Australian homeowners under years of mounting mortgage pressure are likely to suffer further, with a leading industry forecaster warning that interest rate relief could still be many months away.
Oxford Economics Australia expects the Reserve Bank of Australia to start cutting rates in the second quarter of 2025, well beyond the late-2024 cut expected by other forecasters including banking giant Commonwealth Bank.
“Given the RBA’s hawkish rhetoric, we don’t see rate cuts until the second quarter of 2025,” Oxford Economics Australia’s head of macroeconomic forecasting Sean Langcake said ahead of the research firm’s biennial economic outlook.
Mr Langcake attributes the delay in the cut to “strong crosscurrents” in the Australian economy as policymakers grapple with a “challenging” outlook and environment.
“The labour market has defied a marked slowdown in activity, which is testing the RBA’s very patient approach to returning inflation to its target,” he said.
‘At the same time, significant fiscal policy easing will provide a boost to the economy, which is welcome for households but not so much for inflation hawks.’
The forecaster expects headline inflation to be very close to the upper end of the RBA’s 2-3 per cent target range by the end of 2024, “but with utility subsidies providing much of the disinflationary impetus, the RBA will largely ignore the headline data,” Langcake said.
The RBA has implemented an aggressive rate-tightening cycle from May 2022 to suppress rising inflation in the economy, with the benchmark cash rate rising from 0.1 percent to 4.35 percent in November 2023.
Australian homeowners have been hit by 13 interest rate hikes since May 2022. Pictured, Melbourne’s CBD seen from a new housing development.
The rate has been unchanged since then and RBA Governor Michele Bullock warned the board would need to see material changes in prices before implementing a cut.
“Based on what I know today and what the board knows today, what we can say is that a short-term reduction in the cash rate does not align with the board’s current thinking,” he said after the board’s August meeting.
“We have seen abroad how erratic downward inflation can be and across the economy we need to see demand and supply return to a better balance.”
The combined increases have left homeowners with hundreds of dollars in additional monthly mortgage payments.
Recent data from RateCity shows that payments on a $500,000 30-year mortgage reached $3,105 per month for the June 2024 quarter, compared to $1,989 in the March 2022 quarter when increases began, an increase of $1,116 per month.
The value of mortgage loans with arrears of between 30 and 89 days is also increasing and now stands at $14.9 billion, according to APRA’s quarterly ADI property exposure data for the June 2024 quarter.
The new date shows that repayments on a $500,000 30-year mortgage reached $3105 per month for the June quarter of 2024. Pictured is an open house inspection in Sydney’s inner west.
In March 2022, the value stood at $5.9 billion.
“Some mortgage-burdened Australians are struggling to keep up with repayments as more households fall into arrears,” said RateCity.com.au finance editor Laine Gordon.
‘Despite record levels of savings in the bank, some families are dipping into their buffer stocks to keep up with the pressures of rising living costs.
‘These are worrying signs for borrowers, but let’s not throw the baby out with the bathwater.
‘Bad loans accounted for just 1.03 per cent of all outstanding credit in the June 2024 quarter, up slightly from 0.91 per cent in the pre-Covid year.’
RBA Governor Michele Bullock warned the board would need to see material changes in prices before implementing a cut.
Australia’s fight against inflation stands in contrast to other leading countries, which are heading for cuts.
The US Federal Reserve is widely expected to implement a rate cut in the world’s largest economy this week.
The Commonwealth Bank maintained its expectation of a cut by the end of 2024 in its latest report on household spending.
“We continue to believe that weaker economic data, a further slowdown in inflation and monetary policy easing at many other major central banks will prompt the RBA to begin cutting interest rates in late 2024, although the risk is to a start date in early 2025,” the report said.