When and where will interest rates top out?

When will interest rates top out? Because until they do, the majority of people will be afraid of buying or selling property.

Residz Team 3 min read

It’s hard to plan when you can’t see what’s up ahead.  

Right now, the property market is languishing as it watches interest rates climb again and again.

Home buyers and sellers are caught up in the Reserve Bank of Australia’s efforts to use interest rate rises to bring down the country’s record inflation, currently sitting just under 8%.  

Buyers fear higher mortgage rates will put them in over their heads, sellers fear listing as the current value of their home may not reflect the future value if interest rates keep going up.    

So, the question they’re asking is, ‘When and where will it end?’

When will inflation fall? When will interest rates top out? Because until they do, the majority of people will be afraid of buying or selling property.

Buyers and sellers want certainty

Buyers and sellers just want to get a handle on the timing of the interest rates peak.

In some ways, the amount won't matter as much as the certainty that that amount won’t go up. It’s hard to budget when prices jump around. And, everything from groceries to building supplies are doing just that.

In 1990 there was similar uncertainty on mortgage rates, and you may recall interest rates rose to record levels.

Panicked first home buyer bunnies like me locked in their mortgage rate at 17.5% - right at the top of the market. We really did start to believe there was no end in sight, and that uncertainty was a killer.

Banks forecasting the peak before June

Recently, Australia’s big four banks made public their predictions on interest rates.  

According to MOZO and set out in their table below, ANZ and Westpac believe the cash rate will hit 3.85% in May 2023, with a pause in April for the RBA to reevaluate in light of wage price index releases.

MOZO says NAB has hedged bets on a 3.60% peak by March 2023, while CommBank forecasts another 25 bp rise in February bringing the terminal cash rate to a rest at 3.35%. (1)

Currently, the end-of-year cash rate sits at 3.10% for 2022.  


Could interest rates drop by December?

The big four banks have also forecast when they believe interest rates are likely to start falling.

RateCity reports that from each of their projected peaks:

According to The Financial Review, ANZ Bank chief executive Shayne Elliott “expects there will be more interest rate rises in 2023 than people expect, with household finances in robust shape and no sign that unemployment rates are increasing.” (3)

Overall, consumers are still spending

Higher interest rates should reduce demand for goods and services, which is supposed to keep inflation in check.

But there was a lift in consumer confidence in January, the first month since April last year without an increase in the RBA cash rate.(4) It follows a drop in retail spending in December, but that was partly attributed to people having spent big in the Black Friday sales.(5)

News.com.au noted the confusing behaviour of consumers back in early December.

“Under more normal circumstances the relationship between consumer confidence and consumer spending is clear, if confidence falters so too in times does spending.

“But that hasn’t happened this time, quite the opposite in fact. In year-on-year terms, retail sales are up 12.5 per cent, indicating that the appetite of Aussie consumers remains relatively robust in aggregate.”

If that continues into 2023, inflation will continue to rise, and so will interest rates.

Residz can help buyers and sellers reduce the stress:

References:

  1. Evlin DuBose, 30 January 2023, ‘Are interest rates going up? New forecasts from Westpac, NAB, ANZ, and CommBank’, MOZO website
  2. Alex Ritchie, 31 January 2023, ‘How high will rates go? Here's what experts think about the RBA cash rate’, RateCity website
  3. Simon Evans, 3 February 2023, ‘ANZ CEO predicts more rate rises from RBA than people expect’, AFR
  4. The Westpac Melbourne Institute Consumer Sentiment Index increased by 5%, from 80.3 in December to 84.3 in January. Source: Melbourne Institute of Applied and Economic Research
  5. Ronald Mizen, 31 January 2023, ‘Retail slump won’t stop ninth straight interest rate rise’, AFR

Photo by Brad Barmore on Unsplash