After the chaos of 2022-2023, Aussies might be in for more drama in 2024, according to some economists. Last couple of years were rough – inflation hit highs not seen in 30 years before cooling a bit. Interest rates shot up from rock bottom to over 4%. House prices tumbled, leaving recent buyers high and dry.

Now we're picking up the pieces and getting ready for 2024. But it's not looking smooth sailing. Inflation could spike again or keep dropping – who knows for certain? Interest rates might level out or even start falling, depending on what the RBA decides. And the housing market's got everyone scratching their heads – more crashes or a rebound on the cards?

It's enough to make your head spin. But us Aussies are a hardy bunch. A few economic storms won't sink us. We just have to batten down the hatches – knock down the debt, bulk up those savings and keep the budget tight. Steer clear of risky investments and overpriced properties too. If we stay savvy and play it safe, we can ride out whatever 2024 throws at us.

It's time to face the music, make sensible choices and get our finances ship-shape. The forecast looks iffy, but preparation and prudence will see us through to calmer waters. We survived 2023, we can handle 2024 too.

If you're feeling overwhelmed with debt, call us on 1300 003 328 for a free, no-obligation consultation or fill out this form.

Inflation in 2023

Inflation remained painfully high for Australians in 2023. After peaking at 7.8% in December 2022, inflation hovered near three-decade records all through 2023. The June 2023 CPI landed at 6%, and in November 2023 it fell to 4.6% – still more than double the RBA's 2-3% target range. 

Constant pressure from supply chain disruptions, the war in Ukraine, and strong demand kept inflation elevated. Rising costs for essentials such as electricity (which soared over 20%), gas (+15%), fuel (+15%), food (+9%), and housing (+10%) in 2023 strained household budgets. 

Health insurance also jumped 9%, education costs rose 8%, and childcare surged 15%, forcing families to absorb bigger bills. Taming runaway inflation continued to confound RBA policymakers last year. Though projected to moderate slightly in 2024, inflation will likely remain a central concern.

Inflation Outlook for 2024

While inflation reached multi-decade highs in 2022 and 2023, economists expect some moderation over 2024. However, the pace and magnitude of disinflation remains uncertain. The RBA predicts inflation will average around 5% in the first half of 2024 before slowing to 3.5% by year's end. This depends on stable commodity prices, easing supply constraints, and weakened consumer demand as interest rates bite.

The RBA will likely keep a close eye on 2024 inflation figures to determine if further rate hikes are required or if the door opens for rate cuts later in the year. But inflation well above the 2-3% target range still seems the most likely scenario for 2024 as a whole.

Interest Rates

The RBA raised the official cash rate steadily through 2023 from 0.10% to 4.35% by December. With inflation projected to remain high, the central bank opted to continue tightening policy by lifting the cash rate by 25 basis points to 4.35% in November 2023. This represented the highest cash rate since 2012. 

The RBA then left the rate unchanged at 4.35% at its December 2023 meeting. 

As a result of the 2023 increases, the Big 4 Banks have already lifted variable mortgage rates to an average of 7.48% currently (as of January 2024). This translates to hundreds of dollars per month in extra repayments for mortgage holders relative to the low rates of early 2022.

Interest Rate Outlook for 2024

The next rate decision will come in February 2024, however most economists anticipate at least two more small hikes in the first half of 2024 to contain inflation. 

While the RBA is expected to raise rates modestly in early 2024, some forecasts point to possible rate cuts in the second half of 2024. The major bank CBA predicts the cash rate could fall 0.75% from 4.35% down to 3.6% by the end of 2024, starting with a cut in September. This outlook is based on inflation easing and economic growth slowing. 

Meanwhile, AMP's chief economist Shane Oliver also foresees three 25 basis point rate cuts in the second half of 2024. However, he predicts rates will not decline as quickly as they rose. 

Other economists remain more cautious on 2024 rate cuts given still high inflation. But if price pressures and economic data soften sufficiently, the RBA may be able to provide mortgage holders some relief via rate cuts late in 2024.

Property Prices

After rising 25% nationally during 2020-2021, housing prices dropped 5-10% in major cities like Sydney and Melbourne in 2022. This downward trajectory continued in 2023. By December 2023, preliminary data shows Sydney home prices were down 12% for the year, while Melbourne dropped 10%. Brisbane and Perth saw more moderate 3-5% price declines. 

