House prices have almost recovered from the recent downturn and are on track to hit new highs this month at the rate they are rising.
On balance, most experts believe the rebound in prices should continue into next year. And yet, there are headwinds for the housing market – particularly the prospect of further rate rises – that could yet stall the recovery, or in the worst case, even send prices lower.“I think further interest rate increases are going to have a bigger negative impact on the housing market than the past ones,” says Warren Hogan, economic adviser at Judo Bank.
“As advertised stock levels rise and buyer demand looks increasingly shaky amid low sentiment, stretched affordability, and theSo how likely is a double dip downturn this time around? “What happens if the pool of buyers dries up and the financial buffers built during the pandemic run out?” CoreLogic’s Lawless says that although the market upswing has been maintained for the past nine months, the momentum of the recovery can be influenced by economic conditions, vendor activity and the cash rate trajectory.
“We’re now in a situation where sentiment has been holding at very low levels for more than a year,” he says. “Households are very sensitive to the cost of debt and then on top of that, they’ve also got this amplification in cost of living crisis as well, so I think for that reason, further rate hike or hikes would definitely be negative for housing activity,” says Lawless.
“Given the momentum in the market and still very tight supply it’s hard to see another one to two rate rises having a material impact in the near-term,” he says. “Even if we get a 4.6 per cent cash rate, which we’ve been forecasting since August, I don’t think that house prices will turn around and start falling,” he says.
The unemployment rate at 3.6 per cent has been more resilient than most people expected and this is manifesting in the house prices, O'Donaghoe says. “The supply of well-located family homes remains low, and in that environment you have a case where people are being forced to pay higher than they would have paid just to win the house,” Cacho says.