Where will interest rates head in 2024?

Four big banks, four differing interest rates expectations; 2024 shapes as a pivotal year for home owners' finances with hopes the RBA can eventually begin to cut the official cash rate.

Interest rates 2024 wooden blocks graphic
Which direction will interest rates go throughout 2024? (Image source: Shutterstock.com)

With 2023 shining a light on Australia’s rising inflation and cost of living pressures, will 2024 bring some relief to mortgage holders?

During 2023, we experienced five rate rises with mortgage holders feeling the pinch if they have a variable interest rate, or if have hit the so-called mortgage cliff.

Many Australians will be hoping that 2024 brings pleasant surprises, crossing fingers inflation can be stemmed and potentially even see a reduction in interest rates towards the back end of 2024.

Will property prices crash in 2024?

According to ANZ’s most recent housing report, capital city property prices are set to climb by a modest 5 per cent in late 2024. 

This is much higher than what the Reserve Bank of Australia (RBA) is predicting, which is a national house price drop of 11 per cent by the end of 2023. But you need to take this advice with a grain of salt.

The Commonwealth Bank predicted 20 per cent-plus price falls during the pandemic, however, we actually experienced price increases in many markets across the country.

Nobody has a crystal ball but we do understand what to look for that would trigger a price crash and we understand how to protect our investment properties from a price downturn.

In order for property prices to crash, we would need to see a storm of the following:

  • rising interest rates, alongside
  • rising unemployment, alongside
  • rising cost of living, alongside
  • a downturn in the economy, alongside
  • a drop in housing demand.

One thing that is keeping our property market strong is the unemployment rate.

At 3.7 per cent, it is near the lowest it’s been since the mid-1970s.

There is actually a shortage of workers available in many industries at the moment. A safe level of unemployment is considered around 4.5 to 5 per cent and we would begin to worry if unemployment started rising above this to around 6 per cent or more.

For a crash to occur we would see unemployment above 6 per cent or closer to the 7 per cent mark.

Currently, there is such a strong demand for housing that builders are unable to keep up. The rising cost of materials and lack of available land in popular areas means there just isn’t enough housing being built to keep up with demand.

Will there be a rate cut in 2024?

Consensus across the big four banks is that it is likely interest rates will remain stable for the majority of 2024 before a potential rate cut between August and December.

The Commonwealth Bank is predicting a September rate cut, with rates coming down to 2.85 per cent by May 2025.

Westpac are in agreeance about a September 2024 rate cut but are guessing we will need to wait until December 2025 before we see rates down to 2.85 per cent.

NAB are predicting we will see a rate cut sooner, in August 2024, but rates will remain about 3 per cent to be 3.1 per cent by March 2025.

ANZ are predicting that mortgage holders will need to wait until next Christmas before seeing the next rate cut in December 2024 and that rates will remain higher, at 3.6 per cent by June 2025.

Rates not impeding price growth

I am keeping a close eye on the RBA, the economy and how it is impacting our property markets.

When the RBA first meets in February 2024, they will likely be keeping rates on hold. For the first half of 2024, interest rates are likely to stabilise the economy, but we may still see one more increase if inflation isn’t under control.

The RBA’s decisions will have a greater impact on the wider economy in 2024 because many mortgage holders have come off their low fixed rates and onto high variable rates.

We will have to hold tight for the next rate cut, which is likely to be in September or October next year.

Property has shown its resilience and the interest rate rises have not deterred first home buyers and investors. The rate rises have mostly impacted their serviceability and made them re-think their budget.

When inflation is under control, we will see even more investors entering the market as they gain confidence in their investment decisions, and we should see this reflected in house price increases in the favoured areas.

Continue Reading Finance ArticlesView all finance articles