Is now the time to fix?

While further cutting of variable rates is still expected in many quarters, this week has seen a shift in expectations towards the feeling that the April 0.5 rate cut – which went a long way in fulfilling pent-up expectations of cuts – may signal the end of the reductions this time round.

We won't know for certain for some time as we wait to see how the economy pans out this year. But if it turns out that we get no more cuts from the RBA, we will look back at the week leading up to Easter as being ‘the bottom' for fixed rates.

As such, we may be seeing the turning point in the interest rate cycle and the end of the best fixed rates this time round. Significantly, fixed home loan rates have edged up for the first time in months with ANZ and AXA both increasing their three and five-year fixed rates by 0.1 to 0.3 percentage points (ANZ 6.4 and 6.7%, AXA 6.7 and 7.1 per cent respectively).

Three and five-year rates are still in many cases below the standard variable rate of 6.8 per cent but this won't last long if signs grow that variable rates have hit bottom.

As BankChoice said in late March, locking in to fixed rates is always a gamble but for those who want to maximise their chances of coming out ahead, the lowest fixed rates are to be had just before the realisation sets in that variable rates aren't going to fall further. This could be now. Or more precisely, considering that today has seen the first tentative upward movements in fixed rates, it could have been yesterday.

Have variable rates bottomed?

Today's employment figures for March add weight to this argument; while showing a another fall in overall employment, there was a 7,200 rise in full-time work. Part-time jobs fell by 15,700 and helped by a fall in the participation rate, the unemployment rate actually fell 0.1 last month to 6.8 per cent. The figures suggest that maybe the jobs market is not in as steep a decline as feared in the current slowdown.

However, other indicators this week on housing finance and job ads tell a different story. The well-regarded ANZ job ads survey has shown a 7.9 per cent fall in newspaper ads in March, following a 10 per cent fall the previous month – not a good indicator for where employment might be in a month or two.

A 4.5 per cent fall in housing finance approvals in February suggests a housing market still falling in 2001 when many had predicted it was ready to bounce back. The steepest falls were in approvals of finance for construction of new homes, a key engine of economic growth.

We probably have the worst of this economic rough patch ahead of us, but the 1.25 percentage points in cuts already delivered by the RBA may be enough steer us back to healthy growth given the time lag between rate cuts and their full economic impact.

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