Do interest rates push property prices up?

[Pelican Press 0]

This is the hidden content, please

• Sign In
• or
• Sign Up

Do interest rates push property prices up?

The Reserve Bank of Australia (RBA) cut interest rates at its last meeting. This will provide relief to mortgage holders, help homebuyers trying to enter the market and may also benefit for rental supply – investors are very focused on yield and the reduction will boost investor sentiment.

When rates decline, we are often asked if this will put upward pressure on property prices. The RBA says it can take one to two years for changes to interest rates to affect the economy, as one or two cuts on their own have little immediate impact on the market but a rate-cutting cycle eventually will.

In the past 25 years, there have been five rate-cutting cycles. Perth property prices rose after four of them. Our market has been less responsive to rate cuts than Sydney and Melbourne, being more sensitive to other economic factors.

Between January 2001 and December 2002, interest rates declined by 1.5 per cent and Perth’s median house price increased 22.9 per cent while Sydney’s rose 44.5 per cent. Perth prices rose 5.1 per cent between May 2019 and April 2021 when rates declined 1.4 per cent. Sydney and Melbourne prices increased 36.6 per cent and 28.7 per cent respectively.

When rates declined between January 2015 and December 2016, Sydney’s median house price rose 28.5 per cent and Melbourne increased 15.1 per cent but Perth declined 2.8 per cent. At this time, Western Australia was at the beginning of an extended economic downturn – population growth was very low, unemployment was rising and consumer sentiment was low.

We are at the start of another rate-cutting cycle. Our economy is strong, unemployment is low and population growth remains strong. House prices have been increasing regardless of interest rates and are likely to continue to do so. Over time, this cycle may boost the rate of growth.

However, people have been impacted by a ******* of strong inflation, the rising cost of living and 13 interest rate increases between May 2022 and November 2023. Consumers are cautious and homebuyers are being prudent with their spending. Also, the urgency has left our market and this may minimise the impact of rate cuts.

Whether rates are rising or falling, if you are looking to buy a home, it is important to buy what you can afford. If you have a home, use the rate cuts as an opportunity to pay more off your mortgage and build a buffer for the future.

This is the hidden content, please

• Sign In
• or
• Sign Up

#interest #rates #push #property #prices

This is the hidden content, please

• Sign In
• or
• Sign Up

This is the hidden content, please

• Sign In
• or
• Sign Up