Well…It's happened again.
After keeping interest rates the same for four months, the Reserve Bank hiked interest rates last week, ending a four month reprieve for mortgage holders amid renewed fears that inflation is not falling fast enough.
This means rates ar at the highest level since November 2011.
So what will this mean for our housing markets ?
Ms Eleanor Creagh, Senior Economist at PropTrack, commented:
"With this additional increase, borrowing capacities will be further reduced and mortgage servicing costs will increase again.
While there have already been some signs of slowing price growth over recent months, prices are still rising."
According to PropTrack, with the Spring selling season in full swing as activity has picked up and October has been the busiest month for auctions so far this year, reflecting the sustained improvement in seller and buyer confidence.
Unfortunately last week’s rate rise could also affect consumer confidence ( I guess that's what it's meant to do) , especiallif the RBA raises rates again in December.
This year our housing markets has surpassed the expectations of many, despite the sharp increase in interest rates.
PropTrack's Home Price Index shows the 2023 price upturn is firmly entrenched and prices hit fresh record highs in many markets in October.
Ms Creagh explained:
"Many markets have recovered las year’s fast falls entirely and are now in the midst of a fresh upswing.
For national home prices, the 10 straight months of gains is the longest stretch of growth since pandemic boom when prices rose for 23 straight months after very small falls in March and April 2020.
In the first half of this year the turnaround in home prices was underpinned by the subdued listings environment that meant buyers were competing for fewer properties.
While stronger housing demand was also a factor, population growth has been an important tailwind, alongside tight rental markets and wages growth slowly increasing with the unemployment rate at multi-decade lows."
Home sellers have been feeling more confident seeing the value of their homes increase substantially over the year and for many, this makes them less affected by rate hikes.
According to PropTrack, comparing home price changes over six-month periods, it’s evident home prices staged a quick turnaround earlier in the year.
Ms Creagh further explained:
"Annualised six-month ended price growth in the capital cities was 13 percentage points higher than the negative growth six months prior in both May and June this year.
Sydney had the fastest turnaround in price growth, and annualised six-month ended price growth in Sydney was 18 percentage points higher than the six months prior in May this year.
The commencement of the 2023 home price upswing was driven by a shortage of stock for sale relative to demand.
However, these dynamics have shifted in recent months, especially in Sydney and Melbourne with a significant uplift in number of properties hitting the market."
In Sydney and Melbourne, sellers feeling more confident has led to a rise in new property listings in the past few months, giving buyers more options to choose from.
However, the picture remains a little different in other markets.
PropTrack's data highlights that choice for buyers remains limited in Brisbane, Adelaide, and Perth, heightening competition and pushing prices to fresh peaks in each of these markets in October.
Even though more properties are up for sale, prices kept going up in every capital city except Darwin in October.
Ms Creagh said:
"Nationally, the number of enquiries per for-sale listing increased 19% year-on-year in October but remains below the record high levels seen in late 2021.
This shows that although the flow of new listings hitting the market has risen with the selling season underway, housing demand has remained strong.
The number of enquiries per for-sale listing is also up in Sydney (+16% year-on-year) and Melbourne (+10% year-on-year), with the bigger lift in new listings hitting the market giving buyers a lot more choice than earlier in the year and easing competition.
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In Perth, Adelaide and Brisbane where conditions are more competitive, the number of enquiries per for sale listing is up 107%, 24% and 57% year-on-year in October respectively."
This has slowed down the completion of new homes, fueling a housing shortfall.
Ms Creagh noted:
"This shortage of new builds is also contributing to the lift in prices so far this year amid strong demand for housing stemming from rapid population growth, low unemployment, a decline in average household sizes and tight rental markets driving people towards buying.
With population growth surging and average household sizes still smaller than before the pandemic, we need to be building more housing."
According to PropTrack's data, the annualised six-month ended price growth in the capital cities is still 4 percentage points higher than six months ago, showing the momentum in home price growth remains stronger than early in the year when the recovery was first underway.
However, comparing three-month periods, the pace of home price growth does appear to be slowing from the faster pace recorded in May, June, and July in some capital city markets.
Further, the October Home Price Index shows that annualised three-month ended price growth in Sydney, Brisbane, Perth, and Adelaide is lower than the three months prior, however, these cities still have the strongest growth of the capitals despite slowing.
The slowdown in growth is fastest in Adelaide, where the annualised three-month ended price growth is 5.4 percentage points lower than in July this year.
Meanwhile, in Hobart and Canberra, where the recovery has lagged, the pace of growth is accelerating.
Ms Creagh further noted:
"The uplift in the number of properties coming to market is likely one factor that has eased the pace of growth in Sydney.
But although the flow of new listings hitting the market in Brisbane, Adelaide, and Perth has increased from the winter months, it has remained relatively subdued, and the total number of properties listed for sale remains below historic averages.
The curtailing of the pace of growth is not necessarily surprising, given the rapid turnaround in prices earlier this year, a higher volume of listings and affordability constraints in play.
This is typical of phases of growth – the upturn begins, accelerates, and plateaus."
According to PropTrack's data, prices in Perth have been on the rise for 42 straight months, while Adelaide prices have risen for 40 months, with the exception of small falls in both cities in June 2022.
Home price growth remains above historic average growth in Sydney, while in Brisbane, Adelaide, and Perth, prices are growing at more than double the historic average annual pace of growth.
On the other hand, in the regions, and in Melbourne, Hobart, and Canberra the pace of price growth is accelerating after lagging the recovery in Sydney and Brisbane and continued upswing in Perth and Adelaide for much of this year.
Despite the pace of growth beginning to slow in some parts of the country, further growth is expected ahead despite the interest rate rise
Sure affordability will remain stretched in 2024, our economy is expected to continue slowing - well that's what the RBA wants
However Creagh explains...
Unless interest rates move significantly higher from here, population growth, tight rental markets, and a slowdown in the completion of new builds will likely continue to offset the impact of monetary tightening.
The following chart from Proptrack , which looks at the last 6 national downturns gives us some context for what could be ahead.
Despite six noticeable downturns since 1990, home prices have generally risen for more extended periods than they have fallen.
Looking ahead, home prices are likely to continue rising in 2024 and will eventually be influenced when interest rates begin to move lower.
Some expect rates will stay high for some time, but many expect interest rates will be cut at some point in the second half of 2024, causing borrowing capacities to increase and mortgage servicing costs to decrease, likely fueling continued growth with housing supply set to remain constrained."
The following chart shows that over the past 50 years cash rates started falling on average 10 months after they peaked.