A fall in Sydney property values and record high household debt will make major interest rate rises unlikely, CoreLogic has predicted.
CoreLogic’s October Home Value Indices saw Sydney median values fall for another month, now down 0.6% over the quarter, placing the Harbour City alongside Perth and Darwin where values are also falling.
With an RBA cash rate increase not likely to occur until early 2019, states the report, means that “mortgage rates aren’t likely to rise materially over the foreseeable future.”
CoreLogic research director Tim Lawless noted that “with household debt at record highs, higher mortgage rates would test already stretched household balance sheets.”
Overall capital city values were flat in October and showed a 0.4% rise over the quarter, led by Melbourne (1.9% over the quarter) and Hobart (3.3% over the quarter).
Have we passed the rate hikes?
CoreLogic’s expectation of largely flat interest rates is shared by other analysts.
QBE’s recently released Housing Outlook 2017-2020 did predict that standard variable rates for property investors QBE AUSTRALIAN HOUSING OUTLOOK 2017 2020 by @GillandDebello #property #propertymanagement https://www.slideshare.net/GillandDebello/qbe-australian-housing-outlook-2017-2020would rise to 6.50% (for interest-only) and 6.05% (for principal and interest) by 2020.
However, both of these increases can be fully explained by a predicted increase in the cash rate in early 2019. This suggests that the recent surge in out-of-cycle rate hikes has now finished.
Furthermore, QBE predicted that rates for owner-occupiers will rise by just 20 basis points, less than the cash rate, as banks chase these types of borrowers.
‘Soft landing’ for the property market
The past quarter’s flat and falling property values are not a one-off, according to CoreLogic.
Lawless has warned that “a further reduction in dwelling values should not come as a surprise”, going on historical property value cycles.
He noted however that “while the weaker Sydney housing market is dragging headline growth rates lower, there are a variety of factors that are likely to support a soft landing across Australia’s housing market.”