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Property owners are bracing for the impact of the Reserve Bank’s unexpected rate hike decision in May, but one state is confident its local market can cut a resilient figure in the face of the latest headwind.
The Real Estate Institute of Western Australia’s (REIWA) chief executive, Cath Hart, expressed her belief that the state’s property market would weather the 25-basis-point (bp) rate hike from the Reserve Bank of Australia (RBA) on 2 May.
Currently, the country’s official cash rate stands at 3.85 percent, its highest level since 2012, following a cycle rate hike initiated by the central bank in May 2022 to combat surging inflation.
“The market has proven to be extremely resilient in the face of the 10 previous rises, and we expect it will adjust to this one as well,” Ms Hart said.
She highlighted that Perth has not experienced the same significant price declines observed in east coast markets, adding that “in fact, we’re one of only two capital cities to record growth since rates started rising”.
In April, CoreLogic’s data showed dwelling values in the Western Australian capital rose by 0.6 per cent to stand at an average price of $572,837.
Perth recorded a 1.0 per cent increase in values over the latest quarter and a 1.3 per cent annual growth rate. Notably, Adelaide was the only other city to record a year-on-year increase of 1.3 per cent.
Despite the capital city’s solid performance, Ms Hart acknowledged the constant interest rate hikes had impacted parts of the market.
“The number of loans to first home buyers has decreased over the past year, as their confidence and borrowing capacity has been eroded,” she said.
According to the Australian Bureau of Statistics’ (ABS) latest lending indicators, new owner-occupier loan commitments 5.5 per cent jumped to $16 billion in March. But despite the monthly increase indicating market confidence is improving, the figures are still 22 per cent down compared to the same period in 2022.
Ms Hart indicated that the rate hikes have also had an impact on sales activity. REIWA’s data showed the number of properties under the $500,000 price bracket has declined since the rates began to rise.
“This is the part of the market where buyers’ and home owners’ budgets are likely to be more greatly impacted by the effects of the rate rises and cost-of-living increases,” she said.
Additionally, Ms Hart noted the impact of the rate hikes had flowed into the states’ rental market, with some investors having determined the significant increase in their mortgage repayments has made owning an investment untenable and led them to divesting their rental properties.
“This reduces the supply of rental properties and increases pressure on rent prices,” she commented.
With supply still a major issue, Ms Hart previously forecasted tenants are facing a “challenging” 2023, as the vacancy rate in the city stood at 0.7 per cent during the first four months of the year.
“Also, current market conditions favour investors increasing rents to potentially recoup some of their increasing costs. This isn’t always the case,” she added.
Data from REIWA showed the median weekly rent for houses has risen from $550 in March to $575 in April, a 4.5 per cent increase over the month, and 19.8 per cent ($95) over the year.
Ms Hart said the full impact of the 11 interest rate rises would take time to “flow through to the economy”, noting the lag between when rate rises occur and the effect on inflation.
“We also know there are numerous households on fixed interest rates that haven’t yet felt the financial impact of the interest rate changes.
“While mortgage holders with variable loans have been adjusting their budgets gradually over the past year, the sudden increase in repayments is likely to be a shock for those coming off relatively lower rate fixed loans,” she concluded.
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