Stock levels and prices rise in unison.

Stock levels, property prices, and sales volumes rose as interest rates were kept on hold in both July and August. Many economic indicators are beginning to reflect a change in consumer behaviour, but the resilience of the property market has left many, including the RBA, surprised.

There is little doubt that the impact of the Mortgage Cliff is weighing on many households and will continue to do so between now and Christmas, as more mortgages come off their record-low fixed rates.

Even with a subtle uptick in distress sales such as Mortgagee in Possession, however, such examples are isolated and the buyer demand in the market has seen these distress sales still achieve good prices on the open market.

This is a very interesting and healthy sign for those vendors that may be forced to sell a property due to mortgage pressure; if buyer demand continues to outstrip seller supply, it will vastly increase the RBA’s chances of engineering a soft landing.

Of the increased stock coming to market, the overriding commonality is the number of rental providers selling investment properties, in order to reduce their overall debt levels. As one owner succinctly put it, ‘We are selling the investment property to put the equity against non-deductible interest payments on the home loan’.

Given a quarter of all real estate transactions in Australia’s 3 most populous States are completed without finance, it goes a long way to explain the resilience in the property market to date whereas discretionary segments of the economy such as retail, bear the brunt of higher interest rates.

At the time of writing, major banks such as Deutsche Bank and National Australia Bank have respectively forecast 2 and 1 more RBA rate rises, in this hiking cycle.

When it comes to the housing market, based on the performance to date, one is entitled to ask – do interest rate increases even matter? Only in time will the full story emerge.

By Peter O’Malley