realestatebusiness logo

Subscribe to our newsletter

Low rates don’t automatically boost house prices: PIPA

Analysis of cash rate changes has found property price growth is less dependent on low interest rates than commonly believed, according to a property industry body.

Peter Koulizos, chair of the Property Investment Professionals of Australia (PIPA), has completed an analysis of the Australian Bureau of Statistics’ established house price indexes for three periods over the past two decades, when interest rates were stable.

He deemed that low interest rates have not automatically translated to significant rises in house prices.

From September 2016 to September 2019, the cash rate was merely 1.5 per cent and the weighted average across eight capital cities saw the established house price index increase by 1.24 per cent over the three-year period.

There had been falls in established house price indexes across Sydney (-3.65 per cent), Perth (-3.93 per cent) and Darwin (-8.62 per cent).


Likewise, he ruled that between September 2013 to December 2014, the majority of capital cities had experienced moderate price growth (up by 11.5 per cent) at a time when the cash rate was 2.5 per cent (a historic low at the time).

Meanwhile, from June 2002 to September 2003, when the rate was 4.75 per cent, there had been a weighted average rise of 23.75 per cent in house prices across cities.

“What my analysis showed is that low interest rates don’t light a fire under property prices,” Mr Koulizos explained.

“Sure, sometimes some locations might start to strengthen at the same time as interest rates are low, but this is usually due to a number of other economic factors being in play, such as strong population and jobs growth, or simply more demand than supply.”

He also noted the current market conditions are “unusual” with current price spikes, but the low interest rate is not the sole culprit.

“While the cost of borrowing has never been cheaper, when the cash rate is exceptionally low, it means the economy needs some extra financial stimulation, which has been the case pretty much since the GFC way back in 2008 and beyond,” Mr Koulizos said.

“The current market conditions are unusual, given markets are rising in lockstep around the country, but this is predominantly due to extremely strong demand from buyers and a low supply of property for sale, rather than the fact that the cash rate is really only marginally lower than it was before the pandemic hit.”

Around a year ago, in February 2020, the Reserve Bank of Australia’s cash rate was 0.75 per cent, compared with its current low of 0.1 per cent.

Mr Koulizos said that while the cash rate will begin to grow once the national economy improves, prices are not expected to suddenly fall.

“Home buyers and investors need to understand that market conditions are determined by a umber of factors, with interest rates just being one,” he commented.

“Demand versus supply is an important determinant, as is the strength or weakness of a local economy, plus internal, interstate and international migration patterns.

“However, supportive lending conditions are also vital because if good borrowers can’t access finance to purchase properties – like what occurred from 2017 to relatively recently – then there is less competition for dwellings and prices remain subdued.”

[Related: NAB predicts 18.5% dwelling price spike in 2021]

Low rates don’t automatically boost house prices: PIPA
Low rates don’t automatically boost house prices: PIPA

Latest News

Home loan applications continue to decline, according to the latest Equifax data.  ...

The non-major bank has announced “significant” home loan growth over the financial year 2022, up more than $1 billion. ...

New Zealand’s central bank has committed to another cash hike in the face of surging inflation, tacking on an extra 50 basis points. ...


Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think the new NSW property tax will help or hinder first home buyers?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.