Rate rise a tipping point for property prices

The Reserve Bank’s latest rate hike will be the final nail in this year’s surprise property market rebound, analysts say, ahead of a year of potentially falling home values in 2024.

Property auction rates have slowed through the second half of the year, as have home price gains. Picture: Sam Ruttyn

The Reserve Bank’s latest rate hike will be the final nail in this year’s surprise property market rebound, analysts say, ahead of a year of potentially falling home values in 2024.

SQM Research founder Louis Christopher was one of few analysts who picked a property turnaround in 2023, after rate hikes sent prices sharply lower through 2022. “I think we’re at the point where this additional rate rise is going to create a downturn next year in the housing market, and it will be centred in Sydney, Melbourne and Canberra,” Mr Christopher said.

“I’m not expecting a crash – there’s still a significant shortage of accommodation, as illustrated through the rental market.”

Analysts agreed that the housing market could prove more resilient than expected in 2024 if an anticipated slowdown in net ­migration failed to appear. “Many people looked at the rate rise (on Tuesday) as a single increase that shouldn’t impact that much,” Mr Christopher said. “But I would argue that we need consider the rate rise environment as a single event that is evolving. We also need to consider that monetary policy decisions from the RBA take time to filter through.”

As ANZ, Westpac and NAB announced they were passing on the RBA’s quarter of a percentage point hike to variable homeloan customers – and with CBA expected to follow suit – economists were tipping another RBA hike to 4.6 per cent in February.

Financial markets are pricing in a nearly 30 per cent chance of a hike by then.

“We are into the zone of the tipping point (for the market as rates rise). The higher we go ­beyond 4 per cent, the higher the probability of a downturn happening in 2024,” Mr Christopher said.

In New Zealand, where the cash rate has reached 5.5 per cent and lending rates above 8 per cent, a housing correction started when the Reserve Bank of New Zealand reached about 4.5 per cent. Auckland property values have since tanked by 19 per cent.

My Housing Market chief economist Andrew Wilson said “the key to our housing market revival this year has been the economy”, especially a jobless rate that has barely budged from around 3.5 per cent.

“People seem to think it’s ­almost ho-hum that we have got this remarkable labour market, when we have never seen unemployment rates as consistently low as this even, in the 70s,” Dr Wilson said.

He said after a year of “catch-up” in 2023, the property market heads into 2024 in a more “balanced” situation, with the challenge for owners coming when unemployment begins to climb next year as the economy slows.