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What rate rises mean for house prices

By ,| 4 min read

After soaring in 2021, house price growth has seen a downturn that has been reflected in gradual declines in property prices across the country.

CoreLogic’s national Home Value Index saw housing values down 0.6% in June. These price drops can largely be seen in Sydney and Melbourne which saw respective property value falls of -1.6% and -1.1% in June.

Hobart and regional Victoria have also experienced declining property values, while Brisbane’s value growth flattened out to 0.1% in June.

Perth’s house price growth is also slowing, with Adelaide being the only remaining capital city recording monthly growth at a rate greater than 1.0% (1.3%).

In this article, we’ll explain what is causing house price growth to slow down and consider whether now is the right time to buy and sell property.

Why is house price growth slowing down?

The decline in house price growth can largely be attributed to the rising cash rate which has increased home loan interest rates. Higher interest rates make home loans more expensive and therefore less attractive and accessible.

This naturally lowers demand and competition for housing, so prices drop.

But let’s look at how house price growth has shifted over the past two years in alignment with the official cash rate.

The record low cash rates introduced by the Reserve Bank of Australia (RBA) during 2020 saw home loan interest rates drop, making it more affordable to borrow money. This increased housing demand, which resulted in higher property prices.

Meanwhile, inflation has been creeping upwards, reaching 6.1% in the June quarter. This has led to an increased cost of living, with the RBA raising the cash rate in an attempt to stall inflation.

The higher cash rate, paired with the inflation-induced rising cost of living, could deter potential home buyers from borrowing money which the RBA hopes will lead to reduced demand for goods and services. This would therefore lead to reduced prices and help curb inflation.

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Is house price growth still strong anywhere in Australia?

Data from CoreLogic indicates that positive property value growth is still occurring in most regional areas. This indicates that there’s still an increased interest in regional properties – something that property investors might like to take note of.

Is now a good time to buy a home?

While house price growth may be seeing a downturn, house prices are still up 34% since March 2020. It will likely still be some time before meaningful value declines occur. To be specific, Deutsche Bank research has predicted property price falls of 15% by the middle of next year.

Deutsche Bank economist Phil O'Donaghoe said that the middle of 2023 will “see the weakest house price growth recorded in Australia for more than 50 years”.

So, the slowing of house price growth doesn’t mean that housing values have dropped drastically. Housing hasn’t suddenly become affordable in cities like Sydney and Melbourne which have seen growth declines.

Additionally, with house prices still high and interest rates rising – a home loan could become very expensive to manage.

This isn’t to say that now is a bad time to buy, in fact; we’re moving towards a buyer’s market. As a buyer, you may have more negotiating power since there is less demand for property.

But you will have to consider the higher mortgage costs associated with increased interest rates, as well as your home loan deposit and other property-buying costs.

If you want to pay less for a home, it may be worth waiting until 2023 when property prices are projected to fall further.

From an investment perspective, it’s worth noting that rents are increasing at a faster rate than housing values. Across Australia, rents increased 0.9% in June, lifting the annual rate of growth to 9.5% – the highest rate of annual growth since December 2007.

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Is now a good time to sell my property?

This depends on your needs and goals. If your goal is to get as big a return as possible on your home or investment property, it may be worthwhile to consider selling sooner. This is because property prices are likely to continue falling and you may be able to get a better sale price by selling this year.

But if you’re an owner occupier and not focused on profit, it may not matter. However, if you’re thinking about selling and moving to a new area – you might like to move with as much money to spend as possible.

Although if you’re only planning on moving locally, you probably don’t need to rush to sell as a potentially lower sale price will be balanced out by generally lower purchase prices in your area.

Rising interest rates can make your home loan more expensive. Book an appointment with a Lendi Home Loan Specialist to have your mortgage reviewed and find out what other home loan options are available.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, first home buyer, new home, new purchase, official cash rate, rba cash rate, interest rate, property prices

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