Regional property resilient to rate hikes — so far

House prices in regional Victoria are holding up better than in capital cities, but experts warn further interest rates hikes will constrain demand.

Regional Victorian property prices are resilient in the face of increasing interest rates, but experts warn further hikes could dramatically cool the market.

Last week the RBA increased the cash rate target by 25 basis points to 2.60 per cent, while Governor Philip Lowe said the board expected further increases in coming months.

Experts warn further interest rate hikes will negatively impact regional property values. Picture: NCA NewsWire/Nikki Short

CommSec chief economist Craig James said, while regional home prices were holding up better than in capital cities, a further 0.25 per cent rise will further constrain demand and rebalance home markets.

“We would be concerned if the RBA kept lifting rates as the housing correction could turn into a major slump,” he said.

Looming pressures through the housing pipeline include rising mortgage rates, reduction in borrowing capacities, constrained housing supply, rebounding migration and rental market pressures.

Strong urban to regional migration, low unemployment, high housing and increased export demand have so far shielded the regions.

According to the Real Estate Institute of Victoria, the median house price in the regions rose from $412,000 in June 2019 to $625,000 in June this year. However, regional prices fell 1.5 per cent in August after rising on average 13.4 per cent earlier in 2022.

The latest rate rise would increase monthly repayments by $1030 on a $750,000 mortgage. And those who secured fixed loans at an average rate of 1.94 per cent last July, would expect an adjusted rate of 6.74 per cent when the fixed term ends in 2024.

Meanwhile, the ASX fell into the red again to end last week’s trading and reignited recession fears for investors. While energy stocks enjoyed a strong week, real estate and resources nosedived.

Farmers are managing significant rises in input costs and overall operating cost increases alongside interest rate rises.

Interest rates are still low in comparison to historical levels however buyers are certainly being more mindful considering recent rate increases and the likelihood of further rises.