Will house prices plunge if rates increase?
We look at historical data to see how a rise in interest rate impacted property prices previously, and here's what we found....
A hot trending topic in the conversations between property buyers and investors has been the possible rate hike by the RBA and the potential impact on the property market.
Some fear the possible plunging of the house prices once the RBA decides to pull the trigger.
While it is always hard to accurately predict the future, what we can do is look at historical data and estimate what a rate hike can do to the property market.
Between 1990-2020, there are 4 notable rate hikes:
1994 – 2.75%
1999-2000 – 1.5%
2002-2008 – 2.75%
2009-2010 – 1.75%
Here’s what happened during these 4 “hikes” :
During 2004-08, we see a relatively long period of plateauing while the only decline we observe is in 2009-10 where the house prices grew and dropped slightly but then quickly recovered.
How good of an indicator these historical data will prove to be is still to be seen, for now we’re not even sure if there will be a rate hike in 2022.
In September last year, RBA Governer Philip Lowe suggested:
"level of housing prices are not best addressed through increasing interest rates and curbs on lending"
A rise in interest rates "would also mean fewer jobs and lower wages growth...a poor trade-off in the current circumstances" He added.
What we can do now is to avoid reading too much into headlines and speculations happening in the media and allow them to steer us into certain directions.
During a time where there’s a huge amount of speculations, it is important to look at unbiased, factual data and stick to your financial strategy. Investment is a long-term game after all.
If you want to work out your very own property investment strategy, book a free consultation session with one of us today!
Or check out the 6 biggest trends in the property market here.
