Australian buyers pull back from home hunts as rate rises loom

Winter is set to chill the property market as demand drops off after massive price hikes and the spectre of earlier-than-expected rate rises.

Winter is set to chill the property market as demand drops off after massive price hikes and the spectre of earlier-than-expected rate rises.

The number of buyers active in the market has started fall from the highs of last year, according to new data from PropTrack. The drop in demand – measured by the number of views on ­Realeste.com.au – was more obvious in Sydney than in the capitals of Adelaide and Perth but ­remains elevated on the long-term average.

On the other hand, seller numbers through the first quarter of the year were on par with 2014 and 8.2 per cent higher than last year. PropTrack economist Angus Moore suggested the high level of activity over the first three months of the year could have been fuelled by an urgency to sell before the election and rate rises.

“We’re tracking at a pretty similar pace to what we were last year, which is notable because last year was busy,” Mr Moore said.

“It’s not as if we’re seeing a big pullback in sentiment or activity in the market, even though price growth looks to be slowing. I think the difference is really on the finance side.”

Market indicators suggest the Reserve Bank of Australia could raise rates as early as next month, but the consensus among economists is there will be no move until at least June. The current ­record low rate of 0.1 per cent underpinned the recent housing boom and earlier this month the RBA endorsed modelling that forecast price falls of 15 per cent should the cash rate rise 2 percentage points.

In New Zealand, interest rates have already risen three times, with last week’s increase of 50 basis points capping off a percentage point gain. Canada’s central bank also implemented a 0.5 per cent increase last week in ­response to rising inflation.

Independent economist Saul Eslake said the stronger macroprudential measures and investor tax changes that helped cool the New Zealand market meant Australia was unlikely to mirror its neighbour, especially considering the Kiwi pandemic housing boom was far greater (up 45 per cent compared to Australia’s 23 per cent).

“I would expect that although rates are going to go up here … I don’t think they’ll go up as much as in America, the UK, or probably New Zealand,” Mr Eslake said

“Rising interest rates could certainly exert some dampening impact on housing prices over the next 18 months, I wouldn’t expect it to be a big decline. Frankly, I’d say that a modest decline would actually be a good thing.”

Inflation is not rising at the same rate in Australia compared to other parts of the world, said AMP chief economist Shane ­Oliver.

He believes the RBA will be looking at the US, where inflation hit 8.5 per cent, and Europe, as a barometer for Australia and make larger, faster decisions.

“Inflation is a global issue and there are risks to Australia as well,” Dr Oliver said.

“That’s why we think RBA thinking is changing. It raises the prospect that when the RBA raises rates, it could be more aggressive than first thought.”

Mr Moore disagreed, asserting the RBA would make any changes “low and slow” in order to gauge consumer reaction to the first rise in interest rates in more than a decade.