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Home buying intentions on the rise despite predicted interest rate hikes

Home buying intentions on the rise despite predicted interest rate hikes

CommBank’s Household Spending Intentions Index grew by 1.8% in February to 107.3, with home buying intentions on the rise despite forecast interest rate hikes on home loans.

Spending intentions for household services rose by 4.1%, according to the latest CommBank Household Spending Index (HSI). This includes activities like home improvements, as well as the use of services like childcare and personal care.

Transport spending intentions also shot up by 11% in February thanks to higher fuel prices, as well as increasing spending on taxis, parking lots, car washes, freight, and trucking services.

Home buying spending intentions are up 29.6% for February compared to January 2022, following the traditional holiday slump. However, this is a decrease of 4.4% compared to February 2021 at the height of home buying intentions post first Covid-19 lockdowns.

This data is consistent with earlier predictions from Commonwealth Bank regarding property market values. Sydney and Melbourne property prices are now predicted to drop by 3% in 2022 and a further 9% in 2023.

In fact, recent RateCity research found that if these forecasts are accurate, the median dwelling price in Sydney may fall under the $1 million mark again, dropping by an estimated $146,651 by the end of 2023 to $969,568.

CBA Chief Economist, Stephen Halmarick, said this new research for February showed Australians were “back on the move” following the end of COVID restrictions.

“Following the usual seasonal softness in January and effects of the Omicron variant, it was good to see spending intentions bounce higher in February. Increased spending intentions in home buying, transport and household services supports our view that as Australians get back out-and-about the economic outlook for 2022 is for a year of solid growth,” he said.

And a cash rate hike may also be on the cards over the next few years, with Australia’s biggest banks predicting a series of RBA-led rate hikes starting as early as June, according to CBA.

“Given surging inflation as well as strong employment and wages growth data, we maintain our view that the Reserve Bank of Australia will need to raise interest rates earlier than many expect, with an initial increase to 0.25 per cent in June this year, rising to a peak of 1.25 per cent in early 2023,” said Mr Halmarick.

Aussie households battling higher costs

Higher interest rates will result in greater mortgage repayments for millions of Aussie homeowners and may reduce house buying intentions – even if property prices decrease.

For would-be buyers concerned about buying into a higher-cost mortgage environment, there are steps they could consider taking, including:

  1. Compare your options carefully: Take your time to carefully choose the most competitive home loan lender before you sign on the dotted line. Look outside of your childhood bank and use comparison tools, like tables and calculators, to find your best option.
  2. Make extra repayments: Paying down as much of your debt before a potential rate rise may help to reduce the sting of higher interest on your household budget.
  3. Prepare for gradual hikes: The big banks have forecast ongoing rate hikes into the next few years. If you choose a fixed rate home loan, set a reminder two months before it ends so you can assess the market and ensure you’re still with the most competitive lender. Once your fixed rate period ends, your home loan will typically revert to a higher variable rate unless you consider taking action and refinancing.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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