Sydney homebuyers could be facing a double-edged sword in 2022 as price growth continues to slow while interest rates go up.
Market watchers have said they expect price appreciation in the Harbour City to continue to ease following a year of more than 25 per cent growth.
And while first home buyers are sure to appreciate a reprieve in surging prices, they will also be hit with higher loan repayments as banks continue to hike fixed interest rates in anticipation of a Reserve Bank rate rise.
Mortgage Choice CEO Susan Mitchell said she believed fixed rates would continue to rise this year.
A potential cash rate rise would be priced into fixed rates and the “rates the banks will be offering will be proportionately higher,” Ms Mitchell said.
Realestate.com.au executive manager economic research Cameron Kusher said market conditions had already led to a slowdown independent of rate movements and that any interest rate increases would dampen buyer activity.
“Prices are still rising but the rate of growth has slowed and our forecast is, even without an interest rate hike, we will continue to see price growth slow in 2022,” Mr Kusher said.
While he doesn’t expect the RBA to bring up the cash rate in 2022, he said both the fixed and variable interest rates offered by lenders were subject to change.
“When interest rates go up that will contribute to a slowing of the rate of growth in prices in the Sydney and national housing market,” he said.
From October last year, all of the major banks as well as many of the second tiers increased fixed rates, some hiking as many as four times in the space of two months.
At the same time, lenders began dropping variable rates on both owner-occupier and investor home loans.
Ms Mitchell said Mortgage Choice had seen an increase in customers choosing variable rate mortgages as a result.
“We’ve probably got about two thirds taking variable and about one third taking fixed,” she said. “That’s still high but it’s much lower than it was six months ago.”
Mr Kusher said in hiking fixed rates while dropping variable rates, banks were responding to the end of Reserve Bank’s yield curve control in November as well as heightened competition for market share in the mortgage space.
While there could be room for banks to drop variable rates even lower this year, he said a slower property market and less competition for mortgages could be “an indicator that we may start to see some variable rate increases”, as could better wage growth and sustained inflation at 2.5 per cent.
“If some of the competition starts easing back a little bit, we might start to see some of the lenders lift their variable rates but I think if anything it’s a very late 2022 proposition,” he said.
Lendi CEO David Hyman said homebuyers shouldn’t be complacent when it comes to interest rates.
“The RBA has said they won’t make any changes until 2024, however economists say that should inflation appear above the target range of 2 to 3 per cent for a sustained period, this could happen sooner,” Mr Hyman said.
While a cash rate rise is unlikely in 2022, lenders could act independently from the Reserve Bank in hiking interest rates, he said.
“Lenders looking to improve their margins can raise rates at any time and as we know, once one of the majors start to move rates, others will follow,” he said. “Higher interest rates impact how much debt people can comfortably service and without the certainty of super low fixed rates, buyers may be a little more conservative this year.”
He said this was only one factor that could impact the Sydney property market, supply being another important driver of price growth.
“The property market has defied expectations over the course of the pandemic so far and no doubt 2022 will be another interesting year,” he said.
Ms Mitchell agreed that “old-fashioned supply and demand” would be more likely to affect the market. “Rates are still at historically low levels so I’m not sure how much that alone is going to affect the price of housing,” she said.