For the first time in 142 months, the RBA increased interest rates, and we’re still expecting further increases during the rest of 2022.
What does this mean?
We’re a far cry from the dizzying 17 % interest rates of the late 1980’s, and still well below the 2010/11 peak of nearly 8 per cent.
Let’s take a look at how upward movements in interest rates affected the median house price in Australia over the last 30 years.
In 1988/89, rates rose from 14 % to 17%. The inflation rate was at 7.33% and at the same time, the median house price rose by more than 35 %, and then simply plateaued for a while.
During 1990 to 1993, inflation was at 1.67%, which triggered a dramatic fall in interest rates from 17 % to less than 9 % 1990. Between 1990 – 1993 there was barely any change to the Australian median house price.
Interest rates rose sharply in 1994 by almost 2 %, and inflation was at 1.97%.- but, the median house price continued to drift upward.
In 1996 /1997 there was a sharp fall in interest rates of nearly 4 % and the inflation rate at 2.35% did not result in a significant rise in the median house price.
However, a sudden increase in interest rates in 2000 barely registered in the property market, and the median price happily continued upward.
In 2003 to 2008, successive interest rate increases only saw the median house price trend sideways before resuming its climb and even accelerating before the Global Financial Crisis hit.
In 2009, the RBA made rapid cuts to the cash rate to protect the Australian economy from the global downturn, and in response, interest rates dropped by around 3.5 % in 9 months.
By 2011, a succession of interest rate rises brought typical home loan rates back up to nearly 8 %. This has not deterred a rise in the median house price.
In the period between 2011 and 2018 variable interest rates fell from around 7.8 % to around 5.2 %. Over the same period, the median house price dipped a little before climbing again and stabilising during 2017.
At best, what the historical facts suggest is that at times, when interest rates fall, the median house price may rise. However, following the historic price rise during 2021, we saw a shift in buyers’ behaviour leading to buying before selling.
If selling in 2022 is to be on the cards for you, then this is a terrific time to sell considering the current shortage of properties on the market.