The recent 0.5% rise in the target cash rate set by the Reserve Bank is not a cause to panic or shelve your plans to purchase a new property. It’s just part of the reality of our financial lives.
The cash rate has increased to 0.85% to calm any chance of uncontrolled inflation and a wage break-out. Pundits speculate endlessly about where the cash rate is headed but, in truth, no one knows.
The upward movement in interest rates is a sign of economic strength and confidence.
As an experienced agency in our area, we see evidence of this every day. Prospective buyers remain optimistic about job security and their future earning power and these are key influences in sustainable value growth.
If you’re thinking of entering the market, you should renew your research and study price trends and auction results of homes similar to those you’re targeting in terms of location, size and style.
And it’s never a bad idea to re-evaluate any pre-approved loan so you’re comfortable with your future repayment schedule
Rising rates inject some doubt into many buyers’ minds but this can be a case of swings and roundabouts – what you may lose on mortgage rates, you may gain in better buying.
If you’re a homeowner thinking of upsizing or downsizing, a little perspective is useful in these moments. We’ve just come off the back of record-breaking growth in property values in which average prices increased more than 20% last year.
Below are common economic traits that occur when interest rates rise.
- Strong economic performance is often a prelude to higher rates. Inflation is a key measure that influences the Reserve Bank of Australia in setting a target cash rate. Australia’s inflation rate is 5.1%, some 2% higher than desired which is why rates have increased.
- Economic performance has more influence on values than interest rates. Right now, Australia enjoys a strong economy despite Covid-related supply chain issues and the related hikes in fuel and food prices.
- Hot property markets cool down when mortgages become more expensive. In 2021, Australia’s home values increased an average of 21%, according to CoreLogic research.
- Sellers may re-evaluate their asking price to attract buyers, but they can benefit from a reduced price for their next property.
- So long as wages rise in line with economic growth, higher interest rates may dampen demand for property but won’t send values backwards significantly.