The RBA has lifted the official cash rate seven times over the past seven months – taking it from 0.1% in May to 2.65% in October.

This has had the effect of causing a widespread slowdown in Australia’s property market – with prices here in Sydney falling more than 10% since their January 2022 peak.

But interest rate rises haven’t been uniformly impacting the market, with some segments – most notably the prestige market – thriving even in the current conditions.

The impact of interest rate rises

Whenever the RBA raises official interest rates, the banks tend to respond by raising their standard variable rate by at least the same amount. This affects the amount people can borrow and, therefore, what they can offer on any property they want to buy.

The result is that any growth in property prices tends to slow, and sometimes prices even fall. However, that isn’t always the case, and there are few precedents for what has happened this year.

If we look at history, the last time the RBA raised rates this aggressively, in 1994, prices fell only slightly before stabilising. Between 2005 and 2007, when the RBA also kept raising rates, Sydney property prices also kept rising.

Why 2022’s interest rate rises had a strong effect

We think this year’s interest rate rises are having a strong impact on the market for several reasons.

The first is that they come at the same time as inflation is rising fast, but wages aren’t. That means many people were already starting to feel cost of living pressures bite even before interest rates went up. It’s worth noting that Sydney began recording declining prices in February – before the RBA started lifting rates.

Second, people have a lot higher mortgages than they once did, so any raising of interest rates tends to have a disproportionate effect. When the RBA lifted rates in 1994, the average new mortgage in NSW was just over $100,000. Now it is around $725,000. So a 0.5% rise is now worth over $200 a month compared to around $30 a month back then.

Third is that it comes on the back of rapid price rise. Putting 2022 into context isn’t easy. However, a recent Domain report found that the average property upswing lasted 33 months and prices rose on average 32.7%; the average downswing lasted nine months and prices fell 3%.

The COVID-related property boom was more rapid than most, with prices across Australia rising 33.6% in just 21 months. So, the supercharged property market of 2020 and 2021 had further to fall.

Not all property impacted by rate rises

Although the overall Sydney market has been in decline, it isn’t true for all market segments. For instance, the prestige market is still strong and we’re achieving record sales despite the wider downturn.

For instance, we recently sold a four-bedroom apartment in The Horizon building for $8 million (the highest per square metre price ever achieved in the complex), and achieved $6.4 million on the sale of a three-bedroom apartment on the seventh floor of the Toft Monks building.

The reason this part of the market is so strong is that it simply isn’t as affected by interest rate rises. Few buyers purchase a prestige property with an 80% mortgage. In fact, a lot are cash buyers. So rising interest rates have a limited impact here.

A good time to buy across the board

Even if you’re not in the prestige property market, we think this is a good time to buy. If there’s one thing history shows it’s that the property market doesn’t stay down forever. When things turn, they tend to turn fast. Getting in now, when there is less competition in many market segments, is often a better-long term strategy than waiting until it heats up again.

That said, ultimately, the best time to buy or sell any property is always when it suits you, your finances and your lifestyle to do so.

If you’re interested in buying or selling in Sydney’s eastern suburbs, including Darlinghurst, Potts Point and Elizabeth Bay, contact my team today.

Article by Jason Boon

In a real estate market that is the focus of Australian, and indeed worldwide attention, Jason Boon's results in the Sydney scene make him a highly significant figure within the industry. A long-term specialist in the Potts Point and inner eastern suburbs area, he is uniquely placed to leverage his skills and local knowledge as the area undergoes significant change and diversification. Jason ha…