Interest Rate Cuts In 2024: What You Should Know & How Your Family Can Prepare

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With the RBA set to only meet up once every three months in 2024 and inflation finally stabilising for the first time in around 20 months, Aussie families are tentatively predicting a series of interest rate reductions for 2024. So, the continuous rise in borrowing costs we’ve been accustomed to might thankfully be coming to an end.

But when will these highly anticipated rate cuts come? And what do these impending cuts mean for families and individuals? Should you work with a financial planner in Sydney to plan your search for that dream home in 2024? Well, chances are 2024 may be a very good time for families to make some potent financial moves.

For those who are looking to gear up to invest in 2024, continue reading for more information on what you can expect from your mortgage and other loan rates, or even the cost of living over this new calendar year.



The latest in global economic conditions

According to a prediction by Goldman Sachs economists on January 15, 2024, the US can expect a series of three to five benchmark rate cuts to begin in March. They predict inflation will continue to decline, albeit at a gradual drip. Still, they foresee a “soft landing” for economies, leaving consumers and businesses anticipating seeing favourable borrowing terms offered soon.

This same trend is highly likely to make its way over to Australia too, but only in the later half of 2024. This means that when the RBA meets up again on February 6th, it’s likely that they’ll either bring news of another rate hike or perhaps just state that the rate will stay unchanged. Let’s hope it’s the latter.


When to expect borrowing relief

So is now the right time to buy property or take out a car loan? Well, it depends on the state of your finances. At any rate, many economic analysts are advising that consumers don’t borrow to their maximum capacity, just in case there are a few more rate hikes on the horizon in 2024.

Those seeking to enter the property market will surely welcome news of an incoming rate cut, however, as this is a good time to snag up a deal on a property. This past summer, we learned a 30-year fixed-rate mortgage in the US peaked at its highest average in over 21 years, resulting in lower demand across buyers. In other words, it’s a buyer’s market right now (even in regions across Australia), so strike while the iron is hot.


When will rates stabilise?

Here in Australia, Dr. Lin Mi, a senior financial expert at the University of Queensland, offered her take on what the rest of 2024 will bring. She said the continued rate increases were meant to counter the abnormally high 7.4% inflation rate, a 30-year record high, where it should have ideally been around 2-3%.

The pandemic and resulting monetary policy responses largely contributed to this redline inflation level we continue to grapple with. Like the US, the RBA implemented economic stimulus actions to encourage borrowing and spending, which, of course, increased demand for goods but, unfortunately, led to the peak inflation conditions we have now.

Dr. Li concurs with Goldman Sachs that assuming no more severe market disruptions, we’ll see rate cuts begin in early 2024 and should stabilise by year’s end. But expect, as always, the real estate market response to lag for three to six months behind Fed actions. That leads you to the late first quarter to the middle of 2025, when you should see favourable mortgage movement.


Should homebuyers opt for a fixed or variable rate?

That brings us to a question that’s likely to be front of mind for virtually all mortgage holders right now: should you choose a fixed mortgage rate or variable heading into the first quarter of 2024? According to Dr. Li, it’s wise to favour a variable rate. Since current fixed rates are so high, according to historical trends, we shouldn’t plan on rates increasing or remaining in the current ballpark for much longer.

Secondly, for fixed rates to be preferable, you’d like to see variables rise by more than 0.75, assuming an example where a current variable number is 5 per cent and fixed is 5.75.

Further preparation

To prepare for interest rate cuts and their effects on your 2024 financial decisions, we must begin to track the leading economic indicators here in Australia and the US and learn how factors such as inflation, GDP growth, and employment trends affect benchmark interest rates.

It’s also well worth monitoring the US Federal Reserve announcements concerning monetary policy and rates, and talking with your financial advisor about potential hints or guidance regarding these communications. Staying on top of your economic research can help you better prepare for the trickle-down effects of inflation that inevitably come to Australia after being observed across global economies.


Start reviewing your finances now

While you wait to see what happens with interest rates, now is an excellent time to evaluate your finances and gather documentation you’ll need as you meet with potential mortgage lenders. This is a time-consuming process for many, so why not use this time to get things in order?

Get a thorough net-worth analysis completed. List current assets, including properties, stocks, other investments, and savings accounts. Quantify liabilities, including outstanding loans, credit cards, and monthly expenses.

Put a monthly budget together so that you can predict how much funds you’ll have available for those mortgage payments. List all monthly income sources and expenses.


Should sellers wait or act now?

We’ve spoken a lot about what to do if you’re looking to buy new property, or even maintain an existing mortgage. But what if you’re looking to sell in 2024? If you’re a home seller and you purchased low, placing it on the market now is advantageous due to the low supply and elevated prices. But suppose you’re only one to two years into ownership. In that case, selling is risky, especially if the property isn’t what you’d call a premium listing.

If you anticipate things will be tight, categorise expenses into essentials vs. non, and begin cutting back now. Reduce that discretionary spending and instead allocate that money into an account for emergency funds and, equally important, your mortgage down payment.

How much you’ll need depends on numerous variables, including prevailing rates, your credit score, and the home sale price. Use a borrowing power calculator and estimate different scenarios using current rates versus the projected cuts.

Seize the moment in 2024

Will 2024 be the year your family has been waiting for? Working with your Sydney financial advisor adds a valuable layer of confidence to your home-buying decisions, helping you and your family coast through what is hopefully the final few months of Australia’s cost of living crisis. Begin your preparations immediately; with any luck, we’ll be celebrating your move-in soon.