Experts from CoreLogic, LocalAgentFinder, and Ray White have their say
Following a four-month rate pause, the Reserve Bank of Australia has opted to raise the official cash rate by 25 basis points, pushing it up to 4.35%, in a move industry experts from CoreLogic, LocalAgentFinder, and Ray White expects to have significant repercussions on the property market.
The RBA move came after a higher-than-expected September quarter inflation numbers, where headline CPI increased from 0.8% in the June quarter to 1.2% over Q3, after a previous central bank warning that it would “do what it takes” to get inflation back into the 2% to 3% target range.
Tim Lawless (pictured above left), CoreLogic research director, suggested that other factors supporting the decision to hike rates likely included the sustained tight labour market conditions, an increase in retail spending volume and value, and concerns that rising housing prices might be stimulating a mild “wealth effect,” encouraging homeowners to spend more.
Lawless also flagged the risk of inflation becoming entrenched; staying higher for longer due to the price of services continuing to rise and price shocks stemming from global conflicts, including the Israel-Gaza war.
The CoreLogic economist said the increase in interest rates is likely to have a ripple effect on consumer sentiment, which is already teetering in deeply pessimistic territory.
“Lower confidence could act as a drag on housing market activity, denting buyer demand at a time when advertised stock levels are rising across most regions,” he said.
“A rebalancing between buyer demand and advertised stock levels is likely to take some heat out of the housing upswing, which has already been losing some momentum, at least at a macro level, since the monthly rate of value growth peaked in May.”
Another 25bp translates to roughly another $80 per month in mortgage repayments on a $500,000 loan, in addition to the $1,040 monthly increase observed since rates began to rise in May last year.
The higher interest rates also imply a further reduction in borrowing capacity, as lenders continue to assess borrowers using a three-percentage point serviceability buffer.
“As many as half a million mortgage holders who have struggled to absorb the impacts of rising interest rates to this point are reaching their financial tolerance threshold,” said Richard Stevens (pictured above centre), CEO of LocalAgentFinder.
“The health of the property market and housing affordability is not immune from further upward pressure on interest rates. The breadth and depth of the property market buyer pool would be adversely impacted should household financial stress be felt across a larger percentage of the population.”
Shiv Nair (pictured above right), director of Ray White TNG-Glenwood in Sydney, agreed that the latest rate hike could break the financial tolerance level of many and advised property owners looking to sell to take action promptly rather than delaying.
“Right now, 10% to 20% of our sales are from distressed sellers, a figure that looking back six months ago we would have predicted to be more around 50%,” Nair said. “With the increasing likelihood of more properties listing as we move into March, acting now offers the chance to get in ahead of this.
“For those under financial pressure, the market offers relative stability, but with the potential for more rate rises on the horizon, we may soon see very different property market conditions.
“We are witnessing a surge in investment property sales, largely because owners are securing their primary residences and choosing to liquidate investments while conditions are favourable.”
On housing values, Lawless said that while these are expected to continue easing, it’s unlikely that prices will decrease soon.
“A shortage in housing supply, record-low vacancy rates, and a lagged flow through to purchasing demand from record levels of overseas migration should help to keep some upwards pressure on home values,” Lawless said.
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