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Home › Blog › Interest Rate Rises and the Australian Property Market [2023]
This month marks our 8th consecutive interest rate rise since May 2022 and we’re still counting.
The Reserve Bank of Australia’s (RBA) current cash rate of 3.1% is the highest seen in 10 years in attempts to tackle inflation and the rising cost of living.
The question is, is it working? And how is it impacting real estate prices around the country?
CoreLogic reports that “there are early signs of a slight shift in the Australia economy, with further slowdowns expected as monetary policy permeates spending decisions.”
When it comes to the real estate market, up until now, experts have been singing from the same song book, confidently indicating there’ll be a further flattening of national house prices in 2023.
Westpac’s update at end of Nov 2022 was as below:
However, SQM Research’s new annual Housing Boom and Bust Report for 2023 forecasts capital city house prices will rise between 3% and 7%.
Although dependent on a couple of key factors, it may just lead to a more positive point of view for the year ahead.
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SQM Research’s latest report – and the “base case” forecast – is contingent on the RBA not going above the cash rate of 4%, inflation dropping to 5% an unemployment staying below 5%.
SQM Managing Director Louis Christopher told the ABC that “if the cash rate target stays below 4%, then it is unlikely we will have a flood of forced sales in the housing market”.
Along with the “base case” forecast, the report shows three other scenarios for the country’s property market in 2023.
Looking at the “base case” scenario, Sydney would see the biggest increase in property prices of between 5% and 9% – and Darwin the only capital city predicted to record no chance of growth.
Perth house prices are expected to rise 8%, with Melbourne and Brisbane trailing at between 1% and 5%.
Adelaide’s real estate market could stay flat or it’s showing there could be potential of a 5% growth.
Hobart and Canberra are the capitals alongside Darwin venturing into that negative range with falls of 1% or increases up to 3% and a drop of 3% or rise of 2%, consecutively.
“It does boil down to what the Reserve Bank of Australia does next year, very much so, more than many other years.
“One of the key reasons why I was not more negative for the outlook on housing for 2023 was because stock listings have remained relatively stable,” Mr Christopher said.
This new report comes at the same time CoreLogic released its latest data showing although values are “continuing to trend lower, the rate of decline has been consistently moderating since the national index dropped by -1.6% in August”.
CoreLogic’s research director, Tim Lawless, said the easing in the rate of decline is mostly emanating from the Sydney and Melbourne markets, but is also evident across many of the smaller capitals and most regional markets.
“Three months ago, Sydney housing values were falling at the monthly rate of -2.3%. That has now reduced by a full percentage point to a decline of -1.3% in November. In July, Melbourne home values were down -1.5% over the month, with the monthly decline almost halving last month to -0.8%.
“The rate of decline has also eased across the ACT (from a -1.7% fall in August) and is no longer accelerating in Brisbane.
“Most of the broad rest-of-state markets have also seen the pace of declines decelerate.
“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls.
“However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched,” Mr Lawless said.
The major banks remain fairly downcast about 2023 with Westpac Senior Economist, Matthew Hassan indicating another 12 months of price declines is looking likely.
“The downturn has become more firmly entrenched in most markets, while price-driven improvements in affordability are being negated by rising interest rates and deteriorating expectations for prices and labour markets.”
Westpac forecasts the cash rate to peak at 3.85% by May 2023, and house prices to drop by -8.0%, which is also what the Commonwealth Bank (CBA) is predicting.
While, NAB is expecting capital city prices to decline -11.4% and ANZ -9.0%.
As of December 2022, interest rates for the “big four” stand as shown in the below table.
The extent of any associated impact will be ultimately determined by the RBA and what the state of play is with interest rates over the next few months.
Interest rates can have a significant impact on property prices.
When interest rates are low, it can make borrowing money to buy a home more affordable, which can increase demand for properties and drive up prices.
On the other hand, when interest rates are high, it can make borrowing more expensive and reduce demand for properties, which can cause prices to fall.
Home-owners are definitely feeling the pinch of every rise and with eight and counting, that’s starting to sting.
Analysis by mortgage comparison site RateCity estimates that over these rises, the repayments on a $500,000 mortgage have increased $834 – and on a $1 million loan, $1,668.
The buffer that many people have had from the days of lower interest rates have been eroded and now people are having to adjust household budgets accordingly.
And that will be tested even further when many fixed rates reach the end of their term in 2023 and rollover to variable rates.
However, property prices are still above where they were during the boom times of 2021.
Sydney actually remains the only city where housing values have fallen by more than 10% from their peak. Keeping in mind though that through the upswing, values increased by 27.7% before peaking in January.
Sydney home values remain 10.3% above pre-COVID levels during March 2020.
Melbourne values are 2.8% above where they were at the onset of COVID and most of the other capital city and broad rest-of-state regions are still recording house values at least 25% above March 2020 levels.
If you’re thinking about selling your property and unsure about whether the time is right, it’s a good idea to ask the professionals.
Talking to a local agent is the best way of finding out what’s happening in your area, what the potential is for your property, and how you can sell your home quickly for a great result.
Call our local expert team on 1300 665 557 or compare agents now to connect with experienced, local agents.
Photo by R ARCHITECTURE on Unsplash
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