How higher interest rates are impacting the property market

Before it was even announced, the Reserve Bank of Australia’s first interest rate rise in more than a decade was already having an effect on the property market.

Price growth has stalled across the country, and in some cities prices have even started to fall, according to data from PropTrack.

The number of properties listed for sale last month was also down.

Part of that was due to the expectation that interest rates were going to increase imminently, taking some of the heat off the searing seller’s market witnessed in 2021.

On top of that, a string of public holidays and a looming federal election added to the slowdown in market activity.

Prices have stalled

House price growth was flat across the capital cities in April, according to PropTrack economist Paul Ryan.

The PropTrack Home Price Index for April revealed Sydney and Hobart actually recorded slight price falls of 0.1% and 0.44% respectively.

“Housing price growth has slowed considerably in 2022,” Mr Ryan said.

“In April, prices across the country increased at their slowest monthly pace since May 2020, the period just after national lockdowns were lifted and prices fell.”

However, Mr Ryan noted this fall in prices followed rapid growth during the height of the pandemic.

“Home prices have increased exceptionally since mid-2020, fuelled by historic low borrowing costs, unprecedented preference shifts and low volumes of available stock,” Mr Ryan said.

“To some extent, the run-up in prices reflected an adjustment to record-low borrowing costs, which could not continue indefinitely.”

Mr Ryan said the April data reflects how buyers are expecting borrowing rates and borrowing capacity to reduce significantly as the RBA continues to lift official interest rates, a sentiment echoed by economists at ANZ, who this week downgraded their property forecasts over the next two years.

The bank now expects average capital city housing prices to fall around 3% in 2022 and around 8% in 2023.

“We think that reduced borrowing capacity will be the key driver of lower prices and see only a very small risk of forced selling,” ANZ senior economist Adelaide Timbrell said.

Refinancing activity is up

As speculation grew that the RBA would be forced to move sooner rather than later, borrowers looked to get ahead of the rate rise by shopping around for a better deal.

Lending data released by the Australian Bureau of Statistics showed refinancing activity picked up for a third straight month in March, with $16.4 billion worth of home loans switched to a new lender during the month – 28.2% higher than a year ago.

Mortgage Choice national sales director David Zammit said borrowers should speak to their mortgage broker about how the Reserve Bank’s decision could affect them.

“The market remains extremely competitive, and banks will be looking to attract customers through initiatives like cash-back offers, making now a great time for first time buyers and borrowers alike to shop around,” Mr Zammit said.

Listings are down

According to PropTrack economist Angus Moore, the Easter and Anzac Day public holidays slowed market activity during April.

However, Mr Moore said the slowdown comes off the back of the busiest first quarter in capital cities since 2014.

“New listings nationally on were down 20.5% month-on-month in April, and 7.5% lower than they were at the same time last year,” Mr Moore said.

“Part of the reason for the slower April this year compared to last is that the Easter public holidays fell in the middle of April, whereas last year it was at the start of April.

“That means the impact of the Easter weekend was likely felt almost entirely in April this year, compared to last year, when its impact was likely spread across both March and April.

“In addition, Anzac day fell on a Sunday in 2021, meaning some states did not have a long weekend, unlike in 2022.”

As a result of the decline in new listings, PropTrack’s latest Listings Report reveals total stock of properties listed for sale declined by 2.5% in April.

Most cities and regional areas experienced a decline in stocks last month, with the exception of Brisbane and Hobart.

The data shows there are still significant restrictions on available properties in regional areas, with the total stock still 40% below pre-pandemic levels.

Overall, Mr Moore said after a strong start to 2022, selling conditions look to be tempering.

“We are starting to see an increasingly healthy balance between supply and demand,” Mr Moore said.

“Measures of buyer demand remain strong but have continued to decline in April and are off their high levels from earlier in the year.

“Key drivers of demand remain strong, with unemployment low, wages growth expected to pick up over this year, and international migration returning.

“At the same time, the strong levels of new supply coming to market over the past six months has helped give buyers more choice and ease how competitive the market has been.”