Interest Rate Hikes and Dwindling Supply Slow Down Australian Property Market Growth

Recent reports suggest that the Australian property market has experienced a slowdown in its pace of growth, despite a marginal uptick in property prices in June. However, the key concern for homeowners remains the rise in interest rates which is straining their financial stability and forcing some to sell their homes.

As reported by Rowan Crosby in “Australian property prices rise again, but growth is slowing,” the Australian national property prices rose by 1.1% in June. However, this is a slight decrease from the 1.2% gain recorded in May, according to CoreLogic’s Home Value Index (HVI). This growth was primarily led by Sydney, which saw a rise of 1.7% in June, amounting to a cumulative recovery of 6.7% since January.

Simultaneously, in another related article titled “‘It’s choking us’: how interest rates are forcing Australians to sell their homes,” Mostafa Rachwani paints a concerning picture of the impact of mounting interest rates on homeowners. He quotes Andre Lattouf, a father of three who has resorted to selling his home after eight interest rate rises, who says, “It’s choking us. My mortgage repayments have almost doubled and it’s becoming a joke.”

CoreLogic’s Research Director, Tim Lawless, suggests that a lack of available supply has been a major factor keeping upwards pressure on housing values. He said, “Through June, the flow of new capital city listings was nearly 10% below the previous five-year average and total inventory levels are more than a quarter below average.” In contrast, interest rate hikes from the Reserve Bank of Australia (RBA) have begun to negatively impact the demand.

Lawless further explains, “A slowdown in the pace of capital gains could be a reflection of a change in sentiment as interest rate expectations revise higher. Higher interest rates and lower sentiment will likely weigh on the number of active home buyers, helping to rebalance the disconnect between demand and supply.”

In Mostafa Rachwani’s article, real estate agent Riza Kamerakkas adds that as the interest rates continue to rise, “it’s not that [homeowners] are under extreme financial stress now but that they are acting preventatively, before it’s too late.” He reports that 90% of his sales are due to mortgage stress.

Despite this, the property market remains active, with buyer confidence described as “nuts” by Kamerakkas2, indicating the enduring Australian fascination with property. As per Lawless, “It’s hard to imagine the recent pace of growth in housing values being sustained while sentiment is close to recessionary lows and the full complement of borrowers are yet to experience the rate hiking cycle in full.”

The current housing market scenario thus underscores a careful balancing act between interest rates, market demand, and the available housing supply. For both potential home buyers and existing homeowners, these variables will significantly impact their decisions in the near future.

References:

Crosby, R. (2023). Australian property prices rise again, but growth is slowing. https://thepropertytribune.com.au/market-insights/australian-property-prices-rise-again-but-growth-is-slowing/ 

Rachwani, M. (2023). ‘It’s choking us’: how interest rates are forcing Australians to sell their homes. https://www.theguardian.com/australia-news/2023/jul/04/its-choking-us-how-interest-rates-are-forcing-australians-to-sell-their-homes