Interest rate rises may have ended
For the past year, the RBA has been continually raising the official cash rate.
What’s likely to happen in our local property market now that rate rises may have ended?
How far have interest rates risen over the past year?
Just over a year ago, in May 2022, the Reserve Bank of Australia (RBA) lifted the official cash rate from 0.1% to 0.35%. It was the first time it had announced a rate rise of any kind since 2010.
It then introduced another 11 rate rises between June 2022 and June 2023, taking the official cash rate to its current setting of 4.1%. While that’s not necessarily high by historical standards (in 1990, the official cash rate stood at 17.0%), it was the fastest and most prolonged period of rate hikes on record.
In both July and August 2023, the RBA left the official cash rate on hold – the first time we have had consecutive months without a rate rise since April 2022. Now, many commentators believe rate rises may be over, and the RBA may actually begin cutting rates again later this year or early next.
How the Upper North Shore property market performed during rate rises
While the RBA argued that higher interest rates were necessary to curb inflation, they also tend to impact the property market. That’s because the official cash rate affects the banks’ costs of borrowing. They pass these increased costs onto their customers in the form of higher home loan interest rates.
Between April 2022 and now, the average standard variable interest rate on offer has gone from 2.86% to 6.03%.
That means someone who took out a million-dollar principal and interest loan before the RBA started listing interest rates could have expected to pay $4,141 a month at that time; now, they should expect to pay around $6,015 a month. This affects people’s budgets and borrowing capacity and, therefore, their ability to buy property.
But what was interesting in our local market is that the impact of these rate rises did not affect property prices for too long.
While Sydney prices slid over 2022 (they had actually started to decline before the RBA began raising rates), they have now risen 7.6% since January 2023, according to CoreLogic. That means Sydney’s median house price is now only 4.9% below where it was in April 2022.
But now that rate rises have paused, or perhaps even ended, what’s likely to happen next in our local property market? We believe there will be six likely outcomes.
1. More listings will come to market
One of the reasons we’ve seen prices rebound so strongly in our local area is a lack of listings.
Property prices are set by the law of supply and demand. Even though higher interest rates may have affected demand for property, the lack of stock coming to market means supply has dropped below it. This is supported by SQM Research, which shows there were 12% more listings on the market on Sydney’s Upper North Shore in June 2022 compared with June 2023.
We’ve noticed a lot of would-be sellers have been holding off listing their properties because of the uncertainty around interest rate rises. Now that the RBA seems to have stopped raising rates, we expect many to come out of the woodwork and list their homes.
2. More activity generally
When people decide not to go to market, it can have major flow-on effects. Less property for sale means other buyers have less to choose from, so they decide to stay where they are rather than move. This pattern continues, and activity across the whole property market slows.
To some extent, that’s what we’ve been seeing over the past year or so, with limited transactions and more caution. As more listings come to market, we expect property market activity to pick up across the board, which should be good news for most people looking to move home.
3. The rental market could stabilise
While the sales market may have been rising and falling over the past few years, for our local rental market, the only way has been up. Between October 2020 and April 2023, the median rent across the entire Upper North Shore rose 51%, according to CoreLogic data – going from $574 to $868.
The good news for tenants is that rental rises have been slowing since then – rising by just $2 over the past four months.
Most landlords and investors need to pay a mortgage and are impacted by interest rate rises. As interest rates stabilise, we expect that the rental market will stabilise further, too. This should be good news for tenants, many of whom have struggled to meet rising rental payments.
4. More first home buyers will enter the market
That said, given already high rents and greater stock availability, we expect stable interest rates to encourage more people to enter the property market for the first time.
First home buyers have the advantage of generous stamp duty concessions under the new First Home Buyers Assistance Scheme (FHBAS), which applies to properties valued under $1 million. This amounts to a saving of up to $30,735 when buying a first home.
It’s likely these first home buyers may have to compete with property investors, also lured back into the market by high rents and steady interest rates.
5. Construction will begin again
One of the real casualties of high interest rates has been development. When the cost of finance goes up, we see many developers and builders putting projects on hold as they wait to see how their budgets will be impacted. Now that interest rates may have stabilised (and construction costs seem to have as well), we’re likely to see more projects going ahead.
While some people may be wary of more development, we’ve noted that it's necessary to accommodate Sydney's growing population and ease the current housing crisis.
6. Prices are likely to rise
Finally, despite the likelihood of increased listings, it’s also likely that we’ll see greater buyer competition – potentially pushing prices higher.
That means this could be a great time to enter the market, before prices move upwards again.
Want more? Thinking of buying, selling or renting on Sydney’s Upper North Shore, including Ku-Ring-Gai and Hornsby Shire? Get in touch.
