate cuts,” she said.

“Being prepared financially and aware of the rates on offer can give you the best chance to move quickly if the right property comes along.

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Rate cuts have historically pushed up prices and created a more competitive environment for home buyers.

“Timing the market is hard, and unfortunately, and you don’t want to look back wishing you’d made your move sooner.”

PropTrack economist Eleanor Creagh said an interest cut this year was “unlikely”.

“Despite the economy continuing to track through a period of weak growth, the RBA is likely to remain on hold unless an external shock, higher unemployment or lower underlying inflation occurs, as it aims to sustainably return inflation to target,” she said.

Mortgage Choice CEO Anthony Waldron said underlying inflation was too high for the Reserve Bank to make a move soon.

“While the prospect of a cash rate cut remains on the horizon, I expect the RBA will want to be more confident that inflationary pressures have eased before making that call,” he said.

Demand far exceeded property supply back in 2021, the last time the RBA was in a cutting cycle.

Graham Cooke, head of consumer research at mortgage comparison site Finder, said pressure was mounting for a rate cut in February next year.

“Even though inflation has hit the RBA’s target window of 2-3 per cent, this doesn’t trigger the RBA to automatically start cutting rates – which will disappoint homeowners,” he said.

“With a record high 47 per cent of borrowers struggling to make their repayments in October, thousands will be forced to cut back on spending in other areas.

“Many are depending on the multiple rate cuts predicted to come in 2025.”

Originally published as Latest RBA interest rates call creates new trap for home buyers