Where Do You Think The RBA Cash Rate Will Be in The Next 3-5 Years?

LPepperedAngus on 25/08/2021 - 17:18
Last edited 25/08/2021 - 18:59 by 1 other user

I have been thinking of buying a property for some time. I don't think it's a good time to buy now considering how much property has increased over the past year. Mixing high property prices with the low cost of debt seems like a disaster when rates eventually increase.

I have heard the arguments for both interest rates increasing as soon as next year as well as the possibility of negative interest rates. I didn't think negative rates was a possibility, however I believe it is more likely with all the lockdowns happening around Australia.

I'm curious what you all think the RBA Cash rate will be in the next 3-5 years?

Poll Options

• 5
  <0%
• 5
  0%
• 3
  0.1%
• 13
  0.1-0.5%
• 22
  0.5-1.5%
• 7
  1.5%-2.5%
• 3
  2.5%-5%
• 10
  >5%, list below

• 

  rektrading on 25/08/2021 - 17:28

  +7

  Real estate prices only go up to the right. Anyone that is waiting for it to go down before buying is getting older day by day.

  Don't try and time the market. Just get in ASAP.

• 

  Jimothy Wongingtons on 25/08/2021 - 17:35

  +1

  Get in now.

• 

  RiseAndRuin on 25/08/2021 - 17:39

  +2

  Just for clarity, the RBA Cash rate is not going to be the interest rate you will pay on your home loan. Westpac has raised their fixed interest rate at least 2 or 3 times since April, and have now lowered the introductory variable rates, so that should give you an indication of those interest rates, regardless of the RBA.

  • 

    PepperedAngus on 26/08/2021 - 06:30

    +2

    Oh course not. I remember all the times banks didn’t pass on the RBA cash rate decreases. But there is generally some correlation between these figures. You can usually get a mortgage for roughly RBA rate +2%.
    My concern is how many foreclosures would occur if the RBA rate went back to 1.5%. This is something I would expect to happen sooner rather than later and would almost double the interest people are paying on their loans. How many people could afford to pay an additional 10-30k a year in interest. I’m assuming plenty recent buyers would struggle.

    • 

      RiseAndRuin on 26/08/2021 - 10:35

      My interpretation of the banks rate hikes is that they expect rates to be significantly higher within ~2 years, hence they're raising the fixed rates. At the same time they're making the variable rates more attractive, so people don't get on a fixed rate now and are forced to pay more later on.

      People that decide to wait to buy house should also consider the rent they're paying in the meantime vs how much of a discount they could potentially get when they enter the market, and the effect of the additional time they will be repaying a loan at a higher interest.

      N.B. this is not financial advice.

• 

  TheMindsetTraveller on 25/08/2021 - 18:02

  Within three years, I do not see much movement.

  The tricky assessment is at the three-year mark and beyond when the world economy should go back to post-Covid-19 mode. The resumption of globalisation especially in terms of labour and education, which have pretty much halted. The movement of these people can increase demand, they could bring in $$$ that increase spending, but also inflation. Businesses may start to feel more confident then, they might be more profitable than in the upcoming year or two which could lead to wage growth. Too many variables, but IF we reach 80% vaccination and then the borders open, I see property prices still going up but at the same time, increase in risk of interest rates going up to stagnate and excessive spending.

  • 

    PepperedAngus on 26/08/2021 - 06:35

    It does seem like there won’t be much movement for the next few years. Part of me is wondering if we are long past those times on +5% growth. With stagnating growth, maybe the average going forward will stay on the low end of the scale.

• 

  Lunarboogie on 25/08/2021 - 18:08

  +1

  'I have been thinking of buying a property for some time…'

  And what has happened during that time? Property prices have grown enormously.

  Keep waiting and run the risk of being further left behind. I'd recommend you get in while you can - it's not getting any easier.

  • 

    PepperedAngus on 26/08/2021 - 09:10

    The extra money I have been saving up for a deposit did not even cover 1/2 the increase in property. But I am talking about seperate title entry level homes. I don't feel established apartments have really increased much. However, every new construction apartment block seems to be charging more for a smaller space. And new houses seem to be built on smaller blocks with smaller yards. I have seen plenty of houses that look like an apartment without strata.

• 

  serpserpserp on 25/08/2021 - 18:56

  I didn't think negative rates was a possibility, however I believe it is more likely with all the lockdowns happening around Australia.

