Interest rates not the silver bullet to Australia’s property market, investment expert says

Nov 2021Karen Millers

Historically low interest rates are not the singular reason as to why Australia’s property market is booming and a rate hike will not plunge thousands into stress, a prominent expert has argued.

Peter Koulizos, chairman of the Property Investment Professionals of Australia (PIPA), says recent commentary around Australia’s interest rates fuelling an overheated market fails to cknowledge a number of variables.

“There has been much conjecture over the past 18 months that record low interest rates are the singular reason why property prices have skyrocketed, when the cash rate was already at a former record low of 0.75 per cent before the pandemic hit,” Mr Koulizos said.

“There are clearly a number of factors at play, including some buyer hysteria I’m afraid to say, but one of the main reasons for our booming market conditions is easier access to credit, which was simply not the case two years ago when rates were also low.

“At the end of the day, even when interest rates are low as they have been for years now, if people don’t have access to finance, it really doesn’t matter what the cash rate is.”

He referred to PIPA analysis of Australia’s house price movements since 1994 that showed, historically, property prices continued to rise despite increases to the nation’s official cash rate.

Mr Koulizos’s response comes after comments from Peter White, managing director of Finance Brokers Association of Australia, who said Australians were “sleepwalking into disaster” and that a rate rise threatened to put thousands of households under pressure.

“The latest ABS Lending Indicators showed that the national average loan size for owner-occupier dwellings was $574,000 in September, which shows that the vast majority of people are not racking up massive singular mortgages of $1 million or more,” Mr Koulizos said.

“While we don’t expect rates to rise for a year or two yet – and when they do, they are unlikely to ramp up rapidly – the monthly mortgage repayments on a $574,000 loan may increase by about $73 per week if the interest rate increased one percentage point from three per cent to four per cent.

“It’s vital to understand that new loans are already been stress-tested against much higher interest rates of about 5.65 per cent, so there is little to be gained by alarmist ‘forecasts’ that are just not supported by the data.”

As experts debate the cause – or the fallout – of Australia’s property price growth, analysts have noted that there are signs the market is beginning to cool.

Property data firm CoreLogic found Australian housing values rose 1.5 per cent in October, showing the market is “losing momentum” but still positive.

“Housing prices continue to outpace wages by a ratio of about 12:1. This is one of the reasons why first home buyers are becoming a progressively smaller component of housing demand,” CoreLogic’s research director Tim Lawless said.

“New listings have surged by 47 per cent since the recent low in September and housing-focused stimulus such as HomeBuilder and stamp duty concessions have now expired.

“Combining these factors with the subtle tightening of credit assessments set for November 1, and it’s highly likely the housing market will continue to gradually lose momentum.”

Stuart Marsh, Senior Producer,, 15 November 2021 


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