When will the RBA cut interest rates? … (and why it doesn’t really matter) - Jan 2025

By Rich Harvey, CEO & Founder, propertybuyer.com.au

For decades, the New South Wales Central Coast region was in a property market holding pattern. It was flying under the radar of homebuyers and investors alike. But COVID’s significant upheaval brought the region into the limelight. Now, a raft of drivers across the political and economic spectrum will deliver exciting times to the Central Coast – and those who own property will be among the biggest beneficiaries.
Anthony Knight, Principal buyers’ advocate for Propertybuyer on the Central Coast, has lived in the region for decades. We recently chatted about the region and why he’s excited about what’s to come.

Speculation about the timing and size of interest rate cuts in 2024 by almost every economist, expert and average property punter proved way off. Everyone felt deeply that inflation had been contained and while rate cuts weren’t perhaps coming in the first few months of the year, they were inevitable.

Yet here we sit a full year later… and still no cut.

There’s plenty of curiosity about rate reductions among property stakeholders because, when they do come, activity in the market is expected to ramp up mightily. Buyers will have increased borrowing capacity. Loan repayments will come down. Freer and easier credit will be a stimulus to real estate values.

But the drop in rates is yet to materialise, and many people are reasonably asking – when will the cuts come?

The rate cut story

Right up until the final few months of 2024, everyone was looking for a chop to rates, although uncertainty about when they’d appear continued to progressively seep into each conversation.

Despite quarterly inflation falling into the RBA’s two to three per cent target range towards the end of the year, the Reserve was quick to say that the underlying inflation rate was still too high. Put simply, due to several factors, they weren’t convinced the quarterly sub-three per cent result was indicative of a long-term trend towards falling inflation. So, no change yet.

As 2025 gets underway however we’ve seen economists across our major financial institutions re-assess the timing of rate cuts. A look at the Big Four lenders shows all are expecting the next move to be downward, although they vary as to timing and degree.

The Commonwealth Bank is the most bullish among them as it sees a cash rate cut of 25 basis points as early as February. Meanwhile Westpac, ANZ and NAB all expect the first cut of 0.25 per cent will occur in May.

After that, Westpac and CBA are tipping three more rate cuts this year. ANZ on the other hand is expecting just one more fall, while the NAB is foreseeing an astonishing five rate cuts in 2025.

Of course, all of these opinions could be adjusted in the wake of the most recent result which saw trimmed mean inflation for November at 3.2 per cent, down from 3.5 per cent in October.

For me- I am tipping the first interest rate on 1st of April. The RBA will want to see the trimmed mean within their preferred range.

I have a slightly more skewed– some might say, controversial – take on the topic, and it’s this… interest rate cuts don’t matter as much as everyone thinks. There are several more significant factors to consider…

Why rate cuts aren’t important to smart buyers

When it comes to property, there are myriad factors that cause prices to wax and wane over the short term. There’s the nation’s general economic outlook to consider with inputs such as the employment rate and wage growth. Then there are other factors such as immigration and how it influences buyer demand, along with the cost of construction and the profitability of developing new housing.

We then get into nuances of location. What local economic drivers are out there that can propel the fortunes of a particular region, or even a group of suburbs? Is there new and planned infrastructure to factor in? Where are the gentrifying markets? Are there café hubs developing in a particular suburb? What are the schools like? What are the employment options nearby and how commutable are they?

But here’s a big reason why rate cuts don’t matter – it’s that smart buyers know property buying is a long-term proposition, not a short-term speculation. So, shifts in interest rates really don’t matter across an entire property price cycle.

If you look back over the decades, you’ll see interest rates have changed from the heady January 1990 high of 17.5 per cent to the COVID lows of 0.1 per cent and back up again.

Yet if you had bought at any stage during the past 35 years and had held your asset for at least one property price cycle, you would have enjoyed an impressive value increase. Best of all, the longer you held it, the more you gained.

I would venture that interest rate moves are less consequential than what you choose to buy, where you buy and how long your hold onto it for.

By utilising the skills of an experienced, independent buyers’ agent you can essentially ignore the noise and influence of interest rates. As specialists in our field, we help clients secure quality assets that meet their long-term needs. We can objectively find the best property for the client, drawing on our network of contacts and skills in value assessment. We also engage with selling agents as professional negotiators to our client’s advantage.

All of this adds up to finding the ideal property at the right price in locations that have excellent upside fundamentals. Combining all these advantages offsets the relatively short-term effects of interest rate movements.

So, my tip is don’t put off buying a property simply because you’re waiting for rates to fall. When they do fall, you’ll have even more competition in the property market again! Instead, engage with a buyers’ agent to help you make smarter choices right now that will see you come out ahead over the long term.

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