The RBA’s Strategic Rate Hikes and Their Impact on Australia’s Housing Market

️ Highlights:

1. The recent increase in the official cash rate by the RBA has immediately impacted house prices, particularly in Melbourne and Sydney.

2. Dwelling value growth has decelerated at the national level, with a decrease from 0.8% to 0.5%.

3. The slowdown in price growth is reflected in auction clearance rates, which have fallen in recent months.

4. Sydney’s final auction clearance rate has decreased from 73% in May to 65% in November, while Melbourne’s has fallen from 70% to 60%.

5. The high house prices in Sydney and Melbourne, combined with the RBA’s monetary tightening and declining affordability, may lead to a potential house price correction if another rate hike is delivered in February.

Assessing the Cooling Effect on Sydney and Melbourne’s Property Boom

The Reserve Bank of Australia’s (RBA) recent decision to raise the official cash rate (OCR) by 0.25% has significantly influenced the housing market, particularly in Sydney and Melbourne. This blog post examines the impact of this monetary policy adjustment on house prices and the broader implications for the Australian property market.

Immediate Effects on House Prices

1. Deceleration in Dwelling Value Growth: CoreLogic’s data reveals a clear loss of momentum in dwelling value growth since the OCR was raised on Melbourne Cup Day, November 7, 2023. The 28-day rolling change in the CoreLogic daily dwelling values index shows a deceleration from 0.8% to 0.5% at the 5-city aggregate level. This slowdown is notably pronounced in Melbourne (from 0.4% to 0.0%) and Sydney (from 0.7% to 0.3%).
2. Auction Clearance Rates Decline: The cooling effect of the rate hike is further evidenced by falling auction clearance rates in Sydney and Melbourne. Sydney’s final auction clearance rate decreased from a peak of 73% in May to 65% in November, while Melbourne experienced a more significant drop from 70% in May to 60% in November.
3. National Impact: The cooling in Sydney and Melbourne, which boast the nation’s most expensive housing markets, is also pulling down values nationally. This trend reflects the influence of these two cities on the overall Australian property market.

Broader Market Implications

1. Immigration vs. Affordability: Despite record immigration volumes into Sydney and Melbourne, the RBA’s aggressive monetary tightening and declining affordability are beginning to outweigh the demand surge. This dynamic suggests a complex interplay between population growth and economic factors in shaping the housing market.
2. Potential for Further Correction: If the RBA implements another rate hike in February, it could trigger a more pronounced correction in house prices, particularly in Sydney and Melbourne. This possibility underscores the sensitivity of the housing market to monetary policy changes.
3. Economic Context: The article by Leith Van Onselen, Chief Economist at the MB Fund and MB Super, situates these developments within a broader economic context, including potential risks from international markets.

A Turning Point in the Property Market

The RBA’s recent rate hike represents a turning point for the Australian housing market, particularly in its most expensive cities. As the market adjusts to these changes, stakeholders must remain vigilant to the evolving economic landscape and its potential impact on property values.