Since the Reserve Bank of Australia began lifting interest rates five months ago, the Australian residential property market has responded predictably, with minor price declines in affordable price ranges and larger falls in Melbourne and Sydney’s prestige property markets – where astronomical gains were made throughout the pandemic.

According to First National Real Estate, current market movements highlight just how strongly Aussies are backing real estate, despite an environment of rising interest rates and cost of living pressures.

‘Depending on where you live in Australia, home values increased perhaps as much as 36.5 per cent in the two years to the end of February 2022, yet we’ve observed declines of only around 3.5 per cent over the past four months’ says First National Chief Executive, Ray Ellis.

‘While it’s true that the upper ranges prices have seen sharper adjustments, average home prices are still substantially higher than they were 12 months ago everywhere in Australia except Melbourne and Sydney, where there have been relatively mild adjustments of -2.1 per cent and -2.5 per cent respectively.

One of the reasons that house prices have shown such resilience in the face of high inflation and rising interest rates is that household financial deposits have trended strongly upwards since 2005. There was also a period of increased saving during the GFC and COVID pandemic, and the period of lower fuel and electricity prices in 2015 and 2016 boosted the ability of Australians to save.

The ratio of housing interest payments to income has also fallen to its lowest levels since 1999, and household debt has trended lower as a proportion of housing values, according to RBA data.

‘For just under 40 per cent of households, Australians with a mortgage, the interest burden fell to its lowest level in 42 years in the March quarter,’ says Mr Ellis.

‘These households will economise while discretionary items like fuel, electricity and food continue to rise but the 30 per cent of households without a mortgage will benefit from higher interest rates, and be able to spend more. With savings at record highs, these households actually prefer higher interest rates.’

‘The period of rising interest rates and inflation ahead will certainly present challenges for many. However, Aussies have not turned their backs on property. In fact, we’re already seeing signs that first home buyers are stepping up their activity and resurgent demand is combining with low stock levels to drive prices higher in many locations across Australia.’

Issued by: First National Real Estate

Chief Communications Officer, Stewart Bunn on 0413 624 317