The Reserve Bank of Australia (RBA) says interest rates will stay locked in until ‘at least’ 2024, giving buyers extra incentive to nab the lowest interest rates in the country’s recorded history.
And, in the process, potentially driving property prices into the fastest growth pace in decades.
In April 2021, the RBA announced no change to the 0.1% cash rate, stating that the low interest rates will remain until employment and wage targets have been met following the pandemic-induced downturn in 2020.
And while that’s all well and good for economic revival, the low interest rates had unexpected impact on the property market, driving high demand and a pricing bubble that’s expected to grow rather than popping, according to experts.
The triple-whammy on housing in 2021 and 2022
When Covid-19 overtook the globe in 2020, experts forecast a significant hit to the property market. But, the market surprised everyone by seeing unprecedented growth instead, well above even pre-pandemic predictions for the year.
In fact, March 2021 recorded 2.8% growth, the biggest monthly growth since 1988, according to CoreLogic’s monthly home value index.
The RBA’s announcement that low rates will remain for several more years, as well as improved confidence from the Covid vaccine rollout and a new work-from-home attitude, are expected to push property prices even higher – as much as 17-20%, according to ANZ economists.
Government incentives such as HomeBuilder, the First Home Owner’s Grant and the First Home Loan Deposit Scheme further buoyed confidence in the market and propelled buyers into action, particularly first-time buyers who found the financial break they needed to get onto the market ladder.
Banks offering astounding rates below 2%
It’s been a race to the bottom for big banks, with competition between lenders driving interest rates to the lowest levels in recorded history. Lenders are striving to secure more fixed loans in the current low-cost funding environment, which is more good news for buyers, but more demand on the property market.
Several banks are offering fixed rates as low as 1.74% for owner-occupiers, and 1.99% for investors.
The bottomed-out rates are more motivation for first home buyers to step into the market, while investors are using the opportunity to secure future passive income while the market is rising and demand is high.
It’s likely to stay a seller’s market
We’re still seeing a supply and demand problem across the board. It’s fair to say South East Queensland has experienced some of the most astonishing property price wars in the country.
Recording the highest interstate migration numbers in the last quarter of 2020, Queensland has become a destination hot-spot for Australians seeking a better lifestyle. The fierce competition drove many buyers to pay hundreds of thousands over listing prices – often sight unseen – just to secure a home.
There are upsides to the pricing predictions
While it may seem doom and gloom for buyers facing further price hikes, the upside is that buyers moving into the market now could see quick capital growth on their purchase, whether owner occupier or investor.
Low interest rates and Government incentives like the First Home Owner’s Grant are more fuel for buyers to purchase now rather than waiting.
In addition, there are segments of the market that may remain fairly untouched by the factors that are driving current property values, but will still move in an upward curve with the market.
For example, fixed-price house and land packages offer more supply for buyers – and therefore little competition – while also staying clear of the wild overpaying and auction usurping that are driving existing property prices.
Another option for current homeowners is to take advantage of the low interest rates by refinancing and renovating their current home.
The good and the bad of the predictions
Australian Prudential Regulation Authority (APRA) chairman Wayne Byres has said one of the great risks in the current property climate is “households seek[ing] to take on even higher debt levels” while interest rates are low.
With that in mind, it’s wise to seek good financial counsel before jumping into a hot-blooded market like we’re currently seeing. Stay within your means, look for fixed pricing within budget, and use the property upswing to your advantage.