Interest rate rise not dampening property values

Interest rates may rise again, says Eleanore Creagh, a senior economist at property data firm PropTrack. The Reserve Bank put through a surprise 25 basis point hike on 2 May, marking the 11th increase in a row. The move brings the cash rate to 3.85%, its highest level since April 2012.

Creagh says: “The RBA’s statement hinted at the possibility of ‘some further tightening’ in the future. First and foremost, the trajectory for interest rates is uncertain as the RBA’s reaction is fairly unclear, though it seems risks are skewed to the upside.

“Behind the [rate rise] decision was the fact that inflation remains too high and labour markets remain very tight.”

Eleanor Creagh.

Turning to real estate, Creagh says while property values nationally fell for nine consecutive months in 2022, that trend has reversed this year with national home prices rising for four consecutive months.

“Prices are now up 0.75% from their low recorded in December 2022,” she says. “It appears the impact of interest rate rises is being counterbalanced by stronger housing demand and tight supply conditions.

“The path for home prices in the months ahead will be influenced by many factors, including the strength in housing demand, the level of supply hitting the market, as well as the trajectory of interest rates.”
However, Creagh says headwinds remain, with the full impact of rate rises already delivered yet to be felt and the possibility of further tightening still in play.

“But for now, the increased cost of borrowing and reduced purchasing power is being offset, as the strong rebound in immigration, shortages in rental supply, and a softer flow of new listings underpin home prices.

“Further, the tightness in the labour market comes with a greater sense of job security, while the slow increase in wages growth will also maintain housing demand. A home shortage exacerbated by high construction costs and industry challenges will also underpin values as the population grows.”