The impact of rising interest rates will flow through to the market quickly by capping the borrowing capacity of buyers, says ANZ senior economist Felicity Emmett.
Home buyers will have their spending power reduced by rising interest rates, putting downward pressure on property prices.
RBA governor Philip Lowe had flagged that the bank wanted to return the cash rate to a “more normal” level, which he expected would be about 2.5 per cent. “Whilst it’s going to be difficult for a lot of people who have never seen an interest rate hike previously, and there will be some adjustment, I don’t think broadly there are going to be problems,” Emmett said.
Independent economist Saul Eslake said the RBA had more than fully reversed the reductions made at the start of the pandemic, when the cash rate was cut from 75 basis points. With more rate hikes to come, buyer demand and property prices are set to be impacted. He now expects national home prices to decline by 15 per cent by the end of 2023. Prices in Sydney and Melbourne were anticipated to fall further, with Aird predicting declines of 18 per cent.
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