Australians brace for another rate rise ahead of RBA meeting today
Amid looming rate rises, there are reasons to be cheerful as mortgage holders head into 2023
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Mortgage holders should brace themselves for more pain as the Reserve Bank of Australia board prepares to meet this afternoon for the first time this year.
Most economists and the major banks are predicting a rise of 25 basis points will be announced, although the Commonwealth Bank suggested yesterday that the RBA may take the unusual step of a 40 basis point rise to bring the interest rate up to a more conventional 3.5 percent. This could present the RBA with the chance to put further rate rises on hold for the next few months as it assesses the impact of tightening monetary policy on the economy.
The decision by the RBA board to make consecutive rate rises since April last year is an attempt to wrestle inflation down to a more manageable 3 or 4 percent. The Australian Bureau of Statistics reports that the inflation rate rose to 7.8 percent over the 2022 December quarter, the highest it has been since 1990, reflected in higher prices for food, fuel and construction.
Higher interest rates have coincided with falling home values, which Ray White chief economist Nerida Conisbee says are down 6.1 percent in capital cities since peaking in March 2022. The pain has been greatest in Sydney, where prices have dropped 10.8 percent since February last year. Melbourne and Canberra recorded similar, albeit smaller falls, while capitals like Adelaide, which saw property prices fall 1.8 percent, are less affected.
Although prices may continue to decline, Ms Conisbee (below) said there are signs the pace is slowing and that inflation has peaked.
“December inflation came in at 7.8 per cent with construction, travel and electricity costs being the biggest drivers. It is likely that we are now at peak,” Ms Conisbee said.
“Many of the drivers of high prices are starting to be resolved. Shipping costs are now down almost 90 per cent from their October 2021 peak (as measured by the Baltic Dry Index), while crude oil prices have almost halved from March 2022. China is back open and international migration has started up again.
“Even construction costs look like they are close to plateau. Importantly, US inflation has pulled back from its peak of 9.1 per cent in June to 6.5 per cent in December, with many of the drivers of inflation in this country similar to Australia.”
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The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.
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