Property Prices Rise Despite Increasing Interest Rates - Should This Be Happening?
The ongoing interest rate story has now been dominating property reports for a while, and this continues to be the case with the Reserve Bank of Australia (RBA) having raised rates again on 6th June 2023.
Despite these rising interest rates, there is recent credible evidence of property price increases across large parts of the country. But should prices be increasing at a time of rising rates and how much longer can prices continue their upward trend?
The Power of Interest Rates Over Property
Interest rates are generally regarded by economists as being the principal cause of either property price increases (rates are dropping) or reductions (rates are rising). But today the power of interest rates over prices appears to have become less influential due to a number of reasons, which include the RBA having sent out mixed messages on rates over the past few months.
Rates were kept on hold in April 2023, increased in May 2023 and then raised by a further 0.25% again in June 2023. This now puts the cash rate (at the time of writing) at 4.10%, which is its highest level since 2012. Because we all tend to focus on what is happening with interest rates when it comes to property, the RBA's changing approach to rates has made it difficult to get a clear picture of the market and how it is likely to perform in the months ahead.
Aside from difficulties in reading market conditions, what is known is that many property owners with mortgages continue to experience increasing financial pain. ANU's Centre for Social Research and Methods has recently said that mortgage costs as a proportion of income are at their highest since 1984.
The credit rating agency Standard & Poor has also recently noted that, while mortgage arrears remain just below long-term levels, they are starting to creep up. In other words, more households are experiencing difficulty paying their mortgages.
Property Price Movements
Given the above, you might expect property prices to be continuing to fall. But throughout large parts of Australia, including the Gold Coast, prices are slowly starting to rise once again.
The latest Home Price Index prepared by PropTrack in May 2023 shows the national rise in prices already seen so far this year accelerated that month. According to those figures, national home prices rose in May 2023 by 0.33%. This brings average national prices up 1.34% over the past 3 months and up 1.55% from the December 2022 low point. PropTrack say this is the strongest quarterly growth since the December quarter of 2021.
This means the RBA decision to lift interest rates in May 2023 had no meaningful impact on holding back property prices. And our view is that the June 2023 rate rise is also unlikely to put a halt to the current slow upward price trend (at worst, June’s rise might result in prices remaining where they currently are). But only time will tell if we are right about this and, in any event, much will depend on the extent of any future interest rate rises and also the amount of property listed for sale.
Why Are Property Prices Rising?
The main reason for rising prices is that the volume of property on the market for sale continues to remain well below what it should be for the time of year - on the Gold Coast, listings are currently down by around 20% to 25%. We are therefore seeing extremely strong demand from buyers relative to the amount of property available; and demand exceeding supply typically leads to price increases.
The (1) lack of available property, (2) rebound in net overseas migration (for the Gold Coast add the continued resurgence in financially secure interstate migrants), and (3) a tight rental market, are all focusing buyer interest. These factors taken together are offsetting the negative impact of interest rate rises and the continued deterioration in affordability.
What Turner Mayes Real Estate Is Seeing On The Gold Coast
There has been a significant increase in buyer interest since the start of the year for both houses and units. Interest in units and townhouses is particularly strong as more buyers look to downsize and/or want the benefits of convenience and improved security.
A good example of this strong buyer interest is a Southport property that we have recently sold. We adopted our usual high level professional marketing campaign and the property appeared in almost 30,000 online searches, there were 2,301 listing views, 115 enquiries and 62 inspections in the first 5 days. Multiple written offers were received and an unconditional contract signed within a week of the property coming on the market (the highest ever sale price in the building was achieved).
We believe this shows how strong the Gold Coast market currently is for well priced and well marketed properties.
Final Thoughts…
Recent evidence indicates that prices have not only stabilised; they are starting their slow climb upward. This is due, in significant part, to the lack of properties currently listed for sale. At the time of writing this, it is too soon to know the impact of the June 2023 interest rate rise, however, it is clear that the May 2023 rate rise did not hold back increasing prices.
The reason for the current low volume of properties listed for sale is owners being uncertain about the strength and direction of the market. But as matters become clearer, we think it likely that those owners who have been “sitting on the fence” for the past 12 months or so will start to have confidence to list their properties.
Increasing levels of domestic and international migration to the Gold Coast, and the current extreme shortage of properties for sale, has now put sellers in an excellent position to achieve the best possible sale price. With strengthening market conditions, we suggest to owners who are thinking of selling sometime in the the coming months that it would be to their advantage to list their properties now, rather than waiting until the traditional Spring "selling season". If they wait until Spring or later, they will almost certainly be selling in competition with a lot more properties that will be coming on to the market (at the moment demand far exceeds supply but that equation can quickly change).
If you should have any questions regarding the matters referred to above, or if you would like to have a confidential discussion about your own property requirements, please contact Peter Turner on 0468 350 882 or email him at [email protected].