In November, the Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to reach a 12-year high of 4.35%.
While the decision came after a four-month pause, it was widely expected after new RBA governor Michele Bullock said the central bank “will not hesitate” to increase the country’s official interest rate if there was a “material” change to the inflation forecasts.
Following this warning, the Australian Bureau of Statistics then reported a jump in the consumer price index from 0.8% in the June quarter to 1.2% in September.
Higher interest rates will further tighten home buyers’ borrowing capacities. So what, in turn, does this mean for property prices?
Prices unlikely to go backwards
October saw CoreLogic’s national home value index (HVI) grow 0.9% from September. This left it just shy of the record high recorded in April 2022, with CoreLogic research director Tim Lawless predicting a nominal recovery was “just around the corner”.
“At this rate of growth, we will see the national HVI reach a new record high mid-way through November, recovering from the 7.5% drop in values recorded over the recent downturn between May 2022 and January 2023,” he said.
The market’s recovery has been fuelled by an ongoing supply and demand imbalance caused by record levels of net overseas migration, limited housing stock and a collapse in homebuilding.
Mr Lawless believes these factors will help offset some of the impact of the rate rise.
“While growth in housing values is likely to slow further, it’s hard to see prices going backwards over the near term. A shortage in housing supply, record low vacancy rates and a lagged flow through to purchasing demand from record levels of overseas migration should help to keep some upwards pressure on home values,” he said.
This view is shared by PropTrack senior economist Eleanor Creagh.
“This additional increase in interest rates may slow the current pace of home price growth but is unlikely to deter these gains, with strong population growth, tight rental markets and a housing shortfall fuelling further price rises,” she said.
Similarly, NAB recently predicted that property prices will rise 8% in 2023 and 5% in 2024 due to the supply-demand imbalance.
This forecast was made with the expectation that the RBA would lift the cash rate to 4.35% at the November meeting.