Rate rises can affect the property market, as we’ve all seen of late. But there are other factors that appear to hold longer-term sway over national house prices.
In a bid to bust inflation, the Reserve Bank of Australia (RBA) has been on a rate rise run that’s seen the official cash rate go from a record-low of 0.10% to 3.60% in just 10 short months.
Along the way, we’ve seen property prices across Australia decline.
As rates rose, Australia saw the largest and swiftest property price drop on record, with a 9.1% fall from April 2022 through to February 2023.
But population and migration growth may have greater and more long-lasting effects on property prices.
So let’s examine the effects of mortgage rate rises and population growth so you can navigate the market.
Mortgage rate rise effects
When interest rates rise, your borrowing power can dip. And the rise in the cost of living can hit the hip pocket.
So, under these conditions, fewer people may be willing to buy property.
With less demand, vendors may need to lower prices in order to sell homes. And if you’re ready to buy you may be able to negotiate a great price.
But the RBA can’t keep raising the cash rate forever (surely!).
In fact, economists at each of the big 4 banks have forecast that the RBA will announce just one or two more rate rises by 2 May 2023, with a peak cash rate of 4.10% predicted.
Corelogic stated in their recent three-year post-pandemic market report that once we get a rate hike reprieve, property sale and price volatility may lessen.
Population and migration effects on the property market
While mortgage rate rises do affect property prices, other factors appear to have more long-term effects.
Property prices are reactive to rate rises within the same quarter, whereas movement in population and migration numbers is cumulative and the effects are longer lasting.
So as migration numbers continue to rebound following COVID-19 lockdowns (and lockouts), it’s likely we’ll see an increase in property demand, which could cause prices to rise.
For example, Domain says Melbourne has “made a quick population recovery” since the COVID-19 lockdowns and is slated to nab the title of Australia’s most populated city by 2031-2032.
Melbourne had an 8.1% property price drop in 2022, while Sydney experienced a heftier reduction of 12.1%.
Domain’s study suggests that Melbourne’s population boom, and the resulting increase in housing demand, are behind the more moderate price drop.
And so, while it’s worth considering mortgage rates when surveying the property market, other factors like population and migration – which feed directly into supply and demand – are certainly worth considering too.
If you’d like to dig into the modelling further, the Australian government’s Centre for Population website has a great interactive tool that you can use to check out migration forecasts for each state and territory.
Some FAQs on what’s happening in the Australian property market
Are property prices falling in Australia?
While property prices in Australia have been falling for the past nine months, there are signs that the decline is starting to slow down.
A recent report by CoreLogic showed that the home-value index only fell by 0.14 per cent in February from January, which is the smallest monthly decline since May 2022. This is a positive development for the housing market, as it suggests that the impact of the pandemic on property prices is beginning to stabilise.
However, it is worth noting that limited housing stock is still driving the slight decline in prices. The Reserve Bank of Australia’s nine consecutive rises in interest rates since May 2022 have also played a role in the current property market. Overall, while there are still challenges, the recent data suggests a promising outlook for the Australian housing market.
Where are property prices falling in Australia?
Looks like house prices might be taking a bit of a tumble this year! If you’re in Sydney, Brisbane, or Canberra, you might feel it the most. Word on the street is that we could be looking at a drop of anywhere between 7 and 10 percent, thanks to interest rates on the up and up.
This news might be a bummer for some, but it could also mean new opportunities for those who are ready to take advantage of the shifting market.
Are Australian house prices overvalued?
A recent article by SMH quoted Zurich-based Claudio Saputelli, head of real estate at UBS Global Wealth Management’s chief investment office. He said that real estate in certain areas like Sydney and Melbourne can be seen as overvalued.
Why are property prices falling in Australia?
Property prices in Australia began to fall after May last year when the RBA began increasing the cash rate. This impacted the interest rates and the cost of buying a home became more expensive. As a result, there was less inclination from home buyers to purchase property and prices began to dip.
Get in touch with Soho Home Loans today
Keeping an eagle eye on property prices is a great idea if you’ve got home ownership in your sights.
And while you’re busy researching the market, we can get cracking on helping to find the right loan for you. So, contact Soho Home Loans to get the help you need.
We can also help you get financially savvy with tips to boost your borrowing power. That way you’ll be ready to pounce when the time is right.
