ANZ has released an update, downgrading its expectations for house price growth this year to 1%, down from the previously forecasted 3%. The bank also anticipates a 4% increase in house prices for next year.
This adjustment follows Westpac’s recent forecast revision, which lowered its expected price growth for this year to 2.1%.
ANZ attributed its revised outlook to weaker-than-expected sales data from the Real Estate Institute in May. The institute’s report showed an increase in the number of properties available for sale, indicating ongoing downward pressure on prices.
ANZ’s economists now expect official cash rate (OCR) cuts to occur sooner than previously anticipated. They suggest that these cuts could start as early as February, despite the Reserve Bank’s statement that a cut is unlikely until August.
“While there are never any guarantees, confidence is growing that the peak in mortgage rates is behind us and that they will fall over coming quarters as wholesale rates drift lower. That lends itself to borrowers fixing a portion of debt for a shorter term now, with a plan to re-fix again once rates have fallen,” ANZ’s economists stated.
They highlighted the six-month rate as a potential option for borrowers, allowing them to re-fix sooner and potentially benefit from falling mortgage rates.
ANZ’s economists forecast a downward trend in wholesale rates over the coming months, leading to “significant falls” in mortgage rates. “Falls are likely to be more gradual at first, as we have seen year-to-date, but if our call for a February start to the easing cycle is right, falls in mortgage rates will become more meaningful as we get nearer year-end and into next year.”
They also noted the outlook is not without risks. Economists and the market have previously had to adjust overly optimistic rate cut expectations.
Currently, there is not a significant difference between a six-month rate and a one-year rate. “The six-month costs a little more, but gives the option of re-fixing sooner, and if rates do fall quickly, it may work out cheaper over the long term. A six-month fix will be due for renewal just before Christmas. Break-evens show that interest rates don’t need to fall too far for fixing for a shorter period to be worthwhile in the long run, even though it costs more now.”
ANZ’s forecast predicts a one-year rate of about 5.7% by next June, reflecting their belief in an upcoming trend of declining mortgage rates.