Interest rates influence property prices, but they are not the reason that Australia has some of the highest housing values in the world, Philip Lowe said in a speech just before standing down as Reserve Bank governor.
Mr Lowe said it’s true that the lower interest rates that Australia has experienced for much of the past 30 years have contributed to the increase in property prices.
“But the reason that Australia has some of the highest housing prices in the world isn’t interest rates, which have been at roughly similar levels across most advanced economies. Rather, it is the outcome of the choices we have made as a society: choices about where we live; how we design our cities, and zone and regulate urban land; how we invest in and design transport systems; and how we tax land and housing investment,” he said.
“In each of these areas, our society and politicians have made choices that lead to high urban land and housing costs. It is by tackling these issues that we can address the high cost of housing in Australia, which I view as a serious economic and social problem.”
RBA leaves cash rate at 4.10%
The Reserve Bank of Australia (RBA) has left the cash rate at 4.10% for the fourth consecutive month, as many commentators had expected.
While the RBA has said in the past few months that it may increase the cash rate in the future, many commentators believe that rates have now peaked.
Inflation will be the key. If it keeps trending down, the RBA may refrain from making further rate hikes. But if it starts rising again, the RBA may feel it needs to increase rates again.
Australian property market passes $10trn milestone
The combined value of Australian real estate reached $10 trillion at the end of August, according to CoreLogic, which is the first time it’s reached this level since June 2022.
The increase resulted from a combination of more properties being built and the value of Australia’s housing increasing.
Soon after reaching the $10 trillion mark last year, the property market began a 10-month downswing, during which the national median property price fell 9.1%. Since March, prices have risen in six consecutive months, increasing by a combined 4.9%. However, the outlook is uncertain, according to CoreLogic.
“While there is a growing expectation that the RBA board is done hiking the cash rate, borrowing remains constrained by a relatively high serviceability buffer,” CoreLogic said.
“APRA [banking regulator] data to June showed the weighted average home loan assessment rate was just below 9%, and Australian Bureau of Statistics housing lending data shows mortgage lending has fallen for three of the past four months.”
First home buyer scheme delivering results
The federal government’s Home Guarantee Scheme (HGS) is helping first home buyers on modest incomes enter the market with small deposits, according to research commissioned by the National Housing Finance and Investment Corporation.
Some of the key findings from the research were:
- The average annual income of individual HGS participants was $108,000 compared with $117,000 for the broader first home buyer market
- The average deposit paid by first home buyers since 2020 increased by 3.4% (from $35,200 to $36,400) for HGS participants but 46.7% ($108,400 to $159,000) for the broader first home buyer market
- The average loan amount since 2020 increased by 4.7% compared with 13.4% for the broader first home buyer market
The research also found that the average HGS property has enjoyed an equity gain of $82,000.
Under the HGS, first home buyers can enter the market with just a 5% deposit – but conditions apply. We can help assess your eligibility and help you to apply for a loan.
Australians now saving just 3.2% of their income
Household savings have now fallen for seven consecutive quarters, suggesting some consumers are finding it harder to save for a home deposit due to rising cost of living.
The latest Australian Bureau of Statistics data show that the share of income that households save fell significantly between the quarters of September 2021 and June 2023:
- Sep-21: 19.3%
- Dec-21: 12.9%
- Mar-22: 11.3%
- Jun-22: 8.1%
- Sep-22: 7.2%
- Dec-22: 4.4%
- Mar-23: 3.6%
- Jun-23: 3.2%
The decline in savings has been caused by multiple factors such as:
- The end of the pandemic, when people started to spend more and the Covid handouts stopped;
- Growing inflation, which has forced people to spend more on power, gas, fuel and other general living costs;
- higher interest rates., which has limited discretionary income which could have otherwise been saved.
If you are buying, re-financing or have any questions, contact me on the below information.
TAG Finance and Loans
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.