Market update: Are mortgage rates finally starting to settle?

Well, it’s a new month, and that means it’s time for a quick check in on what’s happening in the world of interest rates and house prices.

And let’s kick things off with an update that should be music to the ears of anyone who’s been freaking out about where interest rates might end up.

Despite the continued sense of fear out there, we’re seeing more and more signs that interest rates are settling

For months now, I’ve been a bit of a lone voice in amongst all the panic – staunch in my view that rates would peak at around 5.5 or 6 per cent, rather than up around 7 or 8 per cent as many have been anticipating.

And in the last couple of weeks, the good news (and vindication for me) is that we’re now seeing some solid evidence coming through to support that prediction.

At the start of August, a lot of the major lenders made moves to drop their one-year fixed rates, with specials which are now sitting at around 4.95 per cent, while five-year fixed rates have also come back significantly from the high sixes to the high fives.

If we take a look at wholesale interest rates, being the fundamental driver behind consumer mortgage rates, there are further signs pointing to the idea that increases are largely over and done.

The big one is that wholesale rates have become inverted in recent weeks, meaning longer-term wholesale rates are now sitting lower than shorter-term wholesale rates.

This is something you’d only ever really expect to see at the top of an interest rate cycle, and it’s also a clear indicator that the market is expecting a recession (or at the least a pretty sharp slowdown in the economy) as a result of the impact of recent increases.

All of that said, the Reserve Bank is still going to be making aggressive moves to increase the OCR (Official Cash Rate) over its next few announcements. At the moment, the OCR is sitting at 2.5 per cent – and I’d say it’s got at least another per cent to go on top of that.

That’ll mean there’s probably going to be a bit of short-term volatility in interest rates, and there could be a few increases here and there, but the overall trend is that things are definitely starting to settle.

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What’s going on in the housing market?

It’s not really news anymore that house prices are down, and trending downwards.

Most of the fall’s come through already, but media headlines will always favour stats like averages and year-on-year comparisons, which are slower to reflect the truth of what’s actually happening out in the market.

Anyone looking to buy today has a decent chance of snapping something up for about 10 to 15 per cent less than it would’ve cost at market peak last year, particularly if the vendor is keen and motivated to sell.

Between lower house prices, stabilising interest rates, and the choice that’s out there right now, it really is a great environment to be buying in.

And yet we’re still seeing lots of would-be buyers sitting on the sidelines, hoping to wait out all the volatility and see whether prices are going to fall any further.

If that’s been your tactic, the risk you face now is holding off too long, until the point where everyone else who’s been on the fence with you decides it’s a good time to jump back into the market (which typically happens all at once).

And when that happens – and particularly when you throw in the impact of slowing construction, and immigration bringing other new buyers into the market – it won’t take long for choice to dry up again. In which case, buyers will just be left facing the same problems we’ve had in previous cycles.

So, for buyers right now… While you don’t have to rush, and should be taking the time to find a good deal, experience has taught me this isn’t a market to be afraid of.

The opportunity is to be ahead of the pack, but it is one that will have an expiration date (although who knows when that may be).

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The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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