Reserve Bank Governor Michele Bullock has admitted she didn’t realise house prices would surge so soon as interest rates kept on rising.
‘We were surprised when they started rising again quite frankly and I think everyone was,’ she told a media conference on Tuesday afternoon.
But Ms Bullock said she preferred not to speculate on property prices.
‘I wouldn’t like to predict housing prices, frankly. Every time we try to do that, we seem to get it wrong,’ she said.
The most aggressive interest rises since 1989 had initially caused property values to fall in 2022 but in 2023, they soared again, last month reaching record highs in Brisbane, Adelaide and Perth.
Reserve Bank Governor Michele Bullock has admitted she didn’t realise house prices would surge as interest rates kept on rising
Sydney‘s median house price surged by 11.7 per cent in the year to February to an even more unaffordable $1.396million in a city which gets a larger share of overseas migration, CoreLogic data showed.
This put prices in the city only 1.9 per cent below the January 2022 peak, with Sydney’s high reached four months before the RBA hiked rates for the first time since 2010.
But in Brisbane, mid-point house prices have soared by 15.7 per cent during the past year to $899,474 while in Perth, they climbed by 18.6 per cent to $718,560.
Both cities attract an influx of new residents moving from interstate.
The house price increases have occurred as immigration levels hit a record-high of 518,000 during the last financial year, with the annual level only moderating to 481,620 in January.
Strong population growth meant demand for property climbed, despite high interest rates reducing what banks can lend.
This saw wealthier, skilled migrants buy a house instead of compete with many others for rental accommodation during a housing crisis, which has made long queues common at rental home inspections.
Ms Bullock noted high immigration had boosted demand for goods and services in the Australian economy.
‘Aggregate demand because of population growth has been elevated,’ she said.
‘It’s true that as interest rates rise, borrowing ability of households declines because your repayments go up so you can borrow less.
‘It’s true that that effect is there but ultimately the bigger force in housing, I think, comes down to supply and demand.’
The Reserve Bank on Tuesday left interest rates on hold at a 12-year high of 4.35 per cent but Ms Bullock said it was too early to rule out another rate hike because inflation was still too high.
‘The war isn’t yet won, so we continue to be vigilant and we can’t rule anything in or out,’ she said.
‘We’re not confident enough to say we can rule out further interest rate changes.’
The most aggressive interest rises since 1989 had initially caused property values to fall in 2022 but in 2023, they soared again (pictured is a Melbourne auction)
The house price increases have occurred as immigration levels hit a record-high of 518,000 during the last financial year, with the annual level only moderating to 481,620 in January (pictured is Sydney’s Wynyard train station)
Monthly inflation data showed the consumer price index at 3.4 per cent in January.
But the more comprehensive quarterly CPI data had annual headline inflation at 4.1 per cent in December.
The Reserve Bank is not expecting inflation to fall within its 2 to 3 per cent target band until December 2025.
While some capital cities are seeing price growth, Hobart has suffered from the rate rises with its median house price of $696,508 at a level 12.2 per cent below the March 2022 peak.
Melbourne’s mid point house price of $942,779 is 4.1 per cent below the March 2022 peak.
The RBA’s 13 rate rises in 18 months mean banks can now only lend a borrower, with a 20 per cent mortgage deposit, up to 5.2 times their pay before tax.
The banks are required to assess a borrower’s ability to handle a 3 percentage point increase in variable mortgage rates, but rates in 2022 and 2023 soared by 4.25 percentage points.
