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Price Plummet Unlikely

A full-on property downturn seems unlikely even with recent mortgage rate rises, says CoreLogic.


1 August 2021

The Reserve Bank has halted bond purchases as part of the large-scale asset purchase programme and the next step in removing the emergency support for the economy will be an actual increase in the official cash rate.

The timing of this, however, is uncertain, says Kelvin Davidson, CoreLogic’s chief economist.

“It could be potentially as early as November this year, or even a smaller chance of this month.
“This is a tricky balancing act for the Reserve Bank, in trying to pre-empt a rise in inflation without pushing up the exchange rate too much – and hence dampening exports.”

A looming rise in the official cash rate will directly affect the housing market, with borrowers already seeing mortgage rates increase – and from a low base for rates that could have quite a strong effect.

Davidson says when the pre-existing effects of affordability pressures are added in – 40% deposits for investors, the extended bright-line test, and the tightening of interest deductibility rules, as well as the approval for the Reserve Bank to look at debt to income restrictions – it becomes worrying for mortgage holders.

“Certainly, mortgaged investors’ share of property purchases has fallen in the past two to three months, albeit there are few signs existing landlords are looking to sell.”

He says CoreLogic’s view is sales activity and price growth are close to (or at) a peak, and that both will ease for the rest of 2021 and into 2022. But, with unemployment low and in the absence of a GFC-style credit crunch, a full-on property downturn seems unlikely.


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