Interest Rates, Property Prices and You

Another month another Interest Rate increase.

Since the 3^rd of May 2022, the Reserve Bank has increased interest rates a total of 9 times. Almost every month.

The official cash rate was 0.10% (an historically low level) in early May 2022, it has risen now to 3.35% after this month’s increase.  This has been one of the fastest periods of increase in history.

Global inflation remains very high” RBA governor Philip Lowe said in the accompanying statement.

“It is, however, moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy,” Lowe said. “It will be some time, though, before inflation is back to target rates” of 2%-3% over time.

Mr Lowe went on to suggest that there would be more interest rate rises to come as well.

Fun fact, the interest rate on your home loan isn’t set by the RBA, it’s set by the specific bank or lender you’ve borrowed money from to purchase your property.  That means that the Bank can choose to increase your mortgage rate, even higher than the RBA cash rate increase.  Which some of the Financiers have done during this period of rising rates.

Maybe it is worth talking with your Mortgage Broker, to see if there is a better deal available.  This is especially important if you have had a fixed-rate loan now for a couple of years and are needing to refinance at today’s higher rates.

So what does the 0.25% hike in February look like in an increase in monthly repayments?

For someone with a $500,000 mortgage, the February increase will result in an extra $76 pm in loan repayments.  Since rates started to rise the monthly loan repayment has increased by $908.

For a homeowner with a $750,000 loan then the February increase is $114 per month and since may last year your loan repayments will have gone up $1,362 pm.

For those with a $1,000,000 loan, the news is even worse, the February increase was $152 pm and since rates started to move upwards the loan repayments have increased by $1,816 pm.

These interest rate rises are having the effect that they were designed to do.  People are now starting to tighten their belts and cutting back on unnecessary spending.  Some people are even choosing to sell their property as a way to get away from the large mortgage repayments.

Investors are another group that is more inclined to sell faster than a homeowner as they usually borrow more and are less attached to the property.  This is leading to sellers being prepared to accept lower prices to get out of these investments.

This is the main reason that we are now seeing media reports about property prices falling around 10% this year.

Rising interest rates and the resulting decline in borrowing capacities have indeed weighed on home values. Nationally, home prices have been falling since March 2022 and fell a further 0.1% in January.

To put in context just how unusual 2021 was, the 23% that prices grew across 2021 was the third-fastest year of price growth nationally in 140 years.

That strong growth during 2021 means that prices nationally are up almost 30% compared to three years ago, even with the recent downturn.

In Brisbane, a city with buyers during the pandemic – prices are up more than 43% compared to three years ago.

So the person that has owned a property for the last couple of years has a lot of capital built up in their property to weather the storm of further property price falls.  The ones most impacted are those that have purchased after May 2022 when the market peaked.

What will happen moving forward, is a little hard to forecast.  We know there are likely to be a couple more interest rate rises, however, some economists are predicting interest rates to start moving down in the second half of 2023 so it might be safe to say that interest rates will go up and go down.  Just like they always have.

If you are looking to sell in the current market it is important to get a strong local agent on your side, so talk with Justin Hicks about the best way to move forward.  You can catch Justin directly on his mobile 0422 292268.