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Impact of the RBA Cash Rate Increase on Home Buyers and Property Investors

Interest Rates & Property Market

Interest rates play a pivotal role in influencing the property market.

Yesterday, the RBA Board announced their decision to once again increase the cash rate target by 25 basis points to 3.85 per cent.

The RBA believes that while inflation in Australia has passed its peak, it remains too high at 7 per cent and may take some time to return to the target range of 2-3%.

Given the importance of returning inflation to its target range, the Board deemed it necessary to raise interest rates further.

Interest rates & Property Market

The Board’s priority remains to bring inflation back to its target range, and the central forecast predicts that the economy will continue to grow, although at a below-trend pace. GDP is expected to increase by 1¼ per cent this year and approximately 2 per cent over the year to mid-2025.

Recent data confirms that the labour market remains tight, with the unemployment rate at a near 50-year low, and many firms are finding it challenging to hire workers.

While the economy appears to be in good shape, the interest rate hike could dampen some of the recent housing exuberance, although other factors are likely to continue supporting the stabilisation in home values.

Property Values & Interest Rates

Although interest rates are currently at their highest level since 2012, property values have risen over the past two months, indicating that interest rates are just one of many key factors influencing property trends.

Positive momentum for property markets is being provided by low supply, tight rental conditions, and surging overseas migration.

Yesterday marked the one-year anniversary of the fastest rate-hiking cycle on record. Despite this, CoreLogic data suggests that the housing downturn is over, with the Home Value Index posting two consecutive months of growth, led by Sydney, where home values have risen by 3% over the past three months.

Similar to housing conditions in the mid-2000s, housing values have turned positive without the support of lower interest rates, a loosening in credit policies, or fiscal support. It appears that the combination of low supply and high demand has been enough to offset the downside factors of higher rates and a relatively tight credit environment.

However, higher interest rates may reduce the borrowing capacity of property buyers and put pressure on their budgets if they do not buy the right property at the right price.

Therefore, undertaking solid due diligence before purchasing a property is crucial to avoid unnecessary pressure on household budgets or exposing oneself and one’s family to serious risks.

In conclusion, while the chronic property supply shortage in Australia and growing demand from overseas migration may continue to stabilise or grow property prices, it is essential to be cautious and diligent before making any significant property investment decisions.

About the author

Amir Sehat is the chief property adviser and buyer advocate at Property Demand, known for his data-driven approach to researching 15,000 suburbs across Australia to identify booming suburbs as investment destinations.

A fun fact about him is that his deep knowledge and enthusiasm have earned him the nickname 'Property Nerd'.

He provides expert advisory and advocacy services to a wide array of clients, including:

- Property investors seeking to purchase high-growth and high-cashflow properties.
- Home buyers looking to avoid costly mistakes and save time
- Property sellers aiming to achieve the highest selling price


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