The Reserve Bank’s unexpected interest rate hike is unlikely to immediately slow down the demand for housing. However, experts warn that further rate increases could halt the emerging recovery in the housing market. CoreLogic’s research director, Tim Lawless, believes that the increased borrowing costs and decreasing purchasing power will put pressure on homeowners with debt, and only time will determine if this rate rise will reverse the recent upward trend in property values. While higher interest rates might exert a downward force on prices, property values have stabilized and even increased in some regions over the past three months. However, if the Reserve Bank opts for additional rate increases, it might risk reversing the encouraging trend in property values.
According to Thomas McGlynn, CEO of BresicWhitney real estate agency, the recent interest rate increase is not enough to halt the recovery of the housing market, but it will slow down buyer activity. Despite the higher interest rates, buyers are still entering the market, and stock levels are still dropping. However, Louis Christopher, SQM Research managing director, warns that if the interest rate rises above 4%, it could push homeowners to sell and turn off potential buyers, causing the early strength of the housing market to be snuffed out. AMP Capital Chief Economist believes the rate increase could dent confidence and steer the housing market toward a less favourable scenario, potentially leading to a 7% drop in property prices this year.
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