Rate Rises Look Set to Hit in 2018

 

It’s now been 83 months since a rate rise in Australia. But, economists suggest that this will change in 2018. Looking to keep inflation low and stable, the Reserve is likely to leave rates on hold until mid-2018 to add stability to the housing market.

While the RBA left rates on hold yet again, they are signaling record lows are about to end.  Read Full Commentary  from RBA. However, with low rates pushing housing prices and Australian debt levels higher, rate rises are expected to be gradual. Why? Well, the RBA doesn’t want to cause rate shock.

Your Mortgage and Low Rates

It has now been 83 months since a rate rise, almost seven years. Back then, in November 2010, the cash rate was 4.75%. Now it sits at 1.5%. In 2010, you would’ve paid 7.15% for the average discounted home loan. In today’s terms, the discounted rate sits at 4.45%.

So, how much of a difference has this rate reduction made to your mortgage? Well, if you have a $400,000 home loan, then your repayments would’ve been $2,702 a month at 7.15%. But, a rate of 4.45% has reduced your monthly payments to just $2,015 – an annual saving of $8,000.

Gradual Rate Rises and the Economy

Economists suggest that by making gradual rate increases, the RBA keep momentum in the Australian economy. If they make rate rises too quickly, then it will have repercussions, especially when wages aren’t keeping pace.

The RBA, according to a recent speech by Governor Lowe, want to keep Australian inflation low and stable. Lowe suggests that technological changes and international growth – USA and China – will have the greatest impact on the Australian economy.

Lowe also feels rates need to hold fast or rise to keep a lid on the housing market. While a drop in the official cash rate might boost the economy it will increase home prices, which are starting to slow.

The Australian Housing Market

Residential housing data released by the Australian Bureau of Statistics (ABS) shows that annual house prices are decelerating. The only exceptions are Melbourne and Hobart, based on June data.

Residential Housing Prices Annual Growth
All Dwellings %
  Jun 12 Jun 13 Jun 14 Jun 15 Jun 16 Jun 17 Peak
City
Sydney 0.0 7.2 15.9 18.9 9.7 13.8 19.9 Sept 15
Melbourne -4.1 3.4 9.2 7.8 8.2 13.8 13.8 Jun 17
Brisbane -2.5 3.3 7.1 2.9 4.3 3.0 7.1 Jun 14
Adelaide -1.4 1.3 4.7 2.7 3.5 5.0 5.6 Mar 14
Perth 0.8 9.5 3.8 -1.2 -4.8 -3.1 9.5 Jun 13
Darwin 7.9 6.6 3.3 -1.8 -6.5 -4.9 9.8 Dec 12
Canberra -2.4 1.5 2.3 2.8 6.0 7.9 8.9 Mar 17
Hobart -4.6 1.8 4.1 1.5 4.9 12.4 12.4 Jun 17
Average -1.6 5.3 10.1 9.8 4.1 10.2 10.8 Mar 14

Source: ABS 6416.0 Table 1

Nationally, dwelling values have peaked and they are now declining in most capitals. These figures also coincide with the rise and fall in housing finance. So, based on this trend, then home prices should also continue to decline.

Housing Finance & House Prices
Annual Growth
Jun Housing Finance House Prices
2005 -0.02 2.27
2006 10.18 9.22
2007 3.86 7.02
2008 15.77 0.22
2009 -15.47 15.63
2010 15.63 14.58
2011 -10.79 -2.21
2012 -0.4 -1.57
2013 10.03 5.28
2014 27.69 10.12
2015 11.58 9.79
2016 -3.73 4.07
2017 9.26 10.15

Source: ABS 6401.0 & 5609.0

For those looking to buy in Sydney and Melbourne, this news means that you could save yourself more. Median house prices in Sydney were at $1.02m in June 2017. Using a 12-month average, the Sydney median was $965,400 at this time. This figure is a 70% increase in prices in 2011 when the RBA started cutting rates. Plus, it’s $300,000 more than the Melbourne median of $672,000.

Read Full Commentary

Do you want to find the best home loan rate? If you said YES, then it’s time to discuss your options with us – we could help you save more!