What impact will interest rate rises likely have on the property market?

May 30, 2022

For the first time since 2010, the RBA increased interest rates, and we’re still expecting further increases during the rest of 2022. This means for an entire generation of home owners they have only ever seen interest rates drop. This has many people questioning what the impact of the impending interest rate rises will have on the property market and property values.

If we look back over the past 30 years in Australia we can see the impact of During the 1980’s interest rates famously rose to 17% from 14 %. The inflation rate was at 7.33 and at the same time, the median house price rose by more than 35 %, and then simply plateaued for a while until the market could adjust.

From 1990 to 1993, inflation was at just 1.67%, which triggered a dramatic fall in interest rates from 17 % to less than 9%.  But this shift saw barely any change in the median house price. Interest rates rose sharply in 1994 by almost 2 %, and inflation was at 1.97%. but, the median house price continued on an upward trajectory.

In 1996 /1997 there was a sharp fall in interest rates of nearly 4 %  and the inflation rate rose to 2.35% but this did not result in a significant rise in the median house price.

However, a sudden increase in interest rates in 2000 barely registered in the property market, and the median price happily continued upward.

In 2003 to 2008, successive interest rate increases only saw the median house price trend sideways before resuming its climb and even accelerating before the Global Financial Crisis hit when we saw a significant decrease in the market and in 2009 the RBA made rapid cuts to the cash rate to protect the Australian economy from the global downturn and in return the interest rates dropped by around 3.5% in 9 months.

In the period between 2011 and 2018 variable interest rates fell from around 7.8 % to around 5.2 %. Over the same period, the median house price dipped a little before climbing again and stabilising during 2017.

Everyone always wishes they had a crystal ball, but what the historical facts suggest is that at times, when interest rates fall, the median house price may rise but only marginally. We have seen significant changes to buyer behavior in recent years through Covid and where many predicted property prices would crash as much as 30% the opposite was in fact true, with prices increasing by 22% on average in a 12 month cycle alone. I would suggest that the biggest factor to face our market will be supply and demand, the level of good quality stock available to buyers and the impacts of the return of immigration and buyer confidence as restrictions have become a thing of the past.  

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