Eliza Owen and Tim lawless from CoreLogic have published some interesting data on the correlation between interest rate changes and property values. They show that “the correlation between the cash rate and the national CoreLogic Home Value Index between January 2002 and January 2022 shows an inverse correlation of 84.7%”:
When the cash rate rises, housing values could experience some downwards pressure. Testing the correlation between the cash rate and the national CoreLogic Home Value Index between January 2002 and January 2022 shows an inverse correlation of 84.7%. Lagging the cash rate by up to a year increases the strength of the correlation, which suggests it takes some time for movements in the cash rate to have their maximum effect on the property market. Consecutive increases or reductions in the cash rate will also play a role in the correlation becoming stronger over time.
This inverse pattern between the cash rate and home values is shown in figure 2, which plots movements in the cash rate and national dwelling values over time. However, there are periods where the relationship has not always held.
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Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
