Low interest rates boost property market

Interest rates have a pronounced effect on the property market, with RBA rate cuts historically pushing house prices upwards. In fact, low interest rates have been a major driver of price growth over the past two decades. Melbourne house prices, according to Domain, strengthened significantly after mid-year rate cuts in 2016, while the RBA’s rate cuts from 4.5% to 1.5% between 2011 and 2016 saw median house prices increase by 60%.

While other factors, such as taxes, lending requirements, population growth, income growth and supply and demand, affect house prices, both local and international research suggests interest rates have a particularly significant effect.

Low interest rates, while generally stimulating the economy, boost cash flow for borrowers, enabling them to take on higher debt levels. They also make investing a more attractive option given a higher net rental income, with many investors capitalising on the opportunity to buy another property and pay their debt off faster.

The RBA’s more recent consecutive rate cuts, which have reduced the cash rate to an historic 0.75% low are, together with tight stock levels and a relaxation of lending criteria, having a very positive effect on the market, with both house prices and auction clearance rates increasing.

Melbourne house prices have been steadily increasing, with five consecutive months of growth recorded. The recovery trend in Melbourne has overtaken Sydney in October, with dwelling values surging 2.3% higher over the month; the largest month-on-month gain since November 2009. This saw Melbourne house prices increase to a median of $650,197.

CoreLogic Research Director, Tim Lawless, explains, “Demand for housing is responding to stimulus measures, including mortgage rates that are now lower than anything we have seen since the 1950’s and improved mortgage serviceability tests following APRA’s decision to adjust the minimum interest rate serviceability rules in July this year.”

Between price increases and many spring buyers competing for too few properties, and with Noel Jones’ auction clearance rate often well-outstripping the wider average, now might be a very good time for vendors to get in touch.

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