Despite some of the rhetoric we’ve seen passed around over the last few months, rates rising will lead to a roundly positive outcome for property buyers.
For the last two years, we’ve been in a market where you may have been able to borrow more for less, but when taking your extra finance to the property market, you’d be met with 10-50% higher prices, depending on where and what you were buying.
Prices were climbing at an alarming rate. Many buyers were priced out of their target suburbs by the time their initial pre-approval expired.
Buyers will now have a better chance in the marketplace
The flow-on effect for the property market will invariably be that vendors will now be required to adjust their price expectations and slow the freight train.
Instead of property prices continuing to climb by 1.5% a week – they might now only climb 1.5% a month. As rates continue to rise, it might readjust to 1.5% every 2 months, and so on.
The run-away prices of the last two years will cease, and buyers will have a much better chance of securing the property they want under more reasonable conditions.
Important perspective for those worried about rises
Perspective matters. The interest rates of the last few years have been extraordinary, and with it, the boom in the housing market has been extraordinary. Interest rate rises were inevitable and the market’s behaviour wasn’t normal.
We’re now talking about a proportionately insignificant rate rise. Right now, it’s something equivalent to around $30 a week on a million dollars.
Interest rates are not skyrocketing back to 17%, The worst-case scenario we’re facing is that we may reach 2.5% over the next few years.
At 0.35 per cent now, the cash rate is still historically incredibly low. As it climbs incrementally over the next few years, we’ll see a much-needed softening effect on the property market. Buyers will be in a better position to secure a good property for a reasonable price.
Should you buy or should you wait to see what happens?
We already know rates are going to rise and we know what the worst-case scenario is likely to be.
The best time to buy a property remains when you have the capital and motivation to buy a property.
For the last several decades, Sydney housing prices have risen steadily. All of the price dips recovered shortly afterwards and the overall median housing price continued to grow – irrespective of interest rates.
If you’re looking to buy a home, depending on your financial situation, rate hikes of this calibre are actually working in your favour and not the other way around.
Important Perspective for Vendors
While prices are no longer peaking in most markets and price points, they are usually still high when pegged against your purchase price.
Too much is made of the market correction on both sides, considering many vendors will have bought at least 5 years ago.
You may not be getting the offers you might have in October/November 21 – but most of you are still locking in a big capital gain.
Importantly, if you’re savvy, you’ll also sell and buy in the same market. So the net benefit is the same as if you sold last year and bought in the same market.
The price you get may be lower, but the price you pay for their next home is also lower. Perspective is everything.
If you’d like advice on your situation and property search, we’re here to help. You can write to us at email@example.com. Or contact me directly at firstname.lastname@example.org.