Sydney property prices are up again after 10 months of falls, and yesterday’s interest rate pause could push them higher, economists say.
Yesterday’s decision by the Reserve Bank of Australia (RBA) to keep the cash rate at 3.6 per cent after 10 consecutive hikes would have come as welcome news for borrowers.
The pause is only temporary, though, with the RBA’s board making it clear further rises might be needed to keep inflation tracking to its target of 2 to 3 per cent “on average over time”.
The announcement came a day after a leading property analytics firm reported an uptick in national dwelling prices last month, with Sydney — Australia’s most expensive market — leading the way.
CoreLogic’s data, released Monday, revealed Australia’s property prices were up 0.6 per cent in March, the first rise since April 2022.
Sydney led that growth with a 1.4 per cent gain, pushing the city’s median property price back above $1 million.
CoreLogic’s research director, Tim Lawless, predicted the RBA’s rate pause would boost confidence in the housing market and keep prices rising.
He said the flow-on effect from the decision would be immediate.
“People’s attitudes and consumer spirits change immediately and then it takes about a week for it to flow into new mortgage lending,” he told the ABC.
This graph shows how property prices in Sydney, and the official cash rate, have tracked over the past four years.
While several factors can, and will, affect dwelling values — including, for the purpose of this analysis, the COVID-19 pandemic — it sheds light on how property prices and the RBA’s decisions can interact.
Mr Lawless said yesterday’s decision could spring some potential buyers into action.
“Some buyers who have been waiting for the housing cycle to bottom out and interest rates to top out might take this as a cue to become more active in the marketplace,” he said.
“It should be good conditions to sell, but sellers aren’t selling.”
The number of new listings in Sydney is down 25 per cent compared to last year and about 12 per cent on the five-year average, according to CoreLogic data.
Mr Lawless said, as a result, there was likely to be a supply of dwellings which sellers have been sitting on while waiting for the market to become more favourable.
Demand is also being driven by increased overseas migration to Sydney, and, a tight rental market encouraging people who can afford to buy into the property market.
University of Sydney lecturer Dr Luke Hartigan, a former RBA economist, doesn’t believe one interest rate pause will have big ramifications for Sydney’s property market.
“My opinion would be that buyers and sellers will also take a pause just to see what happens,” he said.
“It’s all about their expectations of prices. If they think they will fall again, they will remove their property from the market, pushing supply down and prices up.
“But by signalling a more tightening bias, demand may weaken.”
He said it would be a different picture if the RBA decided to leave interest rates on hold when it meets next month.
“This will feel much less temporary. People will have confidence of meeting mortgage payments as they will feel assured the interest rate hiking days are over,” he said.
Maroubra renter Jane Hamilton is looking to buy her first home with her partner in a few months’ time and said a lack of supply was their biggest issue.
“There’s just no stock at the moment, it seems to have dried up completely so we’ve had to go further afield,” she said.
“We’re fortunate to have the option to buy, but what we can get will just be a dump.”
She said the new state government’s stamp duty plan wouldn’t offer them any assistance, as they would be spending more than $1 million on their first home.
Premier Chris Minns wants to repeal the Coalition’s reforms, and scrap stamp duty for first homebuyers purchasing on properties up to $800,000, and offer reduced rates on dwellings up to $1 million.
The government says independent modelling by the parliamentary budget office showed that, within three years, 27,700 first homebuyers would pay no stamp duty under these changes, which are yet to be introduced to parliament.