The Reserve Bank (RBA) has followed up its shock May official rate rise – the first in over a decade, with another increase over June – but this time by an extraordinary, near-record 0.5%. June’s rate increase is the highest since the same result recorded in February 2000
With the Reserve Bank raising interest rates for the second straight month, many current and future home buyers are asking: “Is it time to start seriously looking to get on the property ladder?” Buyers are getting into the box seat as predictions of price falls give them power to negotiate, but that power will actually grow as prices fall.
Sellers are eager to sell but buyers now have the upper hand, with 53 per cent of properties sold before auction as vendors worry that buyers are waiting for bigger falls in price as interest rates rise. Melbourne’s clearance rate was 61 per cent, while the national figure was 62 per cent.
With borders now open, migrants and international student numbers will surge; significant numbers of first home buyers are set to take advantage of recently announced government support policies, and high levels of investors will continue to be attracted to rental markets with record-low vacancy rates and skyrocketing rents.
Rising rates and Australian property prices
The last time Australia had a phase of rising interest rates was from 2002 to 2008. In that time, the RBA increased the cash rate a total of 12 times.
In early 2002 borrowers were typically paying about 6% on their mortgages but by late 2006 that had risen to 8%. Borrowers were paying more than 9% by early 2008. And during that period of high and rising interest rates, property prices more than doubled in many markets across Australia, according to leading research analyst Simon Pressley of Propertyology.
Mr Pressley said that house prices rose more than 100% in six of the eight capital cities and in dozens of major regional centres across Australia. In some locations, he noted, the growth was between 150% and 200%. And I know he’s right because I was researching and writing about real estate markets at the time.
Will rising rates cause mortgage stress?
Another topic of speculation is whether higher rates will result in high levels of mortgage stress.
Despite recent increases, we still have ultra-low mortgage rates in Australia. We’ve been told to expect more rate rises but views differ about how high rates will go.
Most major lenders have issued statements confirming that the vast majority of their customers will be comfortable with higher rates because they are well ahead on their repayments and have built up savings during the period of COVID-19 restrictions.
ANZ and Westpac both say about 70% of their customers are well ahead on their repayments and Bankwest says 90% of their customers are ahead.
This is because most borrowers didn’t ask to lower their repayments when interest rates were falling. Instead, they kept making repayments much higher than they needed to. This means that, despite the recent increases in mortgage rates, they could potentially still ask their bank to lower their monthly repayment levels as they have built a ‘buffer’. In addition, many borrowers have made extra payments off their loans.
Regional areas outperform
Data shows that regional areas still outperform capital cities thanks to relative affordability and the sea- and tree-change trend which exploded during the pandemic as owners and would-be buyers shifted their preference to lifestyle locations.
Prices have increased 21% in the 12 months to May in regional areas, but only 12% in the capitals.
How can Metrolinx Help you?
Buyers’ advocates can do a lot more than just search for properties. You can even get a buyer’s advocate to help out with one specific service, rather than the whole package.
Our key responsibilities include:
1. Understand exactly what our client is looking for
2. Searching for properties
3. Evaluating properties
4. Recommend inspections
5. Negotiating on your behalf during a private sale
6. Bidding on your behalf at a property auction