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Rates on hold amid warnings housing boom could delay cuts

By Natalia Petkidis

Following its latest meeting, the Reserve Bank of Australia (RBA) has announced it will hold the cash rate at 4.35%. This is the third time it has been held since it was last raised in November.

With inflation flattening at 3.4% in January and weaker-than-expected gross domestic product data this month, there have been whispers we could see some cuts to the cash rate sooner than expected. Current projects forecast potential cuts around August or September, but time will tell.

So, with the cash rate looking to hold steady for a while yet, why are we seeing an increase in people buying property?

Buyers feeling more confident

At Loan Market, we have seen a 13% increase in the number of buyers wanting to get pre-approved for finance this year compared to the start of 2023. We have also seen 16% more first-home buyers this year. This shows buyers are feeling more confident, which could be buoyed by the expectation that we have reached interest rate peaks for this cycle.

Another reason we could be seeing more first-home buyers entering the market is the strong growth we are continuing to see in house price growth throughout the nation. According to Ray White data, house prices have already increased 2.2% this year. If this continues, we could see prices increase by over 10% over the year.

Ray White Chief Economist Nerida Conisbee said this could signal stronger growth than last year.

“Over the past 12 months, house prices have increased by 9.7%, and units by 7.4%. However, growth has accelerated quickly in the first two months of this year,” she said.

“The big change this year is the interest rate outlook. Monthly inflation came in at 3.4% in the year to January. With the Reserve Bank of Australia aiming for interest rates at between 2-3%, the odds of a rate cut are rising. So much so that as of last week, markets were pricing in three cuts over the next 12 months.”

On top of this, low rental vacancy rates driving up rental prices could be prompting first-home buyers to move into ownership.

Increasing rents could be attracting investors

While the growing rental prices and lower vacancy can be difficult for tenants, it can be good news for investors. According to Loan Market data, the number of investment loans lodged are up by 6% this year compared to early last yea

PropTrack data shows median advertised rents nationally increased by $60 per week over 2023, averaging $580 per week. Reports show pressures on international investors, particularly those in China who are facing increased interest rates in their own country and a less-desirable economic climate, are leading to many selling their Australian properties. This opens an opportunity for other investors to expand their own portfolio.

If you are considering purchasing property – either to live in or to expand your investment portfolio, speak to your broker.

Article sourced from The Loan Market website

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