The impact of the 11th rate hike on the property market is more psychological than physical

On Tuesday the 2nd May, RBA increased the interest rate the 11th time by 25 basis point, in order to tame inflation. One reason for the hike that explained by the governor was the concern of the rising property price.

The reported rise in property prices in the first quarter of 2023 in Australia is primarily attributed to a seasonally short supply of housing nationwide. This trend is expected to be temporary, and prices are likely to stabilise once the supply increases. Indeed, we have seen a hike in property listings after the Easter break. This could dampen the perceived property price rise.

The 11th rate hike together with RBA’s hawkish statement is rather psychological, to scare the buyers off. After all, the property market has proven its resilience after 10 consecutive rate rises, what difference will this 11th rate rise make! Regardless of the monetary policy environment, people still need to upsize when a new baby is born, people are still determined to buy in the school zone as their children advance in school, the eldly still need to downsize as they can not handle the garden any more. The RBA’s intervention in 2022 may have delayed people’s demand, but the demand is still there and it will accumulate over time. On the other aspect, the new constructions have dropped to a very low level due to the turmoil in the development and construction sector. This will only worsen the housing crisis.

RBA may find its 11th rate hike defied by the property market this time.