The past few years have seen rising interest rates dominate headlines and contribute to a cost of living crisis that has left many mortgage holders feeling financially overwhelmed. It appears that as we enter 2024, the tide may slowly be turning, with interest rates predicted to remain steady and ultimately start to decline in the next year or so.

In this blog, we explore the interest rates recent trends you should pay attention to, as well as other important factors to consider when deciding to invest in property in 2024.

Key considerations for prospective property buyers in 2024

Interest rate trends

In 2024, the Reserve Bank of Australia (RBA) will meet only eight times, three times less than in previous years. These meetings will now be held over two days rather than for a few hours on the morning of the decision announcement (which will still be on the relevant Tuesday at 2:30pm, Sydney time). The announcement will also be followed by a press conference at 3:30pm with RBA governor Michele Bullock.

So why the change? Announced last year by former RBA governor Philip Lowe, the shake-up aims to create more stability for homeowners affected by rate changes. By meeting less frequently but for longer, the board will have more time to deliberate and weigh relevant factors before making a decision. They will also have more time to assess the results of their decision after each announcement.

The net effect of this should be fewer cash rate changes per year, which will leave households with more time to acclimate to each change that does occur. That being said, changes may be more dramatic to align with the extended intervals. Banks are also not beholden to this new schedule and may still choose to adjust their rates on a monthly basis.

The increase in interest rates we’ve seen over the past few years has been motivated by the goal of reducing inflation, which is currently at a two-year low. As such, all of the ‘big four’ banks agree that the RBA will likely keep the cash rate steady at 4.35 before starting to reduce it more definitively over the next year or so, which bodes well for variable mortgage holders.

Other economic factors

Economic performance is positively correlated to property values. In the latest release from the Australian Bureau of Statistics, the country’s GDP rose 0.2% to $607.5 billion during the quarter ending September 2023. This marked the continuation of an upward trend in GDP that was disrupted by the economic fallout of COVID-19 but resumed in late 2021.

Information Media and Telecommunications led quarterly growth (2.6%), followed by Arts and Recreation Services (2%) and Health Care and Social Assistance (1.8%). Though mining saw a 1% decline, the industry still plays an outsize role in the country’s economy, particularly WA. New opportunities are also arising in this space, with Australia harbouring a plentiful supply of many of the mineral resources necessary to support the creation of renewable energy infrastructure (lithium, cobalt, copper and nickel). Demand for these minerals is likely to increase over the coming years, which would further bolster the economy.

Market conditions

One of the biggest factors currently affecting the property market is population growth. From 2022-23, Australia’s population grew by 624,100 people (2.4%), comprised of a 106,100 natural increase and overseas migration of 518,100. As a result, demand for property greatly exceeds supply and the deficit is unlikely to end anytime soon, with construction of new homes facing delays fueled by slow approvals and an undersupply of labour and materials.

This is also true of the rental market, where vacancy rates continue to be at record lows despite a slight uptick in the final months of 2023. These conditions are likely to persist until more properties enter the market or owner-occupier homes become rental properties, as is happening in a number of Perth’s outer metro suburbs.

Personal finances and investment strategy

Though each of the considerations described above should factor into an informed purchasing decision, the extent will likely change depending on your personal circumstances. For example, if you have sufficient finances to buy your chosen property outright or with a relatively small mortgage, interest rates probably won’t factor into your decision as strongly.

You should also approach any purchasing decisions with your overall investment goals and strategy at front of mind. In our previous blog, we looked at how the promise of high rental yields is leading many interstate buyers to invest in the Perth property market. This is a great investment decision if you’re pursuing a strategy of high rental yields, but it may not be appropriate if your strategy is to achieve high capital growth on the property or to use negative gearing to reduce your taxable income, i.e. a low rental yield strategy.

Are you trying to work out if a particular purchase aligns with your investment strategy? We’re always happy to talk through the decision with you and provide any advice we can. Contact us today.