The projected return of a rising cash rate is expected to slow the meteoric rise in real estate values ​​in Australia, according to a new report from the Commonwealth Bank of Australia. However, improved wage growth combined with the return of international immigration should help prevent a free fall in house prices.

What can push real estate prices down?

The latest CBA analysis predicts that higher fixed rates, affordability restrictions, and macroprudential regulation should help slow house price growth in the first half of next year.

But by November 2022, the Reserve Bank of Australia (RBA) could start raising the national cash rate. According to the CBA, several hikes are expected to bring the cash rate from its current record low of 0.1 percent to 1.25 percent by the third quarter of 2023.

Home loan interest rates, which rise in line with the cash rate, are expected to put on the brakes on new mortgage loans as fewer Australians may be able to afford the higher repayments of the larger home loans that have seen soaring prices in recent years to have . This could cause house prices to start falling.

What could be driving house prices back up?

However, do not expect a direct drop in prices or a bursting of the real estate bubble. One of the reasons the RBA might choose to increase the cash payout is when Australia returns to full employment. Improving wage growth could make it easier for some Australians to service a home loan.

Also, with Covid restrictions expected to be eased further, reopening international borders could lead to population growth, which in turn could increase demand for real estate.

With improved wages and rising demand from international arrivals that partially offset rising interest rates, CBA predicts that domestic home prices will fall by about 10 percent by the end of 2023.

Remember, the CBA report is not investment research – it is for informational purposes only and does not take into account your personal financial situation or goals. Consider financial advice before making any investment decisions.

What does that mean for you?

Before you begin changing your real estate plans, remember that there is no “best” time to take a home loan. Real estate is a long-term investment, whether you are owner-occupier or buying an investment property.

Although you cannot control the Australian real estate markets, you can still manage your personal finances and find out when you will be able to buy real estate on your own. Saving a deposit and working on improving your credit score can potentially help put you in a stronger position so that if you decide to take the plunge, you can apply for a home loan with confidence.

RateCity can help you check your creditworthiness, keep an eye on any rate hikes, and compare home loan offers. And if you need more help or personal financial advice, you are always welcome to contact a mortgage broker.