With mortgage rates climbing above 5%, home buying demand weakened in 2023. However, rental vacancy rates also fell across most cities, indicating still strong demand for housing. 

On the supply-side, new listings were down 15% in Sydney and Melbourne, partly offsetting price declines. Economists expect further 5-10% price drops in Sydney and Melbourne possible in 2024, while other cities may see smaller 2-3% falls. With cost of living pressures and rising rates stretching buyers, risks remain skewed to the downside.

Property Price Outlook for 2024

While projections earlier in 2023 pointed to further declines, more recent forecasts suggest the housing market could rebound slightly in 2024. 

ANZ now expects capital city prices to rise 6%, with Brisbane leading gains around 9-10%. Perth and Sydney are tipped for 7-8% and 6-7% growth respectively. Melbourne is projected to see a more mild 3-4% increase. 

CBA predicts 5% growth nationally, with Brisbane rising 6% and other cities between 1-5%. 

NAB sees average gains of 5.4% across capitals, led by 6-7% in Brisbane and Perth. 

Finally, Westpac forecasts 6% national growth, with Perth potentially rising 10%, Brisbane 8%, and Sydney and Melbourne around 6% and 3%. 

The revised outlook reflects expectations that the RBA may cut interest rates in late 2024 if inflation falls, boosting housing affordability. A supply shortage and strong migration also look set to aid the market.

Debt

Australian household debt as a percentage of GDP reached 111.10% in mid-2023, up from 110.60% in early 2023 according to RBA data. This reflects a high debt burden. 

At the individual level, Finder research reveals concerning trends. Excluding mortgages, average personal debt jumped to $20,238 per person in mid-2023. Credit card debt also remains elevated, with Canstar reporting an average balance of $3,019 per account. However, for accounts accruing interest the average balance was lower at $1,375. High credit card balances coupled with larger personal debts may leave households more vulnerable in 2024. 

Debt Outlook for 2024

With household debt near record levels, Australians remain extremely affected by interest rate shifts in either direction. If the RBA continues raising rates, highly leveraged households could face intensifying mortgage stress. However, potential 2024 rate cuts could alleviate some pressure on borrowers. 

The key will be regularly reviewing personal finances and budgets as the rate outlook evolves. Reducing debt exposure where possible and fixing part of loans provides some insulation from rate swings. Though the path of rates in 2024 is unclear, proactive debt management will help households navigate any policy shifts.

If you are struggling with mounting debts, contact Credit Counsellor Australia today by calling 1300 003 328 for customised debt relief solutions. Our experienced experts can help assess your situation and provide options for managing different types of debts.

Steps Australians Can Take in 2024

• Pay down high interest credit card and personal debt. Aim to pay off cards charging over 15% interest as a priority. Even an extra $100 a month toward credit card balances can save hundreds in interest.
• Build up a solid emergency savings fund. Experts recommend having 3-6 months of living expenses set aside in cash. Look for savings accounts offering over 3% interest to offset some inflation impact.
• Fix part of your home loan for 1-2 years at current rates, before possible further RBA hikes. This provides repayment certainty and stability should variable rates climb.
• Create and stick to a thorough monthly budget tracking all income and expenses. This allows you to spot areas to cut back like dining out, entertainment, memberships, and other discretionary costs.
• Reduce splurging on wants rather than needs. With inflation squeezing budgets, focus spending on essentials like groceries, utilities and transportation.
• Shop around for better deals when costs rise on large, fixed expenses like insurance and internet plans. Consider switching providers to avoid massive price hikes.
• Consider balance transfer credit cards to pay off high-interest debts on an interest-free term. Transfer fees apply but can still provide savings.
• Add extra mortgage repayments if possible when your fixed term ends, to pay debt down faster while rates are high.

Concluding Remarks

2024 may not look like smooth sailing. But If we stick to some sound financial principles, we can ride out whatever lies ahead.

Keep knocking down debt, especially high interest credit cards. Having a healthy emergency fund can help absorb rising costs or income shocks. Lock in part of your home loan before more rate hikes hit. Maintain a tight budget and spend only on essentials – wants can wait.

Don't take on risky investments in shaky markets. But do shop around for better deals on big expenses. And check in regularly on your finances, to stay agile as conditions change.

The outlook contains uncertainties, but preparation and prudence will prevent being capsized.