The Reserve Bank of Australia’s decision to combat inflation by increasing interest rates for the second time this year will likely reduce borrowing capacity and soften buyer confidence, according to LJ Hooker.
Group Head of Research and Business Intelligence, Mathew Tiller, said a strong Australian economy, buoyed by a stable jobs market, has enabled the RBA to take swift action. It will also be closely monitoring conflict in the Middle East and fears of a looming oil crisis.
“What happens in the Middle East will matter for Australians, and how much of an impact really depends on how long the conflict drags on,” Mr Tiller said.
“The first impact will be higher fuel and energy prices, and if it continues, that could broaden into higher shipping and import costs. This is the sort of thing that the RBA will be watching closely, and it adds to the case of interest rates staying higher for longer.”
Auction clearance rates in Sydney and Melbourne are slightly down from 12-months ago; however, listing volume has increased. Data from recent weeks suggests vendors are opting to take attractive early offers rather than put their property under the hammer.
Mr Tiller said the new cash rate is lower than in January last year, before the RBA began its short reduction cycle. Despite an uptick in listings, stock levels remain below the long-term average, and demand remains strong.
He anticipates that luxury and prestige markets will be the most impacted by today’s announcement, where mortgage holders tend to have bigger loans and are more sensitive to any rate fluctuations.
“While the economy may be holding up well enough to absorb another rise, it comes before we have a chance to see the impact of the February rate increase,” he said
“The employment market is strong, and we are seeing wage growth, so there is confidence in the ability to pay mortgages. What people tend to do is to cut back their spending in other areas rather than sell their home.
“Those transacting now already have finance in place and have been searching for some time. Successive rate rises likely dent confidence as borrowing power shrinks and buyers become more cautious.
“We expect property prices to continue to rise; however, sales could slow in the top end of the market which in Sydney and Melbourne is above $3 million, above $2 million in Brisbane and $1.5 million in Adelaide.”
There is some positivity for first home buyers with an increase of listings creating new opportunities to take their first steps on the property ladder.
“There might be a bit less competition as listings increase, so that is more choice,” Mr Tiller said.
“Owner occupiers and investors will be taking their time to transact, so this will give first-time buyers, who have their finance ready, the ability to jump in and secure a property.”
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