Rising interest rates may have contributed to falling house prices in Australia, but there is another group of people who are about to be crushed again.
Much has been said about how house prices will be hit hard by repeated interest rate hikes, but as the Reserve Bank of Australia (RBA) prepares to raise the benchmark rate again, a new crisis is emerging.
Ray Ellis, CEO of First National Real Estate, and Greville Pabst, executive chairman of property appraisal firm WBP Group, told news.com.au they expect rents to continue to rise when the RBA will hike rates again on Tuesday.
The rental market will be the hardest hit
Mr. Ellis and Mr. Pabst agree that the rental market will be hit the hardest when rates rise again, as rising mortgage repayments will likely contribute to the higher cost of rent.
“We have a severe shortage of single family homes in the inner and middle suburbs (Melbourne). This insufficient supply of housing is causing a rental crisis, with the vacancy rate in our rental markets being below 2%,” Mr. Pabst said.
“This is driving up rents by 10-15% over the past six months. Again, when rents go up, it attracts investors, who then compete with home buyers and house prices don’t tend to fall in this scenario either.
Landlords considering raising rent should do so within reason, Mr Ellis said.
“If tenants are willing to accept a legitimate rent increase and landlords are willing to offer a legitimate rent increase to cover borrowing costs, it’s still a good relationship between the two,” he said. he declares.
Ultimately, Ellis says the best way to enter the real estate market with confidence during this unprecedented time is to make sure you stay within your financial limits.
“Manage your family budget based on your income and what you need to spend each month, of which paying off the mortgage or paying rent is usually the biggest chunk,” Ellis said.
“Sit down with your trusted friends, advisers and loved ones. Solve that, then enter the real estate market with confidence and your life will be better.
What about house prices?
Mr Ellis says that while house prices may fall in some cities following the Reserve Bank of Australia’s (RBA) rate hike, demand for properties remains.
‘Don’t be greedy, a realistic price on a realistic house or flat in a realistic suburb will sell for a good price,’ Mr Ellis told news.com.au.
According to research by SQM, five Australian capitals saw falling asking prices in June, after the spot rate was raised to 0.85%.
While it’s unclear if there’s a correlation between the rise and fall, Sydney saw the biggest drop and recorded a monthly change of 3.2% in all house asking prices.
Meanwhile, Melbourne, Brisbane, Hobart and Canberra all saw declines of less than 1%.
However, the same cannot be said for Darwin and Adelaide, which saw an increase in asking prices of 1.2% and 0.9% respectively.
It doesn’t matter what state you live in, Ellis said selling your property for a good price is like having it listed in “immaculate condition” and successfully marketing it.
“If you present your property well, have it marketed by a good real estate agent and are ready to sell, it will always sell for a realistic price,” he said.
Although there appears to be a drop in house prices, the cost of a three-bedroom house in Sydney is still $150,000 more than four years ago, selling on average for $1,493,548.
Melbourne and Canberra also continue to see record asking prices, with a three-bedroom home priced above $1 million.
Not everyone is convinced of the decline
While some real estate pundits and economists believe house prices will drop more than 15% as a result of rising interest rates, Greville Pabst, executive chairman of property appraisal firm WBP Group, doesn’t is not convinced.
Mr Pabst says history has shown that house prices rarely fall with low unemployment, shortages of housing inventory or during periods of inflation.
“In 1970, interest rates were 6.5% and rose to 17% 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%,” Pabst said. says news.com.au.
“In Melbourne, the median house price rose from $12,800 in 1970 to $131,000 in 1990, an increase of 923.43% over this period.”
First National’s Mr Ellis said interest rates will affect the property market, but it’s only a question of ‘how’, given the 11-year period Australia has gone through with changes in minimal interest rates.
“We are coming from 11 years of not rising interest rates and over a million Australian mortgage holders have never experienced an interest rate hike,” Mr Ellis said.
“So it’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 over the years have actually paid more than their monthly commitments.”