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Writer's pictureEric Chen

You might want to know what the rising interest rates are doing to auction clearance percentages...

Interest rates play a crucial role in determining the property prices in Australia. The inverse relationship means that when interest rates go up, property prices usually go down and vice versa. So what’s happening now in the market? Let’s take a look.


By looking at the auction clearance results for Saturday March 4th, the capital city auction markets have seen mostly positive results despite a decline in auction numbers and clearance rates compared to the previous weekend. The national auction market reported a clearance rate of 69.1%, lower than the 72.4% reported the previous weekend and 73.5% recorded over the same weekend last year. Adelaide had the highest clearance rate at 74.8%, while other cities reported lower rates: Canberra (58.2%), Melbourne (70.7%), Sydney (70.8%), and Brisbane (70.9%). Auction numbers across the country were also lower, with 1682 listings compared to 1933 the previous weekend and 2377 auctions on the same weekend last year.

Australian Auction Results for Saturday March 4th, 2023

"Despite the occurrence of 10 interest rate increases, the property markets in Australia seem to have shown remarkable resilience.


Normally, When interest rates go up, property prices usually go down. However, it seems the current property market in Australia is a little different. The relationship between interest rates and property prices is not always straightforward. In this blog, we will explore the reasons for the property price going up while the interest rates are rising up, and what risks need to pay attention to in the Australian property market.


Reasons for the Property Price Goes Up While the Interest Rates Raising Up:

  • Low Unemployment Rate: When the unemployment rate is low, there is a high demand for properties as people have stable jobs and higher incomes. This can cause property prices to go up even if interest rates are raising up.

  • Limited Supply: Limited supply of properties, particularly in major cities like Sydney and Melbourne, can drive property prices up even if interest rates are rising.

  • Low Inventory: Low inventory levels of properties for sale can drive property prices up as buyers are willing to pay more for limited supply.

  • Strong Economy: A strong economy can drive property prices up even if interest rates are rising. A strong economy usually means higher wages, increased spending, and more jobs, which can drive up demand for properties.

  • Foreign Investment: Foreign investment in Australian property can also drive property prices up even if interest rates are rising.


Risks to Pay Attention to in the Australian Property Market:

  • High Debt Levels: High levels of debt among households can make them vulnerable to economic shocks, such as rising interest rates, which can lead to mortgage stress and foreclosures.

  • Oversupply: Oversupply of properties can lead to a decline in property prices, particularly in areas where there is an excess of new developments.

  • Economic Slowdown: Economic slowdown or recession can lead to job losses, which can cause property prices to decline.

  • Tightening of Lending Standards: The tightening of lending standards by financial institutions can make it more difficult for borrowers to obtain mortgages, which can impact property prices.

  • Changes in Government Policies: Changes in government policies, such as changes in taxation or foreign investment rules, can have an impact on property prices.

Conclusion:

In conclusion, the relationship between interest rates and property prices in Australia is complex. While rising interest rates can cause property prices to decline, other factors such as low unemployment, limited supply, and a strong economy can lead to property price increases even in the face of rising interest rates. However, there are risks to pay attention to, such as high debt levels, oversupply, economic slowdown, tightening of lending standards, and changes in government policies. It is important to stay informed and take a long-term view when considering property investment in Australia."


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