Rates shock: How home prices have changed since the rate hikes began

In most markets across the country, home prices have defied fears of an interest rate-induced housing downturn. 

PropTrack data showed 77% of suburbs nationally had higher median house prices in September 2024 than when the Reserve Bank of Australia (RBA) raised interest rates for the first time in the cycle in May 2022.

The data also revealed unit prices were higher in 71% of suburbs nationally during the same period.

However, higher interest rates have influenced where homebuyers have been looking and what they can afford to purchase.

The suburbs with the highest home-price growth nationally since interest rates started rising were mostly located in South Australia, Western Australia and Queensland.

PropTrack senior economist Angus Moore said the suburbs with the strongest price growth during the period were all relatively affordable.

PropTrack senior economist Angus Moore says homebuyers are reconsidering their best options for location. Picture: realestate.com.au

“Part of the reason why these areas have been very popular and why prices have been so resilient, despite increasing interest rates, is due to their affordability,” Mr Moore said.

“Higher interest rates have reduced borrowing capacities for buyers, and that has pushed some homebuyers to look at more affordable locations.”

Higher interest rates hit borrowers 

Homebuyers have seen their borrowing power shrink since the RBA started hiking interest rates in May 2022 to combat soaring inflation. 

The central bank jacked up interest rates 13 times until November last year, when they were held at an eye-watering 4.35% – where they have since stayed.

Sydney-based Mortgage Choice broker Luke Camilleri said higher interest rates had impacted upon borrowing capacity by about 30% to 40%.

“If a borrower could have borrowed $1 million before interest rates started rising, now they can borrow about $600,000 to $700,000, so it’s a very different story,” Mr Camilleri said.  

“It’s changed where borrowers are looking to buy, and the types of property that they’re looking to buy as well.”  

Homeowners with mortgages have been stung with higher repayments since the rate hikes started, but many borrowers have managed through it by reducing spending and other changes, Mr Camilleri said. 

He said the change had prompted some homeowners who had been thinking about downsizing to pack up and make the move.  

At the same time, many homeowners have seen home prices increase during the period, growing the amount of equity they have in their properties.  

This had incentivised some homeowners, who had grown their home equity while managing higher living and housing costs, to buy an investment property.

“We’ve been seeing a lot of these people investing in property and they’re looking interstate at places where you can buy property at a lower price,” Mr Camilleri said.    

Mr Camilleri noted that Queensland, WA and SA had been popular spots for interstate movers and property investors.  

Where home prices grew the most 

Adelaide and Perth dominated the top 10 suburbs with the greatest house price growth during the latest interest rate cycle, while Adelaide, Brisbane and Perth had the strongest unit price growth.

Davoren Park, in Adelaide’s north, has been Australia’s biggest winner since interest rates started rising, with its median house price growing by 82% from $255,000 in May 2022 to $465,000 last month.  

Adelaide-based real estate agent and Edge Realty principal Mike Lao said Davoren Park’s affordability started to attract homebuyers and investors into the area during the pandemic.  

“Davoren Park had been one of the most affordable metropolitan suburbs in Australia, so it started from a low base,” Mr Lao said. 

“When I first started in 2008, I was selling houses in Davoren Park for between $100,000 and $200,000. 

“In 2019, I was still selling houses in the suburb for between $100,000 and $200,000, but now we’re selling homes for $700,000-plus.”  

Before the pandemic, property buyers had shied away from Davoren Park due to its unfavourable reputation, but the area started to gentrify, and new housing was built. 

For first-home buyers, Davoren Park’s price point meant they could purchase an affordable home and take advantage of the first-home owner grant and stamp duty discount.  

At the same time, the lower purchase price offered property investors the opportunity of strong yields. 

Adelaide also took out the top spot for units. Salisbury East, also in Adelaide’s north, recorded the strongest unit price growth nationally during the period, with its median unit price up 91% to $464,000 during the period. 

Home price boost as interest rate cuts loom  

The RBA has held interest rates steady at 4.35% for almost a year, but there is growing excitement about the prospect of looming interest rate cuts. 

The central bank has stayed quiet on the timing of rate cuts, but inflation continues to edge lower, and the markets are predicting rate cuts soon to achieve a ‘soft landing’ for Australia’s economy.

The big four banks are expecting Australia’s first interest rate cut within months, with Commonwealth Bank forecasting a cut as early as this December, while National Australia Bank and others predict the first move to come in February.  

“Assuming inflation continues to track down towards the target band of 2-3% at the pace that the RBA is expecting, there’s a pretty good chance that we start to see cuts as early as the first quarter of next year,” Mr Moore said. 

Interest rate cuts are likely to energise homebuyers nationally and give their borrowing power a boost, which could help fuel further home price growth. 

“Lower interest rates are going to provide some support for home prices and provide a bit of a tailwind,” Mr Moore said.  

“But rate cuts will be coming in the context of a slowing economy, with the RBA expecting unemployment to rise a little, so there is some balance there."

However, he said home prices would not see the same acceleration they did about three years ago – when they were growing by more than 20% year-on-year nationally.

“It’s also an environment of incredibly challenging housing affordability, which is a headwind, so we’re unlikely to see the growth that we saw in 2021."