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Speaking on the latest episode of Broker Daily Uncut, host Alex Whitlock was joined by Finni mortgage brokers Eva Loisance and Costa Arvanitopoulos to discuss market conditions as another Reserve Bank rate rise looms.
All four of the major banks are now predicting a 25-basis-point rate rise in the Reserve Bank of Australia’s announcement today (3 February). Fixed mortgage rates have also already increased across the major banks, with pricing now generally sitting above variable rates.
“I personally don’t see the activity slowing down regarding interest rates going up,” Arvanitopoulos said .
“Traditionally, property prices have just constantly gone up regardless of if the rates are going up or down. So there will be some people in the market thinking they might hold back.
“But if you’re holding back, you’re going to be paying more – the prices aren’t going to come down if that’s what you’re hoping for.”
Arvanitopoulos noted that the demand for housing was an issue of supply and demand over interest rates. Until demand is met meaningfully, the property market will remain hot, he said.
“Rates aren’t just going to do anything, because in the end, they’re not building enough homes for the people that want to purchase. So ultimately that comes down to, as we all know, supply and demand. If the supply is not there, the demand is going to increase regardless of what the economics are outside of that,” Arvanitopoulos said.
“This is always going to be one of the factors that keeps heat in the market and you can’t change it overnight,” Loisance added.
Talking with those individuals across the industry, Broker Daily found that brokers were taking a measured approach to the spectre of hikes by having early conversations with clients and factoring in possible interest rates to advice long before they take effect.
Investment demand
Investor activity also remains a major factor, particularly in entry-level segments of the market that overlap with first home buyer demand.
Loisance and Arvanitopoulos said investors are continuing to transact, often focusing on long-term fundamentals rather than short-term rate movements.
“Most investors are buying in the lower price brackets which is also where the first home buyers are playing, so there’s a big increase in the value of those properties in that price range,” Loisance said.
“I think we’ll see price increases in those markets regardless of what interest rates are doing. For some investors we deal with, they’re motivated to get in quick and do more.
“And with less property on the market, rent goes up.”
“You get your money from your rental and also you get the capital gain. So if you choose your market well, it can be a win-win at the moment,” Arvanitopoulos added.
Houses over apartments
Structural housing issues were also flagged as a major reason rate rises have not translated into softer prices. Redevelopment in established suburbs is reducing the number of stand-alone homes, while population growth continues to outstrip new supply.
Arvanitopoulos gave the example of Rose Bay in Sydney. While affluent and not typical of average Australia, Arvanitopoulos said that the loss of houses to units and the consequent increased competition on remaining houses were indicative of a wider trend.
He explained: “In Rose Bay they’re now amalgamating a lot of properties. Just with the development applications at the moment they’ve lost about 50 houses.
“Now you can put Rose Bay suburb in any other suburb because it means the same thing, you’ve lost 50 houses. So the other houses are only going to go up, because they’re not building new houses, they’re only going to build apartments.”
Whitlock noted that demand for houses over apartments may not go away any time soon due to it being “hardwired into the Australian psyche on property.”
“It’s hardwired that people want a quarter-acre block and their own backyard. I completely understand the appeal with that. But if you look at Europe or particularly Asia, apartment living is very much the standard look. Will that change over the years? Apartment living is fine, but right now a home is the Australian Dream,” he said.
[Related: Brokers see more demand for business and commercial loans]