Interest rates in context

If you’re considering buying a property, chances are you’ve been watching the recent increase in interest rates closely and wondering whether now’s the right time to buy.

You might also be weighing that decision against the prospect of possible house price declines, which the media has been talking about at length over recent months.

So, let’s take this opportunity to put it all into context…

Rising interest rates

It’s no secret the Reserve Bank of Australia has been actively pulling the lever of interest rates in a bid to curb Australia’s rising inflation.

In the past few months, there have been a series of cash rate hikes that have taken the official interest rate from a historic low of 0.1 per cent to its current rate in August of 1.85 per cent.

There’s also a likelihood there will be further cash rate increases to come in the months ahead.

These increases affect mortgage holders, with the lenders often passing along any rises. It’s important to also note, banks have interest rates that sit at a higher level than the official cash rate.

In the immediate term any rate increases affect people with variable rate loans the most, but also later impact those with fixed term loans, once their mortgages revert to variable at the end of the fixed term.

In a nutshell, it means it’s now more expensive to borrow money than it was a year ago, but this is where a little context is required.

For the past couple of years, borrowing money has been very cheap – the cheapest that many of us have seen in our lifetime.

However, even with a predicted cash rate increase to 3.5 per cent and mortgage rates sitting higher than that, money is still cheap to borrow by historical standards.

Possible price declines

Commentating on the property market is one of Australia’s favourite pastimes, and over recent months there’s been a lot of talk in the media about potential price declines.

And it’s true, in some areas, a market slowdown is occurring. But in others the property market remains strong. That’s because Australian property actually consists of multiple markets rather than just the one.

And again, it’s worth considering the context before letting the fear of price declines take hold.

As recently noted Australia’s overall property market saw extreme price gains over the past couple of years.

In fact, nationally housing prices grew a staggering 34 per cent over the two years from the start of the pandemic in February 2020.

In other words, even with a 15 per cent decline in value, house prices would still be around 20 per cent higher than they were in 2020.

The long-term context

It’s also important to appreciate the property market is cyclical. There will be times when prices are rising and other times when they are falling.

There will be periods where properties are in high demand and days on market are short.

There will also be times when there are more sellers than buyers and the time it takes to sell a property is longer.

However, also puts this in context.

“Since 1990, there have been only five periods when year-ended nominal home price growth has been negative,” they note

“Those downturns have never been greater than 10 per cent in year-ended terms. And in every instance, the preceding upswing has been larger than the downturn that has followed.” 

What this means to buyers and sellers

To put this in the context of buyers and sellers, yes, we are seeing the market shift, but the pace at which this is occurring varies from suburb to suburb and region to region.

In some areas, there is still strong demand for property, and it could well continue. In others the market has slowed.

Interest rates are prompting some buyers to rethink their budgets, but when the right property at the right price comes along, they’re still willing to go ahead.

All of these factors are typical elements of the property cycle, and as we know historically, the Australian property market continues to rise in value over the long-term.

Looking to buy or sell?

If you’re considering buying or selling a property, why not chat with one of our friendly agents on 1300 438 439 to understand the state of play in your local market?

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