Homeowners stuck with rates disappointment but there is a major market upside

Mortgage holders remain locked in discomfort after the Reserve Bank held the cash rate in May, but there could be a major market upside to the unpopular and vastly-predicted decision.

Real estate experts anticipate the certainty of the rate hold, providing stability and clarity for buyers and sellers, will encourage more Aussies to list their properties this autumn.

Greater housing supply can help to ease prices, which have been at record levels nationally, in part on the back of a lack of stock, hand-in-glove with factors including large-scale immigration.

Domain property editor Alice Stolz said the May 7 call to leave the nation’s cash rate at 4.35 per cent could compel would-be vendors to finally put their homes up for sale.

“With house prices reaching a new record recently and at this stage forecast to keep rising, the Reserve Bank’s decision to maintain current rates could spur buyers who had been holding off to act,” Stolz says.

The last rate increase was in November 2023, in a bid to squash inflation. However, inflation has been persistent, aided by the rising cost of everyday essentials.

Domain’s chief of economics and research, Dr Nicola Powell, is forecasting there will be no imminent rate cuts.

“Annual inflation has dropped to its lowest level in nearly two years, but the most recent quarterly figure was higher than expected due to rising costs for services like rents, health, education, and insurance,” Dr Powell says. “Although these increases might be partially seasonal, this bump in inflation has likely delayed any rate cuts.

“The Reserve Bank of Australia (RBA) will be cautious, and while they might consider raising rates, it’s unlikely to happen. Despite Australia’s cash rate being lower than in many other countries, the high proportion of Australian mortgage holders on variable rates suggests that keeping it low might be the best course of action.”

Little Real Estate’s James Kirkland, executive general manager of sales and marketing, says the unchanged rate lays the foundation of a “healthy market”, in which buyers and sellers know where they stand on borrowing power and price.

Time on market is short throughout his agency’s network, he says, as deals get done with some urgency.

“The announcement will solidify even more stability in the market and really, in 2024, we have seen quite a stable market, where buyers and sellers are confident about where things are at,” he says.

Kirkland says although economists continue to speculate on future cash rate movements, the market has a shorter-term view.

“Buyers and sellers can only act on what is in front of them today, and this a positive step,” he says.

Founder of Rethink Investing, Scott O’Neill, also pointed to the positives of a hold.

“Generally, most investors and financial markets were not pricing in a rate increase this month,” he says. “Therefore, with rates remaining unchanged, it’s likely that market behaviour will continue as it has over the past month.”