One in ten homes must be affordable to end homelessness Effect of Rising Interest Rates on Australia’s Property Market Recovery

The recent interest rate hike, coupled with the potential for another increase in the near future, has raised concerns about the impact on Australia’s property market. While experts acknowledge that these rate hikes will slow down the property market’s rebound, they do not anticipate a complete halt to further price increases.

The decision to raise the cash rate to 4.35% on Tuesday has been challenging for homeowners who have already witnessed a signifcant rise in mortgage repayments over the past 18 months. This move was largely expected due to higherthan-expected infation in the September quarter, compelling the Reserve Bank of Australia (RBA) to act in order to bring infation back within its 2-3% target range.

RBA Governor Michele Bullock’s recent statements had indicated the bank’s low tolerance for allowing persistently high infation, emphasizing the need to address the issue promptly. Despite concerns about the impact of higher interest rates on homebuyers’ borrowing capacities, economists believe that several other powerful factors continue to drive the surge in home prices across Australia’s capital cities.

Economist Eleanor Creagh from PropTrack points to factors such as record levels of net overseas migration, limited housing supply, and a construction slowdown. These factors, combined with interest rate hikes, have not been enough to deter the gains in home prices. She believes that while the latest rate increase may slow down the pace of home price growth, it is unlikely to prevent further increases. Strong population growth, tight rental markets, and a housing shortage are contributing to rising prices.

The PropTrack Home Price Index reveals that home prices have already risen by 4.93% this year, and NAB predicts a further 5% increase next year, even with expectations of another rate hike in February. NAB’s chief economist, Alan Oster, believes that the RBA may consider further rate adjustments to address infation risks.

While there are signs that price growth is slowing, indicated by an increase in listings and auction volumes, economists like Mr. Oster expect that prices will not rise as rapidly in 2024 as they did this year. He believes that softening price growth is a result of the increased supply and may continue.

Shane Oliver, the chief economist at AMP Capital, highlights the impact of the latest interest rate hike, which is expected to reduce borrowing capacities by about 2%. He also notes that the risk of another rate hike could keep buyer demand subdued, further slowing price growth. However, this slowing trend in price growth can beneft buyers, particularly in a market where prices have reached record highs in cities like Sydney, Brisbane, Perth, and Adelaide.

While some experts anticipate another rate hike in December, many believe a February rate hike is more likely as it will allow the RBA to review the next round of quarterly infation data.

Luci Ellis, former RBA assistant governor and one million public and community homes over the next 20 years to meet soaring demand.

“The federal government has the power to end homelessness in Australia. Our federal leaders must deliver an ambitious national plan and back it with the required commitment and resources.

“More social housing is key but the plan must also address the drivers of homelessness, set national minimum rental standards, reform Commonwealth Rent Assistance, and outline mechanisms to reduce speculative investment and house price infation.”

Westpac chief economist, emphasizes that the RBA will closely monitor data, including infation, unemployment, and economic conditions, before deciding on further rate adjustments. However, CBA and NAB have differing expectations on the timing of a rate cut, with CBA expecting one in September next year and NAB predicting a cut in November. The consensus is that the RBA will continue to assess data and respond as necessary to maintain economic stability.