The rebound in Australian dwelling values has been nothing short of extraordinary, with dwelling values nationally rising to a new peak in October:
The rebound in values comes despite 4.0% of interest rate hikes from the Reserve Bank of Australia (RBA), which has reduced borrowing capacity by around 30%:
Source: Shane Oliver (AMP)
SQM research managing director, Louis Christopher, believes a Melbourne Cup Day rate hike could sow the seeds of another property downturn.
“Since the market is finely tuned it might only take one rate rise to create an additional slowdown in housing”, Christopher told The AFR.
“The risks rise substantially [of] a period where the market goes into another downturn, assuming we get another rise”.
I doubt a single 0.25% rate hike would deliver a house price downturn. That would likely require a series of rate hikes.
Australia’s population is growing at a record pace at the same time as actual construction levels are falling and rents are rising swiftly on the back of record low vacancy rates.
The lack of stock and soaring rents has created widespread “FOMO” (fear of missing out) across the market, which is driving the price gains.
To add further insult to injury, official Treasury data, real estate agents, and Juwai IQI have all reported surging demand from foreign buyers, which is also inflating prices.
Under these conditions, it is hard to see how a single rate hike from the RBA would derail the housing market.
More likely, the pace of price growth will slow further as borrowing capacity is reduced a little.
