What the RBA’s latest hike means for Australian housing prices.
The housing rebound has surprised housing market analysts despite a 0.25 percent official interest rate increase in early February and another 0.25 percent increase in early March.
The Reserve Bank of Australia’s (RBA) ten straight interest rate rises have almost doubled mortgage rates and reduced borrowing capacity by around 30 percent- the steepest drop in borrowing capacity on record (typically associated with a major drop in property values).
Sydney, the market which led the downturn is now leading the recovery, with housing prices rising 1.7 percent year to date. The unexpected rebound in home prices has matched the auction market, where clearance rates have also bounced from their December low.
In previous cycles, home values did not rebound until the RBA began cutting interest rates. However, an extreme shortage of listings, skyrocketing rents, and unprecedented immigration are now outweighing the RBA‘s aggressive rate hikes, fuelling the unexpected price rebound.
Consequently, rents across the combined capital cities are soaring by double-digit rates amid record-low vacancy rates. This is an obvious corollary as Australians desperately try to escape the broken rental market, driving the price rebound.
When the RBA does finally cut, house prices will boom
The substantial rebound in immigration, auction clearances, and prices demonstrates that demand for housing remains strong.
The only thing holding back prices is the steep drop in borrowing capacity because of the RBA’s 3.75 percent interest rate rises.
Once the RBA begins cutting the OCR, (most likely at the end of the year), borrowing capacity and mortgage demand will lift.
There is also the strong possibility that the Australian Prudential Regulatory Authority (APRA) will follow suit by lowering its mortgage serviceability buffer from 3 percent, increasing borrowing capacity and demand even further.
Most factors listed are in place for the next housing price boom. All that is needed is for the RBA and APRA to commence their easing cycle, which will launch home prices into 2024.
At DWC, we look forward to working with friends old and new in what is sure to be a challenging market coming our way. Reach out, let’s connect and work together.
For a confidential discussion call us on +61 2 9189 0030 or visit our website at www.durantwyotcapital.com.
