How do interest rate trends affect buying property?

Sydney real estate (and Neutral Bay in particular) is always going to be sought-after. But every so often there are changes in market conditions that affect how confident home owners feel about buying and selling houses.

And with mortgage interest rates rising, it has created a ‘perfect storm’ of sorts that is offering some people the chance to make a great move on a new property. So while most news outlets are reporting that most things have come to a stand-still, we’re seeing something quite different in various housing markets.

The cause of interest rate rises

Without getting too technical, interest rates rise because the official cash rate of the RBA (Reserve Bank of Australia) rises – and because this then dictates how much interest banks are paying on their overnight borrowing, they are passing on those increases to their borrowers.

And as the cash rate continues to rise, variable mortgage rates will go up, reduce buyer borrowing capability and impact on serviceability tests. This flows on to house prices, where demand drops and then prices inevitably do, too.

The effect of interest rate rises

What’s interesting is that mortgage rate rises can cause a few different things to happen, particularly in an always ‘in-demand’ Sydney real estate market.

Higher interest rates can mean more houses coming onto the market, and because of this there can be more competition between listings, resulting in lower prices. As a buyer you could also have less competition due to not as many people in the market for a property. So, if you are buying and selling in the same market, now may be a good time to make your move.

But, here’s something peculiar – it can also have the opposite effect, depending on other factors, and research has shown that interest rate levels are not the sole factor in determining whether property prices rise or fall.

What we are seeing in Neutral Bay and surrounds

Often reporting on the property market provides generalisations of what is happening overall, but what gets missed is the smaller, niche markets that rise and fall on their own tide. And Neutral Bay is certainly one of those locations that can still remain largely unaffected by what is happening in the wider market.

Here’s what we do know: over the last 12 months the median sold price was up 15% in Neutral Bay, to just over $3million dollars. So it would take a significant drop in buyer activity and interest for that to fall to pre-pandemic levels.

Here are some of your options

If you’ve been thinking of buying or selling, here are some things to do and think about now that the market is changing.

• Speak to a broker. Here at HPA, we have some great recommendations of who can help you understand what you can afford to buy in a changing market.
• Experts are saying that rather than trying to time your next purchase based on where we are in the cycle, if your income is secure and the time is right for you, it might be an ideal time to make a move, while others are sitting on the sidelines waiting to see what is going to happen.
• Give Anthony a call here at HPA. His knowledge and experience in the Neutral Bay market enables him to provide local homeowners with up-to-the-minute information about the current property market and what it may mean for them.

Wondering what your next real estate move should be? Talk to us

As always, our recommendation is that you should buy and sell when you need to, rather than feel any pressure by what is happening around you (but of course it’s good to be open to opportunities that could benefit you). Knowledge is power in real estate and if you don’t have the time to do research online – or you’re confused by where to start – we’re always here to help.