One such commentator is Scott Pape, aka the Barefoot Investor, who is famous for his practical, no-nonsense approach to financial matters. He was quick to point out that, while rates are indeed rising, they are still incredibly low by historical standards. Those of us who are old enough will remember the cash rate reaching 17.5% in 1990 – today’s 0.85% pales in comparison!
Scott’s message is simple – money has been cheap and easy to obtain for the past few years, and that had to come to an end sometime. If you haven’t over-extended yourself and you’ve got a good budget in place, it really isn’t the end of the world, and nor is the high price for a lettuce going to last forever.
Having said that, there’s no escaping the fact that rising interest rates will have an impact on property prices. That’s because higher rates mean higher repayments, which in turn reduces how much home buyers can borrow. If mortgage rates go up by 1%, for example, borrowing capacity usually reduces by 8 – 10%.
Analysts such as PropTrack’s economist Paul Ryan predict that this will put house prices back to where they were in the middle of 2021. But, when you remember that national dwelling values have risen by a huge 35% since the beginning of the pandemic, that doesn’t sound quite as alarming as the media would have you believe. When you take into account that homes in our regional towns are still more affordable than in Melbourne, that the ‘tree changer’ movement to our region hasn’t stopped and that many homeowners have taken advantage of low interest rates to pay down debt, we should be alert, but certainly not alarmed.
Whether prices flatten or dip slightly, and whether interest rates continue to increase by a little or a lot, the Broadhurst team is here to guide you. Our team have been riding the waves of the property market for 30 years, through interest rate highs and lows, so we’re well-placed to help our clients navigate these conditions. Get in touch with us today for a confidential chat.
Robert Broadhurst
If you are considering taking the next step in your property journey, please feel free to reach out — we are here to assist.
