Cash rate holds steady as experts dismiss Westpac price drop predictions

Homeowners may be safe from rising interest rates for another month, but experts say it’s only a matter of time before mortgage payments soar and prices of real estate does fall.

Interest rates remained stable for another month as speculation mounts around rising rents and falling house prices.

At its monthly policy meeting on Tuesday, the Reserve Bank kept the key rate at 0.1% despite sustained inflation, leading many economists to wonder how long this record low would last.

PropTrack senior economist Eleanor Creagh said the RBA was patiently waiting for wage growth to turn a corner before pulling the cash rate back up from its pandemic low.

CONTINUED: Interest rate shock ahead for Sydney

Home prices fall for the first time in 17 months

“For inflation to be sustainable, wages will need to rise at a faster pace,” Ms Creagh said.

“That would mean that August is apparently the earliest for the first cash rate hike, but it’s likely that November of this year would be more likely. And even then, it will be some time before the cash rate significantly higher as the RBA seeks to keep full employment and inflation within its target range.

In Finder’s latest RBA cash rate survey, all 38 experts and economists surveyed correctly predicted the cash rate would remain unchanged in March, but panelists were split on exactly when they thought that would change.

AMP economist Shane Oliver said he expected the first rate hike to come in August, but there was a “very high risk” of it happening in June if the Wage growth picked up alongside continued inflation and falling unemployment.

Bendigo Bank’s head of economics and market research, David Robertson, said the RBA would wait until August to raise rates before demanding “a series of cash rate hikes up to around

1.5% by mid-2023.

A recent Mozo analysis showed that mortgage holders across Sydney would have to shell out thousands more monthly repayments once the cash rate hit 1.5%, with suburbs such as Manly, Vaucluse and Rose Bay being the hardest hit due to their high median prices.

While Westpac recently predicted home prices would drop 14% nationwide over the next two years, only four of 28 panelists (14%) in the Finder survey agreed, 46 % of respondents saying prices would fall less than that.

Panelists also predicted Sydney rents would rise, with median house and apartment rents expected to rise by 4% to $610 and $498 by the end of the year.

Finder’s head of consumer research, Graham Cooke, said rental demand was making a huge comeback after an initial slowdown due to Covid.

“As the country continues to open up, we are seeing an influx of new tenants into the city center and

university areas are starting to come back,” Cooke said.

“We expect this demand and pricing pressure to continue as things slowly return to normal.”

CONTINUED: ‘Ominous’: Homeowners prepare for mortgage rates to double

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Originally published as Cash rate holds steady as experts reject forecasts of falling prices

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