There’s been lots of talk about how hard house prices will be hit by repeated interest rate rises, but as the Reserve Bank of Australia (RBA) prepares to hike the cash rate again, a new crisis is emerging.
First National Real Estate CEO Ray Ellis and Greville Pabst, Executive Chairman of property valuation firm WBP Group told news.com.au to expect rents to continue to surge when the RBA increases rates again on Tuesday.
Rental market to be hardest hit
Both Mr Ellis and Mr Pabst agree that the rental market will be the most affected when rates rise again, as increasing mortgage repayments will likely contribute to the
cost of rent going up.
“We have an acute shortage of detached family homes in the inner and middle (Melbourne) suburbs. This undersupply of housing is causing a
rental crisis with vacancy in our rental markets being less than 2 per cent,” Mr Pabst said.
“This is causing rents to surge 10-15 per cent in the last six months. Again, when rents rise, it attracts investors, who then compete with homebuyers and property prices don’t tend to fall under this scenario either.”
Landlords looking at increasing the rent should do so within reason, said Mr Ellis.
“If the tenants are prepared to accept a legitimate increase in the rent, and the landlords are prepared to offer a legitimate increase in rent to cover borrowing costs, that’s still a good relationship between the two,” he said.
Ultimately, Mr Ellis says the best way to step into the property market with assurance during this unprecedented period is to ensure that you keep within your financial limits.
“Run your family budget commensurate with your income and commensurate with what you have to outlay every month, of which mortgage repayment or
rental payment are generally the biggest part,” Mr Ellis said.
“Sit down with your trusted friends, advisers and loved ones. Work that out and then move into the property market with confidence and your life will be better.”
The rental market has become increasingly tough in recent months. Picture: NCA NewsWire / Jeremy Piper What about house prices?
Mr Ellis says while property prices may be decreasing in some cities following the Reserve Bank of Australia’s (RBA)
rate hike, the demand for properties remains.
“Don’t get greedy, a realistic price on a realistic house or an apartment in a realistic suburb will sell for a good price,” Mr Ellis told news.com.au.
According to SQM research, five Australian capital cities recorded a decrease in asking prices in June, after the cash rate was increased to 0.85 per cent.
While it’s unclear if there is a correlation between the hike and decrease, Sydney recorded the largest fall and saw a 3.2 per cent rolling month change in all property asking prices.
Meanwhile, Melbourne, Brisbane, Hobart and Canberra all recorded a decrease below 1 per cent.
However the same can’t be said for Darwin and Adelaide, which saw an increase in asking prices of 1.2 per cent and 0.9 per cent respectively.
No matter the state you live in, Mr Ellis said
selling your property for a good price comes down to displaying it in a “pristine condition” and successful marketing.
“If you present your property well, have it marketed by a good real estate agent and are prepared to sell, it will still sell for a realistic price,” he said.
While there appears to be a decline in property prices, the cost of a three-bedroom house in Sydney is still $150,000 more than four years ago, selling for an average of $1,493,548.
Melbourne and Canberra are also continuing to see record-high asking prices, with a three-bedroom house priced above one million dollars.
Not all are convinced about the decline
While some property experts and economists believe house prices will plunge by more than 15 per cent as a result of
interest rate hikes, Greville Pabst, Executive Chairman of property valuation firm WBP Group, isn’t convinced.
Mr Pabst says history has shown property prices rarely decrease with a low unemployment rate, shortages in house stock inventory or during periods of inflation.
“In 1970, interest rates were 6.5 per cent and rose to 17 per cent in 1990. During this period of high interest rates house prices in Sydney rose from $18,000 in 1970 to $147,000 in 1990, an increase of 716.66 per cent,” Mr Pabst told news.com.au.
“In Melbourne, the median house price rose from $12,800 in 1970 to $131,000 in 1990, a rise of 923.43 per cent during this period.”
First National’s Mr Ellis said
interest rates will affect the property market, but it is just a matter of “how”, given the 11-year period Australia has faced with minimal interest rate changes.
“We’ve come off 11 years where interest rates didn’t increase and more than a million Australian mortgage holders have never known an interest rate rise,” Mr Ellis said.
“So there’s going to be a shock to the psyche but it’s not going to be a shock to the financial management of your budget, because … Australians during the years have actually been paying more than their monthly commitments.”