Are interest rates really impacting Inner West property prices?
Firstly, we need to understand what is driving the interest rate rises. The main influencer for the past 11 interest rate rises has been inflation. Inflation is an increase in the general price of goods and services in the economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.
Fundamentally, when inflation rises the central bank steps in and dials up interest rates in an attempt to curb spending via an increase in mortgage repayments. Unfortunately, this isn't an immediate fix. Over the past 12 months interest rates have risen 11 times and according to the ABS inflation has rinsed from 5.1% in March 22 to 7.8% in December 2022. The current inflation rate is 7%.
The Sydney property market has showed its resilience to extreme external forces. In 2007 the Global Financial crises sent shock waves through property market however this was short lived with the market bouncing back with vigour. More recently COVID19 where prices were predicted to drop by 30% where in fact, they rose by 30%. So, it's no surprise that 11 interest rate rises aren't having the desire effect on property prices.
According to CoreLogic's Research Director, Tim Lawless, it is becoming increasingly clear the housing market has moved through an inflection point. "Not only are we seeing housing values stabilising or rising across most areas, but a number of other indicators are also confirming the positive shift. Auction clearance rates have been above 70% in Sydney for the past 9 weeks compared to 53% this time last year.
Buyer sentiment has lifted however there is still a significant lack of stock. Many prospective vendors have stayed on the sidelines through the downturn, keeping inventory at below average levels and providing sellers with some leverage at the negotiation table. Across Sydney stock levels are down 31% year on year.
Essentially, there are far more buyers competing over limited stock therefore its forcing property prices higher. As far as I can tell the main effect interest rates have had on the Inner West market is it is forcing buyers to reconsider their budget, some are now looking in a slightly cheap price bracket. However, for the most part interest rates haven't deterred buyers for entering the market.
It will be interesting to see what happens to property prices once potential sellers get off the sidelines and start listing their homes for sale!
If you are currently on the sideline giving some consideration to selling, we have quite a few buyers who we could introduce to your property to see if they are at the same price point you are thinking or even higher.
Let me know if you would like to talk about the possibility of selling.
Contact Luke Bellero
