How would another rate rise impact the housing market?

Should all things fall into place to force the Reserve Bank of Australia’s (RBA) hand to increase the official cash rate in August, prospective buyers would see their dreams of home ownership slip further out of reach, CoreLogic’s head of research Eliza Owen has said.

A further 25-bp rise in August (taking the cash rate to 4.6 per cent) would take monthly repayments on the current median dwelling value to over $4,000 per month.

This is assumed at an average new owner-occupier rate of 6.27 per cent (with 25 bps added) and at a median dwelling value of $793,883.

“Not only is this further out of reach for prospective buyers, it would likely also represent a further blowout in the premium of holding a mortgage relative to renting,” Owen said.

“The bigger that premium becomes, the weaker demand for purchases may become relative to renting, despite rent growth still sitting well above average.”

However, according to Owen, there are still some suggestions that housing demand is already weakening.

During the June quarter, national home values rose 1.8 per cent, marking a slowdown from a 3.3 per cent rise in the same time last year when the market rose off a lower base.

“Buyer demand seems generally skewed to cheaper markets, with Perth now being one of the primary markets driving growth in the capital cities,” Owen said.

“In the month of June, it is estimated that Perth accounted for 32.4 per cent of the 0.7 per cent uplift in CoreLogic’s capital city home value index. Adelaide has also contributed more to the headline growth figure through June (14.2 per cent), up from 4.1 per cent a year ago.”

As of 2 July, the ASX’s RBA Rate Tracker revealed market expectations are still skewed towards another hold in August at 68 per cent, while 32 per cent expect another rate hike.

While the RBA has been explicit in its low tolerance for upside inflation risks, Owen said there is “no guarantee” that we’ll see an increase in August just yet, particularly as the central bank has not received the full scope of economic data (labour force, June quarter CPI, and retail spending, for example).

Andrew Hauser, the RBA’s deputy governor, also said that it would be a “bad mistake” to base the August decision off just one result.

Additionally, two of the major banks (ANZ and NAB) have shifted their rate cut forecasts into 2025; none of the big four banks are anticipating a rate rise this year, although economists have acknowledged that there are certainly risks of another rate hike occurring.

Owen said: “However, even if rates do not increase further, housing purchases are expected to slow as economic conditions become weaker and affordability constraints play out.

“Labour force conditions are clearly starting to unwind, as job vacancies drop, employment growth slows and the unemployment rate rises lifts, which will limit new demand, and possibly weaken mortgage serviceability if mortgage holders become unemployed or work less hours.”

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Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.