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So far, the housing market has been insulated from the worst of high interest rates, but Australia is not out of the woods yet.
Since interest rates started rising in May 2022, Australians have been doing it tough. And according to property CEOs and economists, there may be another year of hardship still to come.
“The consensus among economists is that rate hikes are finished and the next move from the Reserve Bank of Australia (RBA) will be a cut, but the timing is highly uncertain,” said Tim Lawless, research director at CoreLogic Asia Pacific.
Economists had previously predicted that a rate cut would not occur until mid-2025, but Lawless explained that some experts are now anticipating an earlier rate cut in March 2025.
Perhaps surprisingly, given the high mortgage rates facing Australian home owners, housing markets “seem to be somewhat insulated from higher interest rates”.
Dwelling prices have continued to rise year-on-year, while the total volume of home sales “is tracking higher than a year ago and above the five-year average, demonstrating consistently strong demand from purchasers,” according to Lawless.
Nevertheless, mortgage arrears are on the rise and are expected to continue rising for the foreseeable future.
“With interest rates set to hold at their current levels until at least late this year, alongside […] reduced savings buffers for most borrowers, it’s likely mortgage arrears will rise further,” Lawless said.
Geoff Lucas, managing director and group CEO of The Agency, reiterated the view that interest rates will likely remain high for some time.
“We continue to expect there will be no reduction in interest rates in 2024,” Lucas said.
“While we believe interest rates will remain steady this year, there remains a risk that the next move could be up if inflationary pressures were to continue to persist,” he said.
Dwelling prices have remained robust so far, but the CEO believes that growth will start to decline.
He predicted that price growth “will soften between now and the end of 2024 as the lagged impacts of interest rates and cost of living continue, and when pandemic cash support surpluses are beginning to become exhausted”.
Robert Baharian, chief market strategist at Ekam Capital, forecast that interest rates would remain on hold until April 2025.
“We’re already seeing slowing growth in house prices in capital cities, primarily in Sydney and Melbourne, as high levels of debt and the cost of living weigh on households,” Baharian said.
“The longer the Reserve Bank holds, the more the consumer will feel the impact.”
While price growth in Sydney and Melbourne is slowing, Baharian stated that prices in Brisbane and Perth, where buyers can still get value for money, will continue to increase strongly in the coming months.
Thomas McGlynn, CEO of BresicWhitney, was more optimistic about Sydney’s growth prospects.
“Property ownership is deeply tied to lifestyle choices and long-term outlook to financial stability and wealth creation,” said McGlynn.
“During COVID-19, there was a significant shift in how people view their homes, particularly in Sydney, where property represents a substantial portion of personal wealth.”
“The willingness to allocate more of their monthly income towards property underscores the emotional and financial commitment Sydneysiders have towards real estate,” he concluded.
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