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Mortgage rates and home prices are quite inversely related and down under, that's the basis of a recent housing forecast.
What's That Mate?
Per Westpac's Chief Economist Bill Evans, Australia's property prices could retract by as much as 5% (thankfully) if interest rates were to be raised.The red hot property market could finally enter a correction phase in 2023, in sync with the fact that the Reserve Bank of Australia (RBA) is mulling an increase in interest rates.
Zooming In
As on date, Australia's cash rate is at a historic low level of 0.1%, with the RBA indicating it would not raise rates until there was a measurable increase in inflation. In 2011, the cash rate was 5%.
FYI, cash rate is the interest rate that banks pay to borrow funds from other banks in the money market on an overnight basis.
Local experts believe that a big factor that could change the price forecast was the affordability of property, which is so out of control that regulators may have to intervene.
Despite some record-length lockdowns, the Australian housing market has weathered the latest COVID disruptions very well and price momentum has held, prompting economists to jack up the near-term outlook for housing prices, before a correction phase begins in 2023 and likely extends into 2024.
Zooming Out
Australia's home valuations are currently rising at the fastest annual pace since June 1989, having gone up by 17.6% over the first nine months of 2021 alone.
And with home prices increasing much faster than household incomes, paying a deposit/down payment has become tough, more so for first home buyers, who are left sucking their thumbs instead of using them to sign ownership papers.