The Reserve Bank of Australia has gifted households an interest rate reprieve in its last meeting of 2023, providing some much-needed breathing room ahead of the expensive holiday season.

But RBA governor Michele Bullock hasn’t ruled out further rate hikes in the new year if inflation fails to track towards the 2-3% target range in a reasonable timeframe.

The decision to hold interest rates at 4.35% in December had been widely anticipated after recent data revealed a faster-than-expected decline in annual inflation.

PropTrack senior economist Eleanor Creagh said it was likely the cash rate has already peaked as the effects of the previous 13 hikes flows through the economy.

“Conditions are expected to continue to soften as the full impact of monetary tightening to date is yet to be felt and inflation is likely to continue moving lower as a result,” Ms Creagh said.

“The RBA has been clear that it has a low tolerance for allowing inflation to return to target more slowly than currently expected.

“This means it’s likely the cash rate has peaked in this current tightening cycle, although should inflation data indicate inflation is returning to target at a slower pace than currently expected the risk of another lift in February 2024 remains.”

ABS data last week revealed the monthly Consumer Price Index (CPI) eased sharply to 4.9% over the year to October, down from 5.6% in September.

AMP chief economist Shane Oliver said the result was driven by weakness in rents – albeit due to increased rent assistance – petrol prices, travel, meat, furniture, and household appliances.

“Of course, the monthly CPI can be very volatile, various subsidies impacted in October, key services like hairdressing, dental and pet services weren’t measured, and underlying measures of inflation fell by less so there is a case to be cautious,” he said, “but the good news is that the downtrend looks to be resuming after two relatively higher months.”

Property prices defy higher interest rates

The latest PropTrack Home Price Index showed national property prices rose for an eleventh consecutive month in November to reach a new record high, although the pace of growth slowed as more supply came to market.

The latest growth means property prices have recovered all the losses recorded in 2022 to sit 1.29% above the previous peak.

Ms Creagh said the decision to hold the cash rate steady in December will maintain both buyer and seller confidence.

“Property prices have defied expectations and home values have remained resilient to higher interest rates this year,” she said.

“Looking ahead, interest rates are either at, or very close to, their peak. The outlook for the economy is weaker, however, population growth is set to remain strong.

“Together with a shortage of new home builds and challenging conditions in the rental market, prices are expected to continue rising, though the pace of growth will continue to slow.”

Hayden Groves, president of the Real Estate Institute of Australia cautioned the RBA against raising the cash rate further amid a resurgence of first-home buyer and investor activity.

“The latest ABS figures show first-home buyers grew by 0.3% in October, 6.8% higher compared to a year ago,” Mr Groves said.

“Investors made up for $9.5 billion and was 12.1% higher compared to a year ago.”

And while lending for existing dwellings are sitting 5.2% higher year-on-year, lending for the construction of new dwellings remains almost 20% lower compared to a year ago.

“These figures indicate home buyers are still not feeling surety around building costs remaining stable,” he said.

Mr Groves said that while lending activity indicates promising activity, the RBA “need not gamble on another rate rise” as the added cost is putting a halt to new supply.

Separate loan submissions data from Mortgage Choice showed total purchasing activity rose 3% in November as borrowers rushed to buy a home before the quiet New Year period.

But with fewer cash back deals on offer, refinancing activity eased 4% during the month.

Cost to consumers

While borrowers will welcome the pause in interest rates, the previous 13 hikes mean finding a home loan rate that starts with a 5 is already a thing of the past for many borrowers.

What can you do?

It’s a great time of year to use the downtime to your advantage. Take time to have your home loan reviewed and ensure you’re not paying too much. Savings can reach into the $1,000’s – so they may pay for next year’s holiday!

Some options we can help you explore include refinancing (which could mean increasing the length of your loan and decreasing monthly repayments), debt consolidation, or building up a cash buffer in an offset account.

If you’re keen to switch and save, get in touch with one of our local specialists today. Understanding your options can start with a simple phone, web, or in person discussion.

Check out our guide on home loan refinancing!

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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.