Home Property Australia Rate rise likely to ‘take heat out of housing market’: CoreLogic

Rate rise likely to ‘take heat out of housing market’: CoreLogic

  • November 08, 2023
  • by Property Australia
The rise, widely expected by economists, marked the 13th interest rate hike by the central bank since May 2022

The Reserve Bank has lifted the interest rate, with Governor Michele Bullock cautioning that inflation was projected to be higher in the coming year than initially estimated, and she did not rule out the possibility of another rate increase.

Ms Bullock attributed Tuesday’s decision to raise the cash rate from 4.1 per cent to 4.35 per cent to the slower-than-expected progress in curbing inflation.

“The board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe,” she said.

“Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

As of September 30, Australia’s annual headline inflation rate stood at 5.4 per cent, and Ms Bullock anticipated it would decrease to approximately 3.5 per cent by year-end.

The RBA has previously emphasised its commitment to taking all necessary actions to bring inflation back within the 2-3 per cent target range.

CoreLogic Research Director Tim Lawless said the move is “likely to disrupt confidence and take some further heat out of the housing market rebound”.

“The lift in rates combined with ongoing cost of living pressures and alarming geopolitical environment is likely to weigh on consumer sentiment, which is already in deeply pessimistic territory,” he said.

“Lower confidence could act as a drag on housing market activity, denting buyer demand at a time when advertised stock levels are rising across most regions.

“A rebalancing between buyer demand and advertised stock levels is likely to take some heat out of the housing upswing, which has already been losing some momentum, at least at a macro level, since the monthly rate of value growth peaked in May.

“Another 25 basis points translates, roughly, to another $80 per month in mortgage repayments on a $500k loan on top of the $1,040 monthly increase already seen since rates started to rise in May last year. Higher interest rates also imply a further diminishing in borrowing capacity as lenders continue to assess borrowers using a three-percentage point serviceability buffer.”

Mr Lawless said while growth in housing values is likely to slow further, it’s hard to see prices going backwards over the near term.

“A shortage in housing supply, record low vacancy rates and a lagged flow through to purchasing demand from record levels of overseas migration should help to keep some upwards pressure on home values,” he said.