Interest rates for houses in Sydney : RBA holds interest rate will remain at its record low of 0.1 per cent as Ukraine war fuels global inflation

The Reserve Bank of Australia is staying patient before pulling the trigger on an interest rate for houses in Sydney hike, a move expected to slow the housing boom and lead to prices falling next year.

Although there was no change in the RBA’s policy settings this month, with the cash rate on hold at 0.1% and the interest rate on exchange settlement balances still 0.0%, it is clear the RBA is firmly focussed on inflation outcomes along with labour market conditions and wages growth, to guide their policy decisions. Most economists, however, expect that it will start to rise later this year or early in 2023 in response to rising inflation, which is likely to be fuelled by the Russian invasion of Ukraine.

The RBA appears to be sanguine about housing market trends, noting housing prices have risen strongly and the rate of growth has eased in some cities. It is likely the RBA would welcome some heat leaving the housing market; a strong housing market has buoyed the household sector and supported the economy through the pandemic, but worsening affordability and higher household debt levels are the downside to the housing market upswing.

CoreLogic’s Home Value Index (HVI), released today, shows a broad-based slowdown in the rate of value growth. National housing values were up 0.6% in February, the slowest monthly rate of growth since September 2020.

Previous analysis from CoreLogic shows a strong inverse correlation between movements in the cash rate and housing values, albeit with the strongest correlation based on a lag, but other factors are also likely to influence the trajectory of housing values.

Fixed term mortgage rates have been rising through most of last year, housing is less affordable, credit policy has tightened and lenders are likely to be more cautious in lending decisions. Additionally, household savings are likely to fall which could take some demand out of the housing market, and advertised inventory is rising, providing more choice and less urgency for buyers.

Despite the growing downside risks to the housing sector, other factors should help to offset a significant downturn. As the economy strengthens and labor markets tighten, the risks around mortgage stress or default should lessen. Open international borders will help to support demand, initially from a rental perspective, but longer-term for home purchasing as well.

Additionally, it will take some time for interest rates to normalise once they start rising, providing a low cost of housing credit for some time yet.

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Disclaimers: Data provided in this article is of a general nature and should not be construed as specific advice or relied upon in lieu of appropriate professional advice.

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