Time to split your home loan? + The 2025 property report you need to read

Hi everyone,

Hope you’ve had a great week.

It’s been a frantic week in politics. Could this be the last sitting week before an early federal election? Who knows!

17 May is the furthest it can be pushed back.

Yesterday was a fascinating day in the ongoing feud between the Federal Treasurer, Jim Chalmers, and the Reserve Bank Governor, Michele Bullock.

The Treasurer had his reform bill of the RBA passed the through Parliament which will see a separate RBA committee appointed to set interest rates, while the RBA board will oversee governance. This gives the Treasurer the ability to appoint like-minded people to set rates, rather than the independent directors of the central bank.

As you know the two are feuding at the moment about how to measure inflation. The Treasurer says it’s the headline rate which is now within the RBA target range for cutting interest rates. The RBA says it’s the trimmed mean measure, which is still above target range and therefore not allowing them to cut rates.

In fact, last night Michele Bullock made her stance very clear once again at the annual CEDA (Committee for Economic Development Australia) dinner:

“Despite the decline there is still some way to go to return inflation sustainably within our 2-3 per cent target range.”

“Indeed, over the past year, part of the decline in headline inflation has been due to temporary factors such as electricity rebates and declining fuel prices.

“While these temporary factors have undoubtedly helped many Australians, our approach is to look through them to some extent to better understand where inflation will settle in the medium term. The best way to do this is to look at underlying inflation. The measure we typically look at for this is trimmed mean inflation and by this measure, inflation was still too high.”

It's a very interesting dynamic between the two.

In this week’s newsletter:

• Inflation picks up pace ... using the RBA’s preferred measure.

• Is the home loan cocktail between variable and fixed rates back on the agenda?

• Louis Christopher’s Boom or Bust Report for property in 2025.

• How to talk to your parents about their will.

• One of Sir Donald Bradman’s baggy green caps is up for auction.

• Is the US sharemarket overvalued?

• For perspective: You’ll be stunned by size of the US economy.

Inflation picks up pace in the eyes of the RBA

I know most of the media headlines focussed on the slowing of the monthly October CPI figure during the week but, as I’ve mentioned before, that’s not what the Reserve Bank looks at.

The headline rate slowed to a three year low because of a 12.3 per cent drop in electricity prices (down 35.6 per cent for the year). This is because of the Federal Government’s energy rebates and extra rebates from the Queensland and WA State Governments. This meant the October CPI dropped 0.3 per cent and the annual rate to 2.1 per cent - at the bottom end of the RBA 2-3 per cent target band.

But the trimmed mean measure of inflation, which excludes big swings and electricity and fuel prices, actually rose to an annual 3.5 per cent from 3.2 per cent in September - still above the RBA's 2-3 per cent target band, which means no interest rate cuts. The lift was driven primarily by the rents component, which has a large weight in the CPI basket. Excluding rents, the trimmed mean inflation rate probably would've remained steady.

Adding to disinflation in October, volatile holiday, travel and accommodation prices were weaker, pushing domestic travel prices down 2 per cent. That said, the cost of domestic holiday travel is still 8 per cent higher than a year ago.

Furniture, household equipment and services prices slipped by 0.6 per cent in the month with petrol prices edging 0.1 per cent lower. Childcare costs were down 5.8 per cent.

Housing costs fell 1.1 per cent in October with rents 0.3 per cent lower, driven by the increase in Commonwealth Rent Assistance (CRA). But rents are still up 6.7 per cent in the 12 months to October and without the CRA, rents would’ve risen 8.1 per cent over the annual period.

Among the inflation drivers, tobacco (up 2.8 per cent), bread and cereal products (up 1.3 per cent), meat and seafoods (up 0.5 per cent), clothing and footwear (up 0.4 per cent), finance and insurance (up 0.2 per cent) and communication (up 0.2 per cent) - costs all remained ‘sticky’.

Are split home loans between variable and fixed rates worth it?

Australians have the highest proportion of variable home loans in the world, but is it time to switch to a fixed rate home loan, or have a cocktail of fixed and variable?

I know that sounds crazy when there is huge anticipation for a cut in interest rates from the Reserve Bank on the horizon. But given the difference between variable and fixed rates, plus a growing doubt about the timing and size of a future cut, fixing could be a consideration.

In last week’s RBA board minutes, it was made clear that there would be no rate cut until two consecutive quarterly CPI results landed within the 2-3 per cent target range.

Strip the ‘headline rate’ artificial sweeteners out (such as government rebates) and the trimmed mean CPI actually rose for the month from 3.2 per cent to 3.5 per cent. So, through the eyes of the RBA, inflation is getting worse rather than better using its filter.

If you assume the September quarter CPI was not a good result in the eyes of the RBA, it would need a good result in the December and March quarters before it would consider cutting rates. The March quarter CPI result is released on 20 April and the RBA meets on 19-20 May next year - after the 17 May deadline for the federal election.

There is a very good chance we won’t get a rate cut before the next election even if it is held late. That’s why the Federal Treasurer is getting so aggressive in spouting the Government’s economic credentials.

