Welcome to our final newsletter of 2022. We will look at interest rates, property prices and property sales over the last year, as well as a looking forward to see what you can expect for the next 12-24 months.

Interest Rate Update

2022 has been tough on homebuyers with variable interest rates increases off the back of rising inflation. The RBA has lifted the cash rate by 3%, leaving the cash rate sitting at 3.10% which is the highest level since April 2013.

The increases in rates have been in response to the high level of inflation, RBA governor Phillip Lowe has continued to say that inflation in Australia is too high. Even the slight decrease in inflation through October to 6.9% is still too high as he aims to get it back to the target band of 2- 3%.

While the rates have been going up, we have found that most banks are offering bigger discounts on their interest rates. As a result, the last 12 months there has a lot of retention pricing at existing banks as well as refinancing.

Below shows the impact of the rate hikes on the repayments for a $750k 30 year loan:

Source: CoreLogic

The good news is the RBA doesn’t meet in January, giving everyone a much-needed break. Economist’s projections are ranging from 0.5% to 1% rise from here and we would expect this to happen in the first half of 2023.

The potential cutting of interest rates will depend on global economic factors as well as inflation and GDP figures domestically. Our expectation is rates will begin to drop at the end of 2023 or early 2024.

This view is supported by the major banks with Hannah Dervisevic delving into their expectations:

• CommBank: Cash rate of 3.10% by December 2022, dropping to 2.60% by December 2023
• ANZ: Cash rate of 3.85% by May 2023, dropping to 2.85% by November 2024
• NAB: Cash rate of 3.60% by March 2023, remaining steady into 2024
• Westpac: Cash rate of 3.85% by May 2023, dropping to 2.85% by November 2024

Property Prices

The property market reached a record high in February 2022 and has since fallen in the back half of the year due in large part to the interest rate rises.

According to CoreLogic, as at November 2022 Melbourne property prices are down 3.1% on the previous quarter, down 5.6% on the same period last year and down 6.4% on the record high in February 2022.

Source: CoreLogic

Source: CoreLogic

Expectations are that the housing market will start turning around in mid-2023 onwards once the RBA’s cash rate becomes stable. CoreLogic’s national research director Tim Lawless explained that “the view from economists is that interest rates will top out early next year and then house prices will stabilise once rates stabilise”.

Property Sales

Total property sales volumes have been trending lower over the last 12 months to October 2022 with CoreLogic estimating that they were down 9.3% nationally compared to the same period of 2021, and Melbourne’s property sales down 8.7%. This has been caused by a drop in buyer demand caused by the increase in interest rates and uncertainty in the market.

Source: CoreLogic

This trend is expected to turn around in 2023 with more certainty around interest rates, delayed property transactions through the last 12 months having to be processed, the drop in property prices causing more demand and more opportunities for first home buyers and upsizers.