Westpac is predicting huge interest rate CUTS in 2024 so what will it mean for house prices?

Westpac now expects steep interest rate cuts in 2024 as Australia’s economy stagnates and unemployment rises.

The Reserve Bank has raised the cash rate eight times this year, taking it to a 10-year high of 3.1 percent.

Westpac expects three more rate increases next year in February, March and May, which would take rates to an 11-year high of 3.85 percent.

But the bank’s chief economist, Bill Evans, now expects the RBA to cut rates by one percentage point in 2024, as high interest rates cause an economic slowdown.

“We anticipate about 100 basis points of cuts in 2024 from the March quarter, bringing the cash rate to 2.85 percent by the end of the year,” he said.

Westpac now expects steep interest rate cuts in 2024 as Australia’s economy stagnates and unemployment rises (a Sydney auction in May 2021 pictured)

The 100 basis point rate cuts that Westpac expects would be just a third of the 300 basis point rate increases since May, which have been the steepest since the RBA began publishing a target cash rate in January 1990.

Inflation in the year to September rose to a 32-year high of 7.3 percent and the RBA expects the consumer price index this year to hit 8 percent for the first time since 1990.

However, Evans said inflation in 2024 would move closer to the RBA’s 2 to 3 percent target, allowing the central bank to cut rates to a more neutral environment.

“As we move into 2024, continued evidence of a stagnant economy and rising unemployment, coupled with a slowdown in wage pressures and the inflation rate receding towards three per cent, will allow the RBA to begin to reduce the cash rate towards the ‘neutral zone,’ which we think is 2.5 to 3.0 percent,’ he said.

“We think that by 2024, even the RBA will feel confident enough to move away from the clear dovish stance on policy.”

Unemployment in November held at a 48-year low of 3.4 percent despite rate increases since May that ended the era of the record 0.1 percent cash rate.

AMP Capital chief economist Shane Oliver said the creation of 64,000 jobs, as foreign students return, is likely to see an acceleration in wage growth and therefore higher interest rates in 2023.

“At this point, the labor market still looks very tight and the further decline in underemployment and underutilization continues to point to a further increase in wage growth going forward,” he said.

“This, in turn, will continue to put pressure on the RBA to raise rates further.”

Inflation in the year to September rose at a 32-year high pace of 7.3 percent, but Westpac said inflation in 2024 would ease and move closer to the RBA’s target of two to three percent, allowing the central bank to cut rates to a more neutral level. setting (pictured, shoppers in Sydney’s eastern suburbs)

AMP expects rates to have peaked at 3.1 percent, but Dr Oliver said “the risk is high of one more hike” of 0.25 percentage points to 3.35 percent.

The wage price index in the year to September grew 3.1 percent, the fastest pace in nine years.

Higher interest rates have hit house prices, particularly in Sydney, where median values ​​plunged 11.9 percent to a still-pricey $1.243 billion in November after peaking in April.

Westpac expects property prices in Sydney and Melbourne to fall 18 per cent in 2022 and 2023.

But it expects increases of one per cent in Australia’s biggest cities by 2024, and even bigger increases of three per cent in Brisbane, Perth and Adelaide.

Westpac expects property prices in Sydney and Melbourne to fall 18 percent in 2022 and 2023. But it expects increases of one percent in Australia’s largest cities in 2024, and even bigger increases of three percent in Brisbane, Perth and Adelaide.