The Reserve Bank of Australia’s decision to hold the cash rate at 3.6% this month should help bring greater clarity to the fundamentals underpinning property values.  

RBA Governor Philip Lowe said the move would provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.  

“Growth in the Australian economy has slowed, with growth over the next couple of years expected to be below trend,” Lowe said.  

“There is further evidence that the combination of higher interest rates, cost-of-living pressures and a decline in housing prices is leading to a substantial slowing in household spending. While some households have substantial savings buffers, others are experiencing a painful squeeze on their finances.” 

The monthly inflation indicator fell to 6.8% in February, down from 7.4% year-on-year in January and 8.4% in December. 

Last month marked the RBA’s tenth consecutive rate rise, representing the largest and the most rapid rate tightening cycle on record.  

Knight Frank’s Chief Economist Ben Burston said the decision to pause would help bring greater clarity to the fundamentals underpinning property values and instil more confidence in the medium-term outlook. 

“The extended period of month-on-month rate rises has generated significant uncertainty as to how high rates will ultimately go, but the pause will be taken as an indication that the peak of the hiking cycle is now within reach and may indeed turn out to be 3.6%,” Burston said.  

“For property investors, this means that the macro context now looks more reassuring as we look ahead, with the likelihood that rates will remain stable over the next few months as the RBA assesses the impact of the rate increases to date, and potentially be cut in 2024-25 if the economy slows as expected.” 

CoreLogic Research Director Tim Lawless said while a pause didn’t necessarily mean interest rates hikes were ‘done’, it was likely that the tightening cycle was close to topping out.   

“While the RBA has left the door open for further hikes, noting ‘…some further tightening of monetary policy may well be needed to ensure that inflation returns to target’, most forecasts have interest rates either at a peak or almost at a peak with one more hike in the wings,” Lawless said. 

“Despite the highest interest rates since 2012, we have seen a lift in housing values over the past month; a timely reminder that interest rates are but one of the many key factors influencing housing trends.” 

CoreLogic reported a 0.6% rise in the national Home Value Index for March, following six months where value declines were losing momentum.   

PropTrack Senior Economist Eleanor Creagh said home price falls eased at the end of last year and prices were now moving higher as the limited supply of properties for sale underpinned home prices. 

“Now the Reserve Bank has paused its tightening cycle, home prices will likely continue to stabilise as some of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs reduces. If stock levels remain constrained, the bounce is likely to continue to firm,” Creagh said.