There is a likelihood that Australian lenders will continue to increase interest rates throughout 2017 with increasing funding costs and possible rise in the local cash rate.
The US Federal Reserve lifted its benchmark interest rate by a 0.25 percent to a range of 0.5 to 0.75 per cent. This is its first move in a year. US Central Bank also indicated that the Federal Fund rate could rise by a further 75 basis points throughout 2017 – via three separate rate increases.
US Central Bank’s announcement together with the trend that many of Australian lenders have raised rates for home loan products, signals a cash rate hike by the Reserve Bank of Australia. Though there is a rise, let’s not forget that interest rates will still be very low by historical standards.
Property prices are driven by borrowing cost, supply versus demand, accessibility to loans and the employment level.
Given the slight interest rate hike which leave borrowing yet affordable, it is expected that property market would remain strong.
Across Australia, property demand is strong. A lower supply of new property to the market has been recorded in Sydney and Melbourne in last year with listings in Sydney and Melbourne down by 9.4% and 2.9% respectively.
Though many lenders have tightened their lending policy over the last 12 months, they still want home loan business. This trend is expected to continue in 2017 opening the accessibility to credit.
Unemployment level continues to be low by long-term standards. As per the Australian Bureau of Statistic the unemployment rate is currently at 5.7% – which is a positive sign.
With these underlying factors, a continued growth in the real estate sector across the country in particular, Sydney and Melbourne
, is expected though it is not strong as we have seen.