  I laugh when people have some theory on negative rates and point to one factor. We are a long way off from that scenario.

  I thought I was crazy when I bought my house at the top of the market 5 years ago. Everyone thought I had massively overpaid. But here we are and my house could sell tomorrow for 25-30% more than I bought it for. Crazy.

  I legitimately bought my place factoring in that I was OK with losing 20-30% of its value in a correction. I thought the prices we that toppy.

  I think the only plausible route to negative rates is if there is a collapse of the Chinese/Italian/Other country bad debt holding FI's, which has a domino effect on the financial markets freezing up. Couple this with delta or the next variant of COVID showing massive breakthrough infections in the Northern Hemisphere winter coming up. However if you don't think that is going to happen and you can service your home loan easily, play on.

  • 

    PepperedAngus on 26/08/2021 - 09:20

    Of course it will take a number of factors to push Australia to that level.

    An interest rate decrease of 1.5% increases property 20%. Surely an increase of 1.5% would have some impact on the property prices. I assume it would take many years of small increases for the inflation to cover the decrease in value from the rate increases.

• 

  Ocker on 25/08/2021 - 19:00

  +1

  This whole COVID pandemic has led to chronic supply chain shortages, increases in the input prices for manufacturers (freight and commodity) will lead to higher retails prices, which will lead to inflation, which will lead to wage increases and further fuel inflation. Inflation will move outside of the RBA target band and they will raise rates to combat.
  All points to higher interest rates in 2-5 years

• 

  pharkurnell on 25/08/2021 - 19:08

  +1

  OzCrystalBall says……………..

  • 

    Nugs on 25/08/2021 - 20:41

    ……phark-knows
    .

    • 

      PepperedAngus on 26/08/2021 - 09:20

      Stop holding out on us pharkurnell

• 

  axlfan on 25/08/2021 - 19:40

  Nobody can guess the future. If you are able to, the best time to get in is now.

  I had a friend who kept telling me doomsday scenarios in 2017 when we bought our first property. Then we got our 2nd property last year. He ended up buying his first a few months earlier after none of his prophecies came true. He does not even talk abt it after giving me a hard time for months saying i made a huge mistake.

  The truth is that there are some indications but nobody can truly predict it. Who would have thought that Covid would ruin the global economy and livelihoods in 2020 and 2021.
  In fact, last year was a fantastic time to buy. It was a buyer's market for few months and it has rebound since then.

  • 

    Mokr on 25/08/2021 - 20:25

    There just is too much demand in aus. And from the world wanting to buy in

    Still I reckon places like qld. Are much better.

    • 

      axlfan on 25/08/2021 - 20:40

      True my friend did end up buying in QLD.

• 

  Seraphin7 on 25/08/2021 - 19:59

  +2

  From the Reserve Bank as of 6 July 2021

  The Board remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. The Bank's central scenario for the economy is that this condition will not be met before 2024. Meeting it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

• 

  KaTst3R on 25/08/2021 - 20:34

  Lol, even if RBA put cash rate at -1%, the big four banks will still charge you +1% and earn the net interest margin of 2%. Recent times have shown that big four banks are willing to take action that is contradicting what RBA is doing.

  • 

    eclaw on 26/08/2021 - 11:48

    Yep, and there's nothing wrong with that.

    The bank is the lender and gains are limited to its interest margin while the borrower has exposure to future capital and rental growth.

• 

  MarsTitan on 26/08/2021 - 11:29

  +2

  The government policy (Liberal/Labor) has always been to save real estate at ALL cost.

  Time in the market beats timing the market. They don't have to raise the interest rate, they can simply tighten the lending criteria to cool the market a bit — which may happen in about a year's time (after another 20% rise). It is so easy to get loan these days because of RB handing out billions to banks.

  It is entirely possible that tightening of the lending criteria and higher interest rate may keep the prices still high but now getting loan is much harder — hence people again priced out of the market. All interventions have unintended unforeseen consequences.

  Australian real estate was cheap in cities apart from Melb and Syd. It has gone nuts now in other states (SA, WA, TAS) as well. By some estimates real estate, mostly houses, is increasing at $1200 per day in Syd and around $600 per day in other states. https://www.abc.net.au/news/2021-08-26/fact-check-are-house-…