RBA holds cash rate – what do economists predict is next?
Low mortgage rates continue to be the norm and property prices are breaking all kinds of records.
The Reserve Bank of Australia held the cash rate at 0.10% at its meeting today. Everyone expected this, including 100% of the experts in Finder's cash rate survey. The Reserve Bank itself has been very clear that low rates are going to be the norm for a while.
And with low home loan rates come higher property prices. Our panel of experts predicts an average 12% rise in prices over the next two years.
To put that prediction in perspective, here are some current median price values and how they would change with a 12% rise:
|City||Current median price||Predicted rise in 2 years|
In February, Australian property prices rose 2.1% over January, the largest month-on-month increase in property prices since 2003, according to CoreLogic's Home Value Index.
These price rises aren't limited to the usual suspects (Sydney and Melbourne) either. Brisbane, Adelaide, Canberra, Perth, Hobart and Darwin all recorded rises too.
Auction sales and clearance rates have also been very strong, a clear indicator of a healthy market.
"All capitals recorded clearance rates higher than reported over February last year," said Archistar chief economist Andrew Wilson. "The outlook for March is clearly for more to come with buyers and sellers rushing to take advantage of currently strong market conditions."
The recent rise in property prices has several causes. The Australian economy is recovering after COVID-19, and prices are rising after having slipped in some cities (including Sydney and Melbourne) in recent years. And recent government policies have encouraged home buying and home building.
And then there's the low interest rate. Since the Reserve Bank began a cycle of rate cuts in 2019, home loan interest rates have become cheaper and cheaper.
In January 2019, the lowest variable rate home loan in Finder's database was 3.49%. In January 2021, it was 1.99%. This lowers a home buyer's borrowing costs and thus helps boost prices.
What does the RBA's latest decision mean for buyers and borrowers?
If you already have a home loan, then these historically low rates are a good thing. Check your home loan interest rate. If it starts with a 3, your rate is probably too high. If it starts with a 2, you might still be able to find something lower.
Ask your lender if they can offer you a lower rate. And if they can't, refinance your home loan to a new, lower rate. This could save you thousands. Let's look at the rate examples above. Say you borrowed $450,000 over 30 years with a rate of 3.49% and then a rate of 1.99%:
- Monthly repayments at 3.49% = $2,018
- Monthly repayments at 1.99% = $1,661
That lower rate leads to a monthly saving of $357 or $4,284 a year.
If you are planning to buy a home soon, these lower rates present an interesting conundrum. Lower borrowing costs make it cheaper to buy a home, but these low rates are also fuelling price rises.
Would-be first home buyers may feel they need to buy sooner rather than later in order to get a good deal. But rushing is never wise. Saving a deposit, doing your research and finding the right property at a price you can afford is more important than trying to time the market.