Further interest rates may cut buyers out of the market

With another interest rate rise just announced agents are no doubt worried about the impact that this could have on their sales and inventory for the rest of the year ahead. This and other questions were answered by a recent realestateview.com.au survey conducted in late March which has revealed the effect interest rate increases are having on buyer’s confidence in 2010.

The survey, which was completed by 1,100 potential buyers found that buyers are clearly concerned by the 6 interest rate rises since October last year.  When asked ‘Will further increases in interest rates cause you to delay purchasing a property,’ 70% answered ‘yes’ or ‘maybe’ signifying buyers apprehension about further rises in the year ahead.

Of those surveyed who answered ‘yes’ or ‘maybe’ there was a fairly alarming amount who said they would cease their housing search at what seems a fairly low increase.

When asked ‘How much of an increase would cause you to delay buying?’ The results were as follows:

–          0.1%-0.5%,                  18 per cent

–          0.6%-1%,                     29 per cent

–          1.1%-1.5%,                  24 per cent

–          1.6%-2%,                     10 per cent

–          Over 2%,                     18 per cent

So with 2 interest rate rises since the survey was conducted there is no doubt that buyers are going to start to dropping out of the market which could result in a reduction in housing demand in the year ahead.  This interest rise and subsequent ones however may not necessarily push buyers out of the market.  Rather it may just mean more consumer have to compromise on what they are looking for and as a result this may mean consumers look at areas further out from CBDs of each state, or look at downgrading their size requirements to get onto the property ladder.

Have you seen buyer behaviour in your area start to change? If so please share your experience below.

interest rates, RBA, realestateview.com.au

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About Petra Sprekos

Operating within the real estate industry since 2000, Petra

8 Responses to Further interest rates may cut buyers out of the market

  1. Greg Vincent May 5, 2010 at 10:58 am #

    6 increases in interest rates out of the last 7 RBA meetings can’t be a good thing for the AUS economy.

    It’s becoming the craziest merry-go-round on earth. The state & federal governments provide a stimulus for first home buyers to help them get into the market & then the RBA drives interest rates up and strangles every last dollar out of the first home buyers with massive increases in repayments & then they are forced to sell (normally at a massive loss).

    RBA you can’t tell me that’s a good economic strategy or good for our country.

  2. Robert Simeon May 6, 2010 at 1:30 am #

    Interest rates will definitely see that cash rate at 6.5 per cent (presently 4.5 per cent) so buyers need to factor in another 8 – 0.25 per cent increases at a bare minimum. What everybody needs to be watching is this graph because inflation is out of control. Kevin Rudd just increased cigarettes by a massive 25 per cent so that will drive inflation even higher meaning higher rates.

    Date Consumer price index Other consumer price measures
    All
    groups Excluding
    volatile
    items Market prices excluding
    volatile items Based on seasonally adjusted
    quarterly price changes
    Goods Services Total Private
    consumption
    chain price
    index Weighted
    median Trimmed
    mean
    Calculations are based on published Australian Bureau of Statistics (ABS) indices.
    Estimates of CPI ‘all groups’ inflation rates excluding the effects of tax changes in 1999/2000 are also available.
    Sources: ABS Cat Nos 5206.0 and 6401.0 and RBA.
    2006/07
    Sep 3.9 2.6 1.7 2.9 2.1 3.1 3.0 2.8
    Dec 3.3 2.7 1.7 3.2 2.3 2.8 2.9 2.9
    Mar 2.4 2.5 1.8 2.8 2.2 2.3 2.8 2.7
    Jun 2.1 2.6 2.1 2.7 2.4 2.5 2.9 2.8
    2007/08
    Sep 1.9 2.6 1.8 3.5 2.5 2.6 3.2 2.9
    Dec 3.0 3.0 2.4 3.9 3.0 3.1 3.8 3.5
    Mar 4.2 3.6 2.6 4.9 3.5 3.7 4.4 4.1
    Jun 4.5 4.2 2.9 6.1 4.2 3.8 4.4 4.3
    2008/09
    Sep 5.0 4.6 3.2 6.2 4.4 4.6 4.8 4.6
    Dec 3.7 4.1 2.6 5.4 3.8 4.4 4.5 4.2
    Mar 2.5 3.2 3.0 2.5 2.8 4.0 4.4 3.9
    Jun 1.5 2.5 2.8 0.7 2.0 2.9 4.2 3.6
    2009/10
    Sep 1.3 2.4 2.8 -0.3 1.5 2.2 3.8 3.2
    Dec 2.1 2.4 2.6 0.1 1.6 2.0 3.5 3.2
    Mar 2.9 2.9 1.4 2.7 1.9 3.1 3.0
    back to top

    As you see in March we are at 2.9 per cent and the RBA insists on containing inflation between 2 and 3 per cent currently it looks like inflation is at 3.5 per cent and climbing. The Prime Minister and Treasurer and lost all control of our economy and it will get much much worse before it can improve.

