Demand for real estate in Australia is unlikely to be impacted by the Reserve Bank of Australia’s decision to increase interest rates with persistent inflation remaining above its target band, according to LJ Hooker.
Mathew Tiller, LJ Hooker’s Group Head of Research, expects some heat will come out of the market, however, a lack of new housing supply, shortage of existing stock and investor appetite should keep conditions stable.
It follows latest data showing the CPI at 3.68 per cent in the 12-months ending in December, and unemployment at 4.1 per cent forcing the RBA to act early in the year lifting the cash rate by 25bp.
“Buyer activity doesn’t stop with an increase in interest rates, the property market moderates and becomes more price sensitive,” Mr Tiller said.
“While no one likes an interest rate rise, it won’t switch off demand with data showing there are still buyers out there. Population growth is still elevated, new supply lagging and listings are tight in many markets, so there is a floor under prices.
“We expect to still see price gains just at a slower pace. What is more likely is that days on market will increase as buyers take longer to decide and may be more budget conscious.”
Tight rental conditions have attracted investors back to the property market with ABS figures showing lending in this sector up 13.6 per cent in last year’s September quarter. First home buyer commitments were also up 2.3 per cent driven by the federal government’s support scheme and desire to get into the market before any further prices hikes.
Speculation on the RBA’s approach to inflation has already had a flow-on effect in the market since the start of the year. Buyers are re-running budgets, decision time is slowing, and some will lock in finance earlier than planned.
Mr Tiller said he doesn’t expect to see an influx of distressed listings, given that mortgage holders have already tolerated an extended period of interest rate increases. Those who previously struggled through the last cycle may look to downsize their mortgage by selling and buying a more affordable property.
“Sellers may need to be more flexible in negotiations, with the market likely to distinguish between well=price homes and those that fall outside of buyer expectations,” Mr Tiller said.
“It is important to look at what is happening in your market now and setting an achievable goal based on demand. Understanding the market starts with a property appraisal with a reliable and experienced agent who how buyers react to a rate rise and shifting conditions.”
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