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Will interest rates impact the apartment market?

Will interest rates impact the apartment market?

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More than 50 central banks have raised interest rates by at least 50 basis points in one step, so far this year. Many of them haven’t finished yet, including Australia’s RBA, which is likely to increase the cash rate by another half a percent in July 2022.  China is one of the few countries bucking the trend, due to prolonged covid restrictions and ongoing troubles in the property sector from companies such as Sunac and Evergrande.

This is a widespread tightening of monetary policy, and is in response to inflation in areas such as energy, food and labour.

Why the apartment market may stall.

We know the cost of credit is one of the 5 factors effecting property prices, so already, a rise in borrowing costs is going to temper the market. Naturally, in a falling market, lenders become more conservative and may lift lending criteria making it harder to get a loan. This would tick the second box of factors impacting property prices, which is the availability of credit or money. These are two headwinds for the apartment market.

Why the apartment market may grow.

In support of the apartment market, borrowing rates still remain at long term lows. Secondly, global supply chains are gummed up due to several factors including material shortages and labour market constraints. This simultaneously lifts the price of construction and slows it down thereby limiting supply. Just like the surging second hand car market, buyers will start to put a higher value on existing apartments and homes. This will help maintain values in the short and longer term.

The third factor supporting apartment values is job security and wages growth. The more secure you feel about your job and the prospect of earning more, the more comfortable you are to borrow more. With Australia’s unemployment rate at 3.9%, pretty much anyone who wants a job, can get one. This augers well for property prices.

There are many factors globally and domestically pulling and pushing the market, making the outlook opaque at best. Quality advice has therefore never been more important.

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Written by a 4th generation real estate agent Apartments Made Easy gives you the tools and tells you all you need to know about how to buy, sell, own, lease, and manage your apartment successfully.

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