Impact of mortgage rates on the housing market overstated, says market player

by Mina Martin31 Jan 2022

Mortgage rates will gradually lift over the next couple of years, but the impact on the housing market won’t be too dramatic, said the bosses of a buyers’ agent service.

“We think mortgage rates will rise in 2022 and 2023, but the impact of this on the housing market has often been overstated,” said Pete Wargent, co-founder of BuyersBuyers.

Doron Peleg, co-founder and CEO of BuyersBuyers, said that even with financial markets pricing interest rate hikes aggressively, it is “unlikely” that there would be a significant move in the rate any time soon.

“Even if the cash rate does increase in time, we think that any increases will be delivered gradually, and in a controlled manner,” Peleg said. “The Reserve Bank may not be in too much a rush to hike rates, though, given that annual wages growth is only 2.2%, and expectations for pay rises are still anchored at low levels. Fiscal support will also be wound back over the next year or two, and it’s not yet clear how the economy will track when this very large fiscal support is withdrawn.”

Wargent further noted that “inflation is not exactly running out of control in Australia,” after comparing some of the inflation readings coming out from Europe, the US, and New Zealand.

In any case, Peleg said that with much of the inflation relating to supply chain issues in 2021, most of which will be resolved later in 2022, particularly for food and new dwelling costs, “hiking interest rates significantly while real wages are negative might not be desirable.”

The commentary came following forecasts of an August rate rise by Commonwealth Bank, Westpac, and AMP Capital.

Shane Oliver, AMP Capital’s chief economist, said any earlier rate rise would bring forward the peak in property prices. Paul Bloxham, HSBC chief economist for Australia and New Zealand, meanwhile, is expecting the first rate rise to be in 2023, while forecasting single-digit house price growth in 2022, but no declines.