  3. PaulD May 11, 2010 at 7:59 am #

    Regarding interest rates. I said in another thread that perhaps the interest rates were trending down and that the long term average interest rate is a very poor method of setting monetary policy. So I graphed the interest rates over the last 20 years and requested a trend line to be added, and guess what it shows ??
    http://docs.google.com/present/edit?id=0AW2fyVRTBSEqZGNyNThnMjZfMjB0czc2dmZmag&hl=en

    Too many people believe what people in supposedly knowledgeable positions tell them. Particularly where money is concerned.

  4. Nick May 11, 2010 at 10:56 am #

    PaulD you need to fiddle with the permissions to that document a little. Outside people cant see it.

  5. PaulD May 12, 2010 at 1:00 am #

    Nick,
    Sorry, I have adjusted the permissions and the New URL is:
    http://docs.google.com/present/view?id=dcr58g26_17d6mzvvfs

  6. Robert Simeon May 12, 2010 at 1:29 am #

    Great graph Paul – all we need now is that crystal ball. Inflation peaked at 5.00% in the September quarter 2008/09 (interest rates then hit 7.25 % (currently 4.50%). Presently (last month) 2.9% (today probably 3.5%) which is outside that RBA comfort zone of 2 – 3%.

    The consumer price inflation has moved from 1.3% in September 2009/10 to 2.1% in December 2009/10 to 2.9% March quarter 2009/10. Whilst no mention of inflation from the budget out of control inflation will be the elephant at the open for inspections. Not to forget that increasing cigarettes by 25% will drive the CPI measure up enormously – they failed to mention that also.

    Keep watching the RBA’s website for clues given the government is banking on continued business prosperity (increased tax receipts) if interest rates double and that is highly likely then tax receipts will reduce significantly leaving a glaring hole in the budget.

  7. PaulD May 12, 2010 at 4:05 am #

    Robert, For the sake of balance, after showing the cash rate trend since 1990, I thought I’d better graph the Inflation rate during that period.
    http://docs.google.com/present/view?id=dcr58g26_22gp7hd3hb

    It seems that things are not in such a dire predicament as many would have you believe, in terms of monetary policy. To me, it would seem prudent to leave everything alone for 9 – 12 months to see what happens. It’s like when you cook something, you want it done quickly, so you turn the heat up – and then ? Yep – it burns !! The bigger problem, I believe is the Government’s fiscal policy.

  8. PaulD July 9, 2010 at 4:08 pm #

    Interesting article regarding long term fixed residential mortgage rates in the United States.
    http://www.walletpop.com/mortgages/eim/article/refinancing-rates-may-be-too-attractive/1146414

    This indicates that the residential mortgage rate (fixed for 30 years) is 4.69%. and is the lowest rate in 50 years.
    So any of you out there that don’t believe the banks are gouging the public in cahoots with the Reserve Bank and the Government, please explain to me the benefits ( apart from the Bank’s bottom line, and the Government trying to rake back the millions it has wasted in the recent past) to the Australian people in general, and to the property sector in particular, of higher interest rates ?
    All that with reference to the cash rate trend over the last 20 years.
    http://docs.google.com/present/view?id=dcr58g26_17d6mzvvfs

    I find it almost incomprehensible that the media make a big deal of the Reserve Bank not raising rates for one month. As if to say ” Well we were lucky this month, we may not be so lucky next month” We should all be outraged at the cavalier attitude of the Reserve Bank, and in hindsight, they dropped the rates too far, let thousands of first home buyers jump in at low rates , and now will punish them with rates that are too high.

    If rates were left alone 12 months ago, when they were around 4% (cash rate) there would have been none of the heartache that first home owners will no doubt be going through. Hindsight is easy, but the Reserve Bank should be a lot closer to what is happening than they have proven to be, and someone should be asking questions, rather than just copping it on the chin over and over.

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