Rising interest rates are not the most pressing issue


For the first time in more than 11 years, the Reserve Bank of Australia (RBA) raised the official cash rate, raising it by 25 basis points to 0.35%.

According to RBA Governor Philip Lowe, the board felt the time was right to start withdrawing some of the extraordinary monetary support that had been put in place to help the Australian economy during the COVID-19 pandemic. 19.

“The economy proved resilient and inflation rose faster and higher than expected,” he said. “There is also evidence that wage growth is accelerating.

“Given this and the very low level of interest rates, the process of normalizing monetary conditions should begin.”

For industry experts, the decision to raise the official exchange rate came as no surprise.

“The decision had been in the works for some time – it was inevitable,” said UDIA WA CEO Tanya Steinbeck.

“I would say most owners would be prepared for this move, given the years of record high rates we had that just weren’t sustainable going forward.”

Breaking down what the interest rate hike would mean for homeowners, Nu Wealth managing director Daniel McQuillan said the modest increase would not have a serious impact.

“Investors will continue to be active in the real estate market and rent increases may start to moderate,” he said.

“We would need five RBA increases of 0.25% to get to where we were just over three years ago, and then people paid the refunds.”

REIWA Chairman Damian Collins said that for homeowners who had no debt on their property, this interest rate hike would make no difference.

“For those with debt, they will see their net return drop, because higher interest rates will just mean higher costs,” he said.

For tenants, Mr Collins said he did not initially expect a direct impact.

“Rents are determined by supply and demand, and rents are already rising due to lack of supply – regardless of interest rates,” he said.

“Tenants who have periodic leases should be aware that investors are limited to increasing rents to a maximum of every six months.

“If tenants have a fixed-term lease with a fixed rent, no changes in rent can occur during the term of that lease.”

Although the rise in interest rates has created a level of uncertainty, Mr McQuillan said WA was in a good position compared to other states.

“The reality is that WA is the best placed state in Australia to absorb interest increases because our economy is very strong and house prices are very affordable so landlords don’t have high mortgages like those seen in Sydney and Melbourne,” Mr McQuillan mentioned.

“Investors in these markets will be more sensitive to interest rate increases than Perth homeowners.”

Collins said rising interest rates were just one of many factors affecting the state market.

“Interest rates are just one factor that comes to mind for investors,” he said. “The market is already in a state of significant shortage of rental properties.

“Expected capital growth and future rent growth also play a role, and the review of the Residential Tenancies Act is imminent, with changes to the legislation likely to favor tenants more.

“This could lead to a significant exodus of investors, which can have a much greater impact than changes in interest rates.”

For Ms. Steinbeck, the biggest issue is housing affordability.

“Western Australia’s economy is doing extremely well and strong population growth is expected as borders are open and people come here for the job opportunities and an affordable lifestyle,” he said. she declared.

“That means we have to be prepared for continued pressure on our housing markets. At present, Perth is one of Australia’s most affordable capital cities but, with extremely low housing supply, we are already seeing upward pressure on values ​​in the established housing market.

“The market for new homes and land should also follow suit, unless we take real action to address the underlying supply issues.

“We need to learn from past housing market cycles and ensure that this boom does not end with skyrocketing house prices and many people being forced out of the market simply because the market cannot meet the demand we let’s wait.”

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