Why the rise in interest rates will not affect the Australian property market?

The Australian property market is largely driven by population growth, factors such as job availability and confidence in the economy. Interest rates will have a minimal effect on the property market, as it is better to compare the rate of return on property against the rate of return on other investments, rather than the rate at which mortgage interest is charged.

According to CoreLogic, Australian rent values have increased 24.1% between the start of an upswing in September 2020, through to February 2023.

The number of rental listings on the market dropped to about 96,000 over the past four weeks, down from a previous five-year average for this time of year of 150,000. Monthly rent increases are also accelerating, the national monthly vacancy rate dropped back to 1.0% in February.

it's important to note that interest rates are just one of many factors that influence the property market. Other factors, such as population growth, employment rates, and government policies, also play a significant role in determining the demand for property.

While rising interest rates may increase the cost of borrowing for home buyers, it may also result in higher returns for savers and investors. This could potentially lead to more investment in the property market, offsetting any negative impact from higher borrowing costs.

The Reserve Bank of Australia (RBA) closely monitors the impact of interest rate changes on the economy and typically adjusts rates in response to changes in economic conditions. The RBA has historically been cautious in its approach to interest rate changes, which could mitigate any potential negative impact on the property market.

SQM Research anticipates that prices will begin to rebound in the second part of this year.

According to SQM, the conditions are coming together for higher pricing. These elements include increased migration, a robust economy with low unemployment and healthy job growth, and rents that are expected to stay high.

It will be interesting to see how the market moves in the coming months.