Let’s assume there is no rate cut until at least May, which is almost six months away. Currently the average variable home loan rate is 6.3 per cent, but there are some two and three year fixed rates as low as 5.59 per cent - that’s almost a 0.75 per cent difference, or three RBA cuts.

Analysis by comparison website Compare the Market shows a borrower with a $500,000 split loan could potentially reduce their repayments by $4,104 over the first three years if the cash rate were to remain unchanged.

Even if the Reserve Bank were to drop the cash rate twice by a total of 0.50 per cent, borrowers would continue to pay less on their fixed portion at a rate of 5.59 per cent. Only after a third 0.25 per cent rate cut would the average variable rate beat the split loan option for savings.

The reality is, we don’t know if, or when, rates will drop but it’s hard to find variable rates below 6 per cent.

Interest rate forecasting has become a financial sport and there are plenty of experts who have egg on their faces at the moment. Remember six months ago when the major banks were predicting at least one, maybe two, interest rate cuts by the end of 2024? Hasn’t happened.

Inflation hasn’t slowed as expected thanks to a combination of rent, building costs, insurance premiums and wage rises feeding into the services sector. These are the “sticky” cost increases holding up the inflation rate and holding up the RBA from rate cuts.

Now with the US election of President Donald Trump and his inflation-boosting policies (increasing tariffs and mass deportations of illegal immigrants), there is a fear we will see a spike in US inflation. This could be exported overseas and the Federal Reserve will need to curtail future rate cuts.

This increasingly uncertain inflation and interest rate outlook is why the difference between variable and fixed rate home loans is interesting.

A hybrid approach allows borrowers to hedge their bets and experience the benefits of both rate types. Just remember you’re also exposed to the risks.

Fixed rates are great for shielding you from rate rises, but if the cash rate happens to fall, you may miss out on savings.

Split loan pros:

• Interest rate security - This stability can be reassuring for families and individuals on a budget who need to manage their monthly expenses, without surprises.

• Flexibility of a variable rate - If interest rates drop, borrowers will see lower payments on this portion of the loan, allowing them to take advantage of the market's fluctuations.

• Extra repayment options - Most variable-rate loans allow additional repayments without penalty, and the variable portion of a split loan is no exception.

• Balanced risk approach - Borrowers can shield part of their loan from interest rate hikes while still being open to benefits if rates drop. This diversification of interest rate exposure is particularly appealing to those who want to avoid committing entirely to a fixed or variable rate.

Split loan cons

• Fluctuating repayments - If a portion of your home loan is variable, your monthly repayments might change if interest rates vary. This could make budgeting harder.

• Interest rate changes - If interest rates increase, your variable loan portion will increase. Conversely, an interest rate drop might mean you don't fully benefit if your fixed rate portion remains steady.

• Fees - Lenders charge fees and having two loan products could result in different fees. Some loans also have break fees if you want to leave a loan early.

Choosing a split loan depends on individual needs, circumstances, financial goals, and risk tolerance. Before making any decision, I’d encourage prospective borrowers to talk to a home loan specialist to better understand their options.

Louis Christopher’s property Boom and Bust Report for 2025

I’ve known SQM Research founder, Louis Christopher, for years and regard him as one of the best property analysts in Australia. And I always look forward to his annual Housing Boom and Bust Report of what the year ahead has install for property.

The report has a terrific track record for its accuracy.

In the 2025 report released this week, Sydney and Melbourne housing prices are predicted to continue to record moderate housing price falls of between 1 per cent to 5 per cent, in what is tipped to be another mixed 2025 national housing market.

Louis’ base case forecast is for average national dwelling prices to rise between +1 per cent to +4 per cent. The cities of Perth, Brisbane, Adelaide and Darwin are expected to outperform the national housing market, with Perth forecast to record the fastest price rises in dwellings of between 14 per cent to 19 per cent.

Meanwhile, Canberra is expected to record the largest falls in dwelling prices of between -2 per cent to -6 per cent.

SQM Research is also forecasting an interest rate cut of between 0.25 to 0.5 per cent over mid 2025. This is based on the view that inflation will continue to moderate and the overall economy will continue to record below trend growth.

If interest rates are cut as forecasted, this event will immediately stimulate homebuyer demand across the country and will limit the year-on-year dwelling price falls recorded for Sydney and Melbourne.

How to talk to your parents about their will

Talking to your parents about their will is one of those conversations that no one really ever wants to have. Let’s face it, death and money aren’t exactly the most popular topics for casual dinner chats. But if you don’t tackle it now, you risk running into serious misunderstandings, emotional meltdowns and financial headaches down the track. It’s a conversation that matters. So, the sooner you start it, the better prepared everyone will be.

Also, if you’re a Baby Boomer like me, please don’t be offended by me raising this subject. Maybe you have the view that, “It’s my money and has nothing to do with anyone else”. Yes, it’s your money. But estate planning needs to be an open conversation that doesn’t create family disharmony when it is implemented. That’s the last thing you should want.

How, then, should you, or your adult kids, bring up the subject without sounding like anyone is counting down the days to an inheritance? If the ‘will conversation’ is brought up, don’t shut it down. Be open and confident.

