Earlier this month, for the first time in over a decade, The Reserve Bank of Australia (RBA) moved the cash rate from a record low of 0.1 per cent to 0.35 per cent. Banks across the country, including the big four, were quick to match the RBA’s move, swiftly passing this .25 point rise onto borrowers.
The record low cash rate that’s been in place since November 2020 has undeniably fuelled the property market and led to soaring house prices across the country. Now that the key factor behind the property boom has essentially been reversed, what does this mean for the housing market?
Firstly, it’s important to note that this likely won’t be the only rate rise we see this calendar year. It is widely expected that we will see multiple rate hikes before the end of 2022. Experts are tipping that the RBA will continue to lift the cash rate until it hits 2.5 per cent, likely by mid 2023.
In normal circumstances, a rate rise would take time to have a significant effect on the market, however, over the last few months, buyers have unanimously anticipated the rise. As such, we have witnessed the impact of a rate rise filter through the market before it was even official. We’ve seen markets across the country begin to stall and slow and auction clearance rates fall.
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Melbourne and Sydney for example, have surpassed the point of losing steam and are now, for the first time in recent memory, venturing into negative territory. In other capital city markets such as Brisbane, Adelaide and Canberra, growth is currently modest and beginning to slow.
As we now stare down the barrel of a potential downturn, the coming weeks and months represent perhaps one final window of opportunity for those who have been considering selling to capitalise on what still is, a white-hot market. There are a plethora of buyers who missed out during the frenzied period that was the last twelve months, desperate to transact on a property before rates inevitably rise again. We may see an unseasonably busy winter of auctions as those ready to sell give buyers another opportunity to take advantage of a low rate.
The broad sentiment is that over the next twelve months we will see the pendulum swing back in favour of buyers. However, a higher cash rate translates to higher mortgage rates and ultimately, a reduction in borrowing power. As such, the constraints of higher interest rates may counteract any decline in property prices, leaving buyers in a similar position as they are now from a financial standpoint. The key difference being that saving for a deposit may be slightly more achievable while servicing the loan will become more difficult.
It’s safe to say we’re rapidly transitioning from a booming property market into territory that is far more complex. It’s important to keep in mind, that even as we begin to see interest rates rise, they are still incredibly low, and our housing market is incredibly resilient.
Feeling overwhelmed? Get in touch with a trusted agent to understand what your next move should be. Just as all states and territories will feel the impact of the rate hike cycle differently, individual suburbs will too and your local Stone agent will be able to support you through each one.