Property market bouncing back, as cash rate moves higher

Today the Reserve Bank of Australia (RBA) increased the cash rate by 25 bp to 3.85%, after pausing in April. This continues the cycle of rapid increases witnessed over the past 12 months. The RBA continues to flag the possibility of more rises later this year, in order to bring inflation closer to the target band of 2-3%.

PEXA Chief Economist, Julie Toth, said: “Today’s rise will come as shock to many mortgage holders and residential property providers, after the respite of last month’s pause. National property market indicators suggest that a trough had already started forming in our large city markets. Prices and sales volumes were turning up again in April, even though the full effect of all the previous rate rises in this cycle were yet to wash through. Today’s rise may cause sellers and buyers to pull back from the housing market again, as they reassess their housing options and wait for a more stable credit and pricing environment.

“For Australians who already hold a mortgage for their own home or for investment properties, these rate rises are continuing to prompt loan-holders to seek better financing options within our competitive mortgage market. PEXA’s Refinance Index of loan refinancing volumes confirms strong levels of refinancing activity in 2023, following a record high month in December 2022 (followed by a seasonal lull in January). PEXA’s Refinance Index in the week ending 30 April 2023 moved up to 175.4 points (seasonally adjusted):

• up by 6.7% from one month earlier;
• up by 25.9% from the same week in 2022; and
• up by 58.9% from the same week in 2021.

“PEXA’s latest research report ‘Emerging Mortgage Risk’ notes that more Australian homeowners are battling significant increases in their home loan repayments as a result of the recent rate hikes and steep house price increases that are occurring concurrently with ongoing cost of living pressures. These risks are particularly pronounced for those who have recently purchased their residential property (2020 to 2023). Today’s rate rise will add directly to the mortgage repayment pressures faced by these households.

“Looking ahead, we are very close to the top of this rate rise cycle – if not already there. The RBA continues to flag the possibility of one or more further rate rises in 2023, in order to bring inflation down toward its 2-3% target band. All current mortgage holders and prospective buyers need to remain live to this possibility, and to fully factor it into their refinancing, borrowing and purchasing decisions,” said Ms Toth.

For more information, visit pexa.com.au/content-hub/data-insights/.