How interest rates affect real estate

Make no mistake! Interest rates always affect how much you’re paying to enjoy your dream abode. Incredibly far-reaching and essentially set by the Reserve Bank of Australia (RBA), interest rates also influence the how and why of property values across the country.

The basics

On the first Tuesday of every month (except January), the RBA sets the cash rate for the next four weeks. If this rate increases or decreases and your lender decides to pass on the change, it will affect your home loan payments – in a good or not so good way! 

A low-interest rate will have you celebrating as that means a smaller payment to your lender but the reverse is true as well.

From low to high

When interest rates plunge, excited buyer crowds keen for a minimal mortgage payment will appear. So, don’t be surprised if fence sitters – or simply those keen to buy up – crowd you out at auctions and inspections. Be prepared to move fast as well, as this same excitement can lead to increasing property values. This is due to top-notch properties quickly disappearing from the market and becoming harder to find. 

However, high-interest rates will result in the exact opposite of this situation. People are far more unwilling to begin a big mortgage, fewer people are wanting to buy and real estate prices either drop or simply stagnate – until interest rates decline again.

Buyers and sellers

Rising interest rates can actually be the perfect time to snap up a home. Yes, your mortgage will be larger but vendors will be more willing to sell with their homes available for a very nice price. Just make sure you stop when rates drop. 

For vendors, the best time to sell is when interest rates are rising – but hold back when they fall. Also, remember that up and down interest rates may see higher property values in the long run.

Smart strategies

Predicting where interest rates will go isn’t an easy science. But stronger economies usually equal higher interest rates while low rates can sometimes be used as a good way of reducing a financial slowdown. Regardless of whether you’re a current or potential buyer, vendor or investor, it’s crucial you keep an eye on RBA’s monthly cash rate announcements and where these rates are heading – not just for this month but for the long term. 

As well, stay on the mark when it comes to economic news and trends and consider that other points such as location will also determine property costs, values and availability. 

Good luck!

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