"WA has a strong economy, low unemployment, population growth and affordable housing and this will continue to support the market in the longer term. "
The latest interest rate rise will have a more moderate impact on the WA property market than other states because of the strong local market fundamentals, according to REIWA CEO Cath Hart.
The Reserve Bank of Australia lifted the cash rate by 0.25 basis points to 3.35 per cent on Tuesday.
That sees an increase of approximately $855 to monthly repayments on a $500,000 loan since April 2022.
With some commentators predicting large price falls over the year, Ms Hart said under current conditions, growth was still on the cards.
“The likelihood of interest rate rises was factored into our predictions for 2023,” she said.
“WA is in a good position to weather this latest increase.”
Ms Hart discusses the impact of interest rates on the WA property market below.
Q. The Eastern States have already seen prices fall with more expected to come, what about WA?
A. History shows WA’s property market is often out of cycle with the east coast however this can be forgotten by commentators, particularly those in the Eastern States.
For example, between 2014 and 2019 the cash rate was going down, and commentators were predicting booms. Eastern States markets did see price growth, yet WA experienced an extended downturn.
Currently, while east coast markets have felt the effects of the eight interest rate rises in 2022, WA has shown more resilience.
One of the reasons is that while other capitals saw values jump dramatically during the pandemic, the COVID effect was much more subdued in WA. Affordable housing, combined with high demand and the housing shortage, means we have seen less of a correction here.
I encourage people to look to local sources to inform their views when doing research on the WA market. REIWA in particular has specialised knowledge of the WA market and our members are in touch with what is happening in their areas. And as we know, every suburb has its own market.
Q. Will the WA market be affected by more interest rate rises?
A. WA will not be immune to the effect of more rate rises, but interest rates are not the only factors that impact a market. For example, WA property prices rose between 2009 and 2010 during a period of rate increases.
There is likely to be a period of adjustment, and local mortgage holders are certainly making adjustments to their household budgets now in order to meet their new repayment obligations after a couple of years of historically low interest rates.
In terms of market activity, we expect that we’ll be likely to see some hesitancy in the short term as people wait and see.
Buyers who have seen their borrowing capacity eroded are likely to be price conscious and seek value. Sellers may need to adjust their expectations and price to meet the current market. We may see properties taking longer to sell however it is important to note that they have been selling at near-record times.
So even if prices decline there is no need to act hastily. Like shares, a loss is only on paper until you sell. People who don’t need to sell immediately may decide to wait a little longer.
There will be some people who need to sell, and they may see their expected value reduce. But if they are buying and selling in the same market, the effect balances out.
Speculators may need to wait longer for capital gain, but property is a long-term game.
Q. Why has WA been so resilient?
A. As mentioned, interest rates are not the only factor that affects a market.
WA prices are currently being supported by ongoing demand and a shortage of housing across the board and this is likely to continue.
WA has a strong economy, low unemployment, population growth and affordable housing and this will continue to support the market in the longer term.
Q. REIWA predicted price growth for 2023, is that still on the cards?
A. Factors affecting the property market can change rapidly as we saw in 2022 when the RBA lifted rates eight consecutive times. Our 2023 forecast for WA factored in at least two more rate rises, coupled with population growth and a low rental vacancy rate.
Some price adjustments may occur in coming months, but we are maintaining our expectation of low to moderate growth over the course of the whole year in the range of 2-5 per cent.
REIWA will be updating its forecast quarterly to provide up-to-date insight and analysis into local conditions with the next update due early April.
Source: Reiwa, Feb 2023
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