When Will Interest Rates Go Down? Big 4 Predictions

Key Economic Indicators

Consumer Price Index (CPI) is a major indicator of inflation. Over the twelve months leading up to the June 2024 quarter, the CPI displayed mixed progress, rising by 3.8%.

The one major bank, the Commonwealth Bank of Australia (CBA), that still expects a rate cut by the end of the year, predicts that inflation will return to the RBA’s target band soon, giving hope for a rate cut.

The CBA is forecasting a modest rise in headline CPI by 0.3% over the third quarter, resulting in a year-on-year increase of 2.9%. This gradual reduction is primarily driven by declining electricity prices, signalling that inflationary pressures are beginning to ease.

Predictions from the Big 4 Banks on Rate Cuts

NAB Forecast

NAB’s economics team anticipates that the RBA will gradually lower the official cash rate once per quarter, aiming for a target of 3.1% by early 2026. They predict the initial rate cut might happen in May 2025, although February 2025 remains a possibility.

CBA Forecast

Commonwealth Bank, Australia’s largest bank, remains hopeful that the RBA will reduce interest rates this year. However, it has adjusted its earlier forecast of a November rate cut to December 2024. The bank predicts a succession of five 0.25% rate cuts by the end of 2025, ultimately lowering the cash rate to 3.10%.

Westpac Forecasts

Westpac predicts that the Reserve Bank of Australia (RBA) will initiate its first interest rate cut in February 2025. The bank anticipates four successive reductions of 0.25%, ultimately lowering the cash rate to 3.35%. These expected cuts align with Westpac’s prediction of economic conditions weakening, necessitating monetary policy easing by the RBA to help bolster economic growth.

ANZ Forecasts

In line with Westpac and NAB, ANZ anticipates a possible interest rate cut in February 2025. This cut is expected to be the first of three planned reductions, aiming to lower the cash rate to 3.60%.

Will interest rate cuts make property more unaffordable?

While many potential homebuyers look forward to lower interest rates to improve housing affordability, rate cuts often have the opposite effect on property prices.

Historical data analyzed by Ray White Economics shows that property values tend to rise following an RBA cash rate cut. Across Australia, home values increase by an average of 0.6% in the month after a rate cut, which equates to nearly $5,000 added to the price of the average property.

For investors, having $5,000 added to the value of a property means an 8% return on investment.

In larger cities, this impact is even more significant. For example, Melbourne could see prices jump by 1%, adding around $8,000 to the median dwelling value, which currently stands at $777,390, according to CoreLogic.

The persistent supply-demand imbalance in the housing market, caused by chronic shortages, is expected to drive property prices up despite rate cuts. Factors such as rapid population growth and limited rental options are adding pressure on housing availability, and this is causing even more competition among buyers and higher prices.

Expert Opinions: What Are Analysts Saying?

The majority of economists and market experts anticipate that the first interest rate cut will occur as early as February next year. With inflation softening, an economic slowdown waiting in the wings, and the US-China trade war causing global uncertainty, it’s no surprise that analysts are predicting a rate cut.

Australian property investors can anticipate a continued favourable lending environment and an expected rise in property prices. CoreLogic data supports this outlook, revealing that Australia’s property market has achieved a new milestone. The total value of residential real estate has reached $11 trillion for the first time, marking a $900 billion increase over the past year.

Key Takeaways

Australia’s property market is poised for a rate cut that will likely occur in the first quarter of 2025. This decision will have a significant impact on both buyers and sellers in the housing market, with prices expected to rise (despite the current trend of slowing growth). While housing prices may fluctuate, the value of residential real estate is continuously rising over the long-term. With housing supply at a low and demand on the rise, it’s an opportune time for investors to enter the market.

By staying informed through timely updates and market reports, investors can navigate the complexities of the property market with confidence, seizing opportunities as they arise.

Whether you’re a seasoned investor or new to the market, a personalised consultation with Ironfish’s property strategists can help you navigate Australia’s changing property market and find investment opportunities that help you achieve your financial goals.

Get ahead of the competition. Property prices are likely to rise as rate cuts bring more buyers into the fold. Savvy investors are acting now to secure prime opportunities before prices surge. Don’t wait until after the rate cuts to start investing—talk to an Ironfish property strategist today!