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“Right now, the median house price across Australia is $1 million. If the cash rate hadn’t increased, it would easily be $1.3 million or $1.4 million right now.”
Angie Zigomanis, head of data and insights at Quantify Strategic Insights, said interest rates were at rock-bottom levels during the coronavirus pandemic, encouraging buyers to take out cheap debt to buy properties even as house prices soared.
Reduced borrowing capacity makes it more difficult for many people to enter the housing market. Credit: Steven Siewert
“It has a big impact on your mortgage repayments,” he said. “It may give people more confidence to increase loan rates further.”
AMP chief economist Shane Oliver said there was no doubt a runaway market would make housing more expensive.
“I think it’s going to get worse,” he said. “It’s going to get worse over time, no doubt about it … people are going to be able to borrow more money, which is going to drive prices up further.”
Mr Zigomanis said if there was no rate hike in 2022-2023, prices would likely be higher; if rates stayed low, more Australians would keep their jobs, which would support prices.
Oliver said housing supply and demand had been out of balance for nearly 20 years, exacerbating other problems affecting the housing market.
“For much of that period we have not been able to provide the right number of homes to match the population,” he said. “Typically we have been building enough homes to meet the demand for population growth.
“Around 2005, with the mining boom, we saw a population boom, but the construction industry failed to keep up. It’s gotten worse over time and will continue to get worse in the absence of a decent supply response.”
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Oliver said governments’ efforts to add more housing stock to the market through housing agreements were being hampered by high interest rates, an economic headwind that was weighing heavily on the construction industry.
“The situation is pretty dire,” he said. “High interest rates are definitely having a negative impact on homebuilding. Low interest rates will help in the short term, but that’s about it.”
“It doesn’t address the fundamental problem, which is that we need to find a way to build 240,000 homes a year.”
REIA president Leanne Pilkington agreed. “We need more supply. Prices are not going to come down unless we get more supply in the market.”
Mr Mathiasmo said as house prices continued to rise, it showed Australians were spending more of their income on buying property and repaying loans. However, buyers were becoming more cautious than usual.
“We are definitely seeing more caution from buyers,” she said. “People know prices are higher, interest rates are higher … time on market is higher, and the closing rates are not as high.”
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