The latest house price trends
The International Monetary Fund's report on the impact of monetary policy on the property market shows that Australians are more sensitive to interest rate changes than almost any other consumer in the world.
The IMF noted that Australia's sensitivity to rising interest rates stems from its higher household debt levels, looser lending rules and the dominance of floating-rate loans, with more than 80% of loans in the Australian loan market typically using floating rates.
These factors mean that most Australian loan holders will see an adjustment in their interest rates shortly after the Reserve Bank of Australia (RBA) adjusts their cash rate.
The IMF estimates that in an economy like Australia, which is dominated by floating-rate loans, a 100 basis point rise in interest rates would result in a 0.5% drop in consumption over two years.
"The International Monetary Fund estimates that in an economy like Australia, which is dominated by floating-rate loans, every 100 basis points increase in interest rates would result in a 0.5% drop in consumption over two years. ”
"But in an economy dominated by fixed interest rates, such as the United States, consumption increased by 1.5 percent because most households did not feel the pressure of rising borrowing costs. ”
"In a country like Australia with above-average household debt ratios, a 100 basis point rise in interest rates would cause house prices to fall by 5% over two years. In countries with low levels of household debt, house prices fell more modestly at 2%. ”
Although interest rates on new home loans in Australia have risen to the average of developed countries:
The average interest rate on outstanding home loans in Australia is the highest in the developed world.
Data from the Bank for International Settlements (BIS) as of Q4 2023 also shows that principal and interest debt repayments as a percentage of household income have increased much more than in other predominantly English-speaking countries:
In the fourth quarter of 2023, Australian households spent 19.3% of their disposable income on debt servicing, a record high!
This compares to just 14.5% in Canada, 8.7% in the UK and 7.6% in the US.
The above data shows why the RBA does not need to raise official interest rates as much as other countries to bring down demand and inflation.
Australian households have been severely affected by the RBA's monetary tightening measures.
As a result, Australian household consumption has fallen sharply:
Australia's real per capita household consumption fell by 2.5% in 2023 due to stagnant real incomes, rising lending rates and higher income taxes.
With a severe recession in consumption and a contraction in the per capita economy, the RBA is likely to begin a monetary easing cycle later this year.
Reference data: CoreLogic, REA