22 Aug The Changing Interest Rate Cycle and What it Means for Property Investors
Over the last six months, house prices across Australian capital cities have risen on average by 3.4% (Domain House Data. The Guardian. July 2023).
Whilst interest rates have also been going up during this period, they have started to plateau in recent months, with the Reserve Bank of Australia (RBA) choosing to pause on rate rises in both June and July.
These two pauses in a row suggest that we are nearing the top of this current rate-rising cycle and are entering a period where rates will stabilise before they start the next cycle, which is falling.
However, for anyone looking to buy into the Australian property market, it’s important to note that interest rates are not the only force that impacts price growth.
Construction levels and approvals are way down on their long-term average, with new ABS figures showing national dwelling approvals falling by -8.1% in April 2023, their weakest level since 2012, constraining housing supply.
At the same time, Australia’s population continues to soar, as record overseas migration will grow by nearly +2% this year alone, boosting demand.
These three significant market forces, a plateau in interest rates, low building supply, and high population growth, are all coming together simultaneously in a perfect storm – and none of them are going to dissipate any time soon.
Compounding things further is the relatively low level of market activity that we’re seeing right now. There’s not a lot of stock available. So as the number of homes on the market continues to stay low, that lack of supply, backed by the increasing demand, will continue to fuel price growth.
Astute investors know that now is a good time to buy, as we can see both an uplift in property values and rental yields.
Diversification and correct asset selection remains a crucial strategy to mitigate risk in any investment portfolio, including real estate. As interest rates change, specific property sectors or locations may be more affected than others. Investor dominated high-rises and house and land estates, and coastal areas where people have begun receding to the city and selling off second homes will be most affected. Diversifying across different types of properties and geographic locations can help investors reduce exposure to any one market’s volatility.
Property investment decisions should always align with long-term goals. While interest rates and these other market forces fluctuate over the short term, a well-chosen property with solid fundamentals can weather economic cycles and generate steady returns in both good and bad times.
Make sure you talk to one of our team members here at Sound Property when you’re forming your investment strategy. Whilst there are solid gains to make, now isn’t the time to take any unnecessary risks.
