For many Australian’s, their home loan is their largest expense. And property investors should seek to minimise their borrowing costs (interest) as it’s one of the top three factors that directly impacts investment success as outlined in
this blog. With this in mind, I thought it was timely to look at the current opportunities in the mortgage/interest rate market.
What the “market” is expecting
As the
chart below illustrates, the implied yield on 30-day cash rate futures suggests that the
market expects the cash rate to be 0.25% lower in the second half of 2019. These future contracts are used primarily by large institutions and banks and essentially represent the consensus view on the direction of interest rates in the short term (i.e. next 18 months). Of course, the
market is not always right – it’s only one indicator.
Economist predictions
Bill Evans, the Chief Economist for Westpac, was the first to predict that the RBA will cut its cash rate twice in 2019 (0.25% in August and then again in November). Since making this prediction on 20 February 2019, many other economists have joined him. Mr Evans was the first economist to correctly predict the start of the RBA’s easing cycle in 2011 – so he has good form.
Mr Evans cited weaker than expected GDP growth, the
“wealth effect”[1] associated with a softer property market and an expected increase in our savings rate as the main reasons for forming his view.
What would have to happen for the RBA to cut
The RBA has previously said on a number of occasions that it is not concerned by the falling house prices. This commentary has never made sense to me because a falling property market definitely impacts on consumer confidence – look at what happened in the USA when the GCF hit. Perhaps the RBA was hoping its positive rhetoric would persuade A
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