Westpac forecasts huge rate cuts in 2024, so what will that mean for house prices?

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

The Reserve Bank has hiked interest rates eight times this year, taking it to a 10-year high of 3.1 percent.

Westpac expects three more rate hikes 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 a percentage point in 2024 as high rates cause an economic slowdown.

“We expect cuts of around 100 basis points in 2024 from the March quarter, taking the policy rate to 2.85 percent by the end of the year,” he said.

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

The 100 basis point rate cuts Westpac expected would be just a third of the 300 basis point rate hike since May, which was the steepest since the RBA began publishing a target rate in January 1990.

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

However, Mr Evans said inflation in 2024 would come back closer to the RBA’s 2% to 3% target, which would allow the central bank to cut rates back to a more neutral stance.

“As we enter 2024, persistent evidence of a faltering economy and rising unemployment, combined with slowing wage pressures and an inflation rate once again approaching 3 percent, will allow the RBA to move interest rates back towards the “neutral zone.” , which we believe is 2.5-3.0 percent,” he said.

“We believe that by 2024, even the RBA will feel sufficiently confident to move away from the policy’s clearly dovish stance.”

Unemployment remained at a 48-year low of 3.4 percent in November despite rate hikes since May that ended an era of a record-low cash rate of 0.1 percent.

AMP Capital chief economist Shane Oliver said the creation of 64,000 jobs from returning foreign students will likely lead to an acceleration in wage growth and hence higher interest rates in 2023.

“Right now, the labor market still looks very tight, and further declines in underemployment and slack continue to point to further pick-up in wage growth,” he said.

‘This in turn will continue to put pressure on the RBA for further rate hikes.’

Inflation rose to a 32-year high of 7.3 percent in the year to September, but Westpac said inflation would come back closer to the RBA’s target of 2 to 3 percent in 2024, allowing the central bank to do so would cut interest rates back to a more neutral level Environment (pictured are buyers in Sydney’s eastern suburbs)

AMP expects rates to have peaked at 3.1 percent, but Dr. Oliver said that “the risk of a further increase of 0.25 percentage points to 3.35 percent is high”.

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

Higher interest rates have hit house prices, particularly in Sydney, where November averages fell 11.9 percent to a still expensive $1.243 million after peaking in April.

Westpac expects property prices in Sydney and Melbourne to fall by 18 percent in 2022 and 2023.

However, in 2024, a 1% increase is expected in Australia’s largest cities, and a 3% increase in Brisbane, Perth and Adelaide.

Westpac expects house prices in Sydney and Melbourne to fall by 18 percent in 2022 and 2023. But it expects a 1% increase in Australia’s largest cities in 2024, and even bigger increases of 3% in Brisbane, Perth and Adelaide