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A median-earning South Australian homebuyer would be locked out of multiple additional locations if the Reserve Bank decides to hike the official cash rate by a quarter of a basis point this week. According to Australian Bureau of Statistics data, those on a median wage of $89,400 – who are already locked out of the vast majority of locations – would find themselves priced out of houses in Kingston SE, Riverton, Glossop and Yorketown in the event of a 0.25 per cent rate cut when the RBA board meets on Tuesday. For those on the $146,222 wage needed to service an average loan, that number of additional towns and suburbs climbs to eight – Ottoway, Taperoo, Encounter Bay, Goolwa North, Gawler South, Christie Downs, Robe and Hayborough.
The stunning waterfront properties of Hayborough, SA. Supplied But the hardest price bracket to be hit would be the $150,000 earners, where an interest rate rise would see them priced out of houses in an extra 13 suburbs. The calculations assume you already have a 20 per cent deposit and an industry threshold borrowing capacity of about 4.5 times your household income, however this requires you have minimal liabilities from things like dependent family, existing loans, credit card debt, high household costs and similar.
PropTrack senior economist Luc Redman. PropTrack economist Luc Redman said borrowing up to 4.5 times income was typically considered quite high and would come close to maximum capacity for most. For those heading to that level, any Reserve Bank hike before the end of the year could be more problematic than for most others – and was unlikely to be compensated for by falling home prices.
“The instantaneous effect of interest rates is increased repayments for loan holders and reduced borrowing capacity for households,” Mr Redman said. “As that cools demand in the economy, the subsequent short-term effect is on slowing home prices as competition reduces. “But it is likely that the reduction in borrowing capacity from interest rates will be larger than the downward pressure on home prices, because of ongoing supply shortages.” Semaphore blends character charm with handy amenities.
Supplied Units held up significantly better, with those earning the $146,222 wage needed for the average loan locked out of just four more suburbs – Kensington Gardens, Grange, Semaphore Park and South Brighton – if the cash rate jumps 0.25 per cent. Those earning the median wage or less were not priced out of any more areas, while those on $100,000 were additionally priced out of Kurralta Park and Salisbury East, and those earning $150,000 would no longer able to buy a unit in Ottoway, Taperoo, Encounter Bay, Goolwa North, Gawler South, Christie Downs, Robe and Hayborough. The rapidly transforming Port Adelaide.
Picture: Supplied It paints a bleak picture for sellers in these areas, with the added rate pressure making it likely there will be fewer buyers with the capacity to purchase their homes, but could be a boon for those lower down the price levels who may find demand for their properties ratchet up as buyers look for more affordable alternatives. And it would only be more challenging in the event of another rate hike before Christmas, with the total number of suburbs buyers across all income brackets could no longer afford to buy a house in rising from 55 at a 0.25 per cent hike to 88 after a 0.5 per cent rise. MORE NEWS: How much your home value dropped in a month The real estate fix for the hospital crisis How to kick your freeloading kids out of home for under $500 Super weird shopping quirk SA shoppers accept as totally normal Adelaide home with X-rated feature that’s blowing buyers away Shock $20k hack changing Aussie lives Another rate rise would also knock more unit suburbs out of the mix, with the total number of suburbs buyers were locked out of across all income brackets rising from 13 after one 0.25 per cent hike, to 27 after two.
University of Sydney research has found a single interest rate rise can suppress home ownership for more than a decade, with young buyers bearing the brunt. University of Sydney economist Dr James Graham University of Sydney economist Dr James Graham said the immediate impact of a rate rise were evident. “Early findings from the study show a standard 0.25 percentage point increase in interest rates leads to an immediate five per cent decline in home purchases, and buying remains low for up to two years,” Dr Graham said.
“Home ownership rates also fall following a rate rise, declining 0.1 percentage points within the quarter following a rise and continuing to fall for four years before reaching their lowest point at 0.3 percentage points below baseline. “A 0.3 percentage point fall in home ownership rate equates to tens of thousands fewer Australian households owning their home.” – with Nathan Mawby
Source: realestate.com.au
