With the RBA officially starting its cycle of raising the official cash rate, just what impact it will have on house prices has been a major talking point.
I recently wrote about why I felt house prices wouldn’t experience a dramatic fall, but it’s worth looking at some of the factors that will be impacted by higher rates and what that could mean for property prices.
After experiencing a phenomenal period of growth house pieces are very expensive by historical standards. If you were to add an additional burden on a homebuyer, such as higher mortgage repayments, it’s likely that a portion of buyers will not be able to afford higher prices. That leads to homebuyers looking at cheaper options or sitting on the side-lines.
When mortgages get higher, due to house prices costing more, there are also issues with the ability to borrow. With income to valuation and mortgage ratios increasing / worsening it becomes harder to access the finance to purchase a home in the first place. The other more hidden costs come in the form of higher costs for things like stamp duty as well as a larger deposit. Add to this higher interest rates and housing for many does become unaffordable.
One of the hallmarks of the most recent upswing in prices was the fact that there was very little supply. People were forced to compete for properties because there wasn’t any other option if you wanted to buy a home. In recent months, we’ve started to see a lot more supply come online as listings have risen sharply in Sydney and Melbourne. This will put downward pressure on prices in areas that have a lot of supply.
The whole reason interest rates are rising is because the RBA is trying to tackle rampant inflation. Just go to the supermarket and you’ll understand that things are costing more than ever before. When you combine higher costs for fuel, food, and other essentials there is not always much left over to fund huge mortgages.
It’s often said that the idea of higher interest rates is more powerful than the actual rises themselves. Rising interest rates is something an entire generation of borrowers has never experienced and it’s something that many property investors have not had to worry about. Now that the RBA has turned hawkish, it’s going to be something that people are going to be talking about and it will no doubt impact sentiment.
Just because rates are rising doesn’t mean that all property markets will be impacted the same way. But it’s important to understand what’s happening and why, so you can capitalise on the million-dollar property opportunity. More listings and fewer buyers can present some great opportunities to find high-quality properties for buyers.
With some of my most recent acquisitions, we have been buying under-advertised price or at the low end of the price range whereas 12 months ago – you were paying over the range by up to 10%.
If you are ready, don’t sit on the sidelines with the herd. Engage with a professional, do your due diligence and execute the buy!