Here’s how to broach the topic with tact and practicality:

Timing is everything

The worst time to bring up a will is during a crisis. If one of your parents is unwell or has just had a health scare, emotions are already running high. Adding money and estate planning into the mix can overload the stress levels and make for poor decisions or even worse communication.

Instead, try to raise the topic during a calm, everyday moment. Maybe for your family that could be over a casual weeknight dinner or while chatting during a holiday visit. The key is to not make it feel like a formal or high-pressure situation.

And don’t wait until it’s too late. As uncomfortable as it might be, earlier is always better. Talking about estate plans when your parents are healthy gives everyone time to think about things and make better decisions.

Don’t make it about money

If you make this conversation about what you’re going to get, I reckon you might come across as someone who cares more about money than you do about your actual family. That’s not a great look, and it’s not going to be helpful for the conversation either.

Instead, frame the discussion around making sure their wishes are honoured and not putting unnecessary stress on the family. “Where do you keep your will?” is a good start. Make sure you also ask questions like:

• Who have you chosen as the executor of your will?

• Have you nominated a power of attorney?

• What are your wishes for long-term care?

• Do you have any specific funeral arrangements or other end-of-life wishes?

Make it clear you’re asking out of concern for their wellbeing and a desire to respect their preferences, rather than a sense of entitlement.

Let them take the lead

One of the biggest mistakes you can make is coming in hot with opinions or judgements. If your parents sense that you’re trying to control the process or influence their decisions, they’ll probably take a very big step back. Remember, their will is ultimately their decision, and they deserve to be in control.

Instead, listen carefully and let them lead the conversation. Show respect for their ideas and decisions, even if they differ from your own. Keeping the focus on their wishes means you’ll be able to foster more trust and open up the space for a more productive dialogue.

It’s worth keeping this conversation as a collaborative effort too. Offer your help for things like organising paperwork or finding professional advice, but don’t overstep any boundaries.

How you can deal with resistance

Let’s face it: some parents simply won’t want to talk about their will. Whether it’s out of fear or a desire to avoid family drama, they might shut down the conversation straight away.

If that happens, you’ll need to think about involving a neutral third party like a financial advisor, lawyer or accountant. It might seem awkward, but a professional can sometimes raise the topic in a way that feels less personal and more pragmatic. As an added bonus, they can give everyone some expert advice on things like tax implications or legal structures.

And if your parents still don’t want to discuss it? Respect their boundaries, but gently revisit the topic after a few weeks or months. Even the smallest steps can lead to progress.

Keep everyone’s expectations in check

Maybe, like me, you reckon there’s a hard truth here: your parents might not leave you as much as you think - or anything at all. According to the latest data, the average inheritance for Australians is just $45,000, which might not make a whole lot of difference to the lives of families who are trying to buy a home or pay off a serious amount of debt.

If you’ve been banking on an inheritance to solve your financial woes, it might be time for a reality check. Assume that you won’t get anything, and if you do, treat it as a pleasant surprise.

Talking to your parents about their will isn’t easy, but it’s something we should all try to do. At the end of the day, it could be a way to get more clarity about the financial outcomes and make the family be a little happier when talking about uncomfortable topics. Just a small amount of planning right now could save everyone a world of stress later on.

So take a deep breath, pick your moment and get the conversation started. It might just be one of the best chats you’ll ever have with your folks.

The Don’s baggy green up for auction

For all the cricket aficionados, Aussie cricket legend Sir Donald Bradman's baggy green cap is going up for auction next week.

Bradman wore the cap in the 1947-48 home Test series against India, during which he scored his 100th first-class century. The cap will go on sale at Bonhams Sydney on 3 December with a pre-sale estimate of $300,000 to $400,000.

Is the hot American sharemarket overvalued?

Another week and another record high for both the Australian and US sharemarket. I’ll be honest, I do start to get nervous when markets get to these levels.

I’m old enough to have been through the crash of 1989, the Asian Financial Crisis, the dot com boom and bust, the GFC and everything in between. At the peak of their individual booms before and the inevitable busts which followed, the rhetoric was always, “It’s different this time”, “The market is going through a fundamental rerating” etc etc.

But they all returned to their norms. Nothing was different.

In this current boom, led by the so-called Magnificent 7 US technology companies, the argument is that artificial Intelligence is rerating the entire market and that’s why this boom is “different this time”. Revenues are justifying the valuations.

Maybe. But history tells us that markets always revert back to their historic norm. The S&P 500 is trading on a valuation of 22 times earnings. Its historic average is 16 times earnings.

And the world’s best investor, Warren Buffett, is sitting on a record amount of cash.

Just saying.

Perspective: The economic might of the United States

We all know the American economy is big, huge. The home of capitalism, the leader of the free world ...

We get told that if California by itself was a separate country it would be the fifth largest economy in the world.

But this graphic shows the GDP per capita of the richest and poorest individual states in the US against the G7 richest countries in the western world.

Washington DC is the richest per capita state in the US, followed by New York and then Massachusetts.

Canada and Germany have a GDP per capita which is just ahead of the second poorest US state while the UK, France, Italy and Japan are poorer than the poorest US state of Mississippi.

For the record, Australian GDP per capita is $US64,711.