Impact of interest rate hikes on the property market
Typically, when the Reserve Banks raise interest rates, it leads to a decrease in property values. This occurs because higher interest rates usually discourage people from borrowing loans for property purchases, thereby reducing the overall funds available for buying a particular property. A fall in property values is a win for homebuyers, especially if you have been watching on to acquire for a long time. Investors often take such opportunities to grow their portfolios.
Property prices and interest rates hike in Australia
The Reserve Bank of Australia (RBA) has increased interest rates in Australia for a record number of times between 2022 and 2023. The RBA held the cash rate steady at 4.35% at its May 2024 meeting.
So why have house prices increased in 2023?
Many factors are contributing to the increase in property prices in Australia. One of them is the influx of immigrants which has created an imbalance in the supply and demand in the property market. The current Government led by Prime Minister Anthony Albansese’s plan to admit 650,000 new migrants by mid-2024 represents a significant change in Australia’s capacity to provide new housing.
With already low rental vacancies in major cities of Australia, with vacancy rates at an all-time low of 1.2%, the influx of such a huge number of immigrants to the country could further put a pressure on property prices.
The demand for housing is strong enough to withstand potential negative impacts from interest rate changes, which is good news for homeowners and investors.
Waiting for better interest rates?
Mortgage rates can greatly affect the total cost of owning a home, and waiting for a more favorable rate could save you money over time.
However, it’s crucial to consider other factors as well, like the possibility of increasing home prices while you wait for rates to fall.
Inflation prediction in Australia
According to reports from the RBA, inflation is still high and above the target range. However, it is expected to return to the target range in 2025 and to the midpoint in 2026 (Graph).
Impact of inflation on interest rates and property market
Historically, lower inflation leads to lower interest rates, making borrowing more affordable. Buyers are motivated to borrow more when interest rates decrease because of the lower repayment amounts. This trend has a significant impact on the housing market as demand for housing increases.
However, home prices have defied the expectations and prices are still increasing during the high inflation and high-interest rate environment. According to experts, the chances of property prices going cheaper look unlikely, so waiting for the ideal time to make a purchase can result in many missed opportunities.
In conclusion, investors and many homebuyers see this as the right time to get into the property market. With the surge in housing demand and property prices unlikely to go down, there is a strong potential for significant returns on investment.
Are you wondering where to start?
In times like these, whether you’re entering the market for the first time or you’re a seasoned investor, seeking expert guidance becomes crucial. Credit Hub Australia is a one-stop solution for all your financial and conveyancing needs to ensure you receive the holistic support necessary for success. We have 20 years of experience in the financial industry and our experienced team can assist you, as you navigate the twists and turns of your financial journey. Get in touch with us today! Call 1300 782 944, email info@credithub.com.au, or request a call back at https://www.credithub.com.au/contact-us/
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