RBA’s interest rate hold won’t stop surging property prices
The Reserve Bank’s rate pause isn’t expected to slow surging property prices. But if rates move higher, that’s a different story.
But not this time around. House prices are surging and an escalation of investor interest has ensured the new momentum in the residential market will not be easy to stop in its tracks.
Higher inflation alongside a property market where rental vacancy rates remain super tight and more first-home buyers have been enticed can only mean higher prices.
As Cotality head of research Eliza Owen put it after Tuesday’s decision by the RBA to keep rates on hold at 3.6 per cent: “While a pause in interest rates could help to slow price growth, other factors are likely to keep housing values rising leading into 2026.”
Certainly, standalone houses, which have been rising at double the rate of apartments, will be very resilient.
But even the supply of apartments is being held up by a range of cost factors and planning tangles, a situation which will also force residential prices higher.
Residential developer Intrapac Property’s chief executive Max Shifman said there was unlikely to be any material reduction in underlying prices, despite government efforts to boost supply.
“Population growth is continuing pretty much unabated, and that’s going to keep putting pressure on house prices and rentals,” Mr Shifman told The Australian’s The Money Puzzle podcast.
“Moreover, as we force densification in the cities, that’s also going to limit how much new housing is put on stream. I don’t think it’s going to be a great time for renters anytime soon, and nor do I see there being any material reduction in underlying pricing.”
Home prices have had 10 consecutive monthly increases to the end of October, according to PropTrack.
Most significant is the return of residential property investors who have been out of the market for a considerable period of time, following a string of issues such as higher state property taxes and a soft patch in the market at the start of the current calendar year.
But the rebound has been confirmed in this week’s results presentation from Westpac chief executive Anthony Miller.
With investor lending inside the residential market growing at its fastest pace in a decade, Westpac is hoping to capture an increasing share of the investor market, betting that the higher quality of lending books in the investment market will be profitable. Investors have lower default rates than owner-occupiers even though investors have to pay higher rates.
More broadly, the wider targets set for housing in Australia are now substantially behind the pace. Under the National Housing Accord, the government initially promised to oversee the building of one million homes a year, which was later upgraded to 1.2 million.
However, the latest numbers show only 170,000 built against a required 240,000 per annum. This means the targets for future years are even more unlikely to be met.
For now, the road is clear for investors. An expected increase in home prices of up to 10 per cent in the year ahead will be barely rattled by the RBA’s refusal to cut rates again.
The potential cloud is not flat rates but higher rates.
Though this is some way off, some economists, such as HSBC’s Paul Bloxham, are already putting forward an argument that the next move from the RBA could be to lift the official rate.
Once rates move higher, that’s a different story altogether for the property sector.
“The housing market is more volatile than it used to be,” Mr Shifman said.
“We have seen, even in the weeks where there had been an expectation of a rate cut and then it was deferred, that afterwards things tend to be a bit more subdued at auctions.
“I shudder to think what it will be like when we start seeing rates go up again, particularly when everyone was expecting them to keep dropping.”
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Nine times out of 10, an abrupt halt to a rate-cutting cycle would mean an equally abrupt halt to escalating housing prices.