As a matter of interest.....

The RBA kept rates on hold at 4.35% at their latest meeting on Tuesday but is that good for everyone?

Rates hit a record low in November 2020 and maintained that value until April 2022. During that almost 18 month period, borrowers became accustomed to the relatively cheap loan rates and more comfortable and confident to refinance and take on extra debt.

However, in May 2022 the first of a series of rate rises began in an attempt to combat and control inflation. And so began the talk of mortgage stress, distressed sales and recession. None of that has happened on a significant scale even though the current cash rate setting is 1.8 percentage points higher than the pre-COVID decade average of 2.56%. However, while the market did not experience a drastic crash, there was a significant moderation in price growth. Some areas even recorded slight declines in median house prices as sellers adjusted their expectations in response to the changing market conditions.

Interest rates are a powerful lever used by the RBA to control economic stability. By adjusting the cash rate, the RBA influences borrowing costs, which in turn affect consumer spending and investment. Lower interest rates make borrowing cheaper, encouraging individuals to take out loans for large purchases like houses. Conversely, higher interest rates increase the cost of borrowing, which can dampen demand for housing and lead to price adjustments.

Despite inflation remaining above the top end of the target range at 3.6% over the year to March, most economists believe the next rate move will be a downward one. What they don’t agree on is the timeline for this. Financial markets are predicting this will happen in March next year (bringing the date forward from the previous mid-2025 forecast) while three of the big four banks’ economic units think it will be in November 2024.

Most mortgage holders are keeping up with repayments despite increased interest rates and cost of living pressures.  In fact, housing values and sale volumes have tracked higher than a year ago, signifying consistently strong demand from purchasers. The sentiment is however, that if interest rates stay at the current level, borrowers, in particular those that borrowed when they were at their all-time low, will further erode their savings and we could see mortgage arrears rise further.

Tin summary, the future trajectory of Sydney's housing market will depend on a combination of interest rate movements and broader economic conditions. If inflationary pressures persist, further rate hikes could be on the horizon, potentially leading to continued moderation in house prices. Conversely, if the RBA achieves its inflation targets and stabilises rates, the market may find a new equilibrium.