Reserve Bank Governor Michele Bullock admitted she did not realize house prices would rise so fast as interest rates continued to rise.
“We were surprised when they started to rise again frankly and I think everyone was,” she said at a news conference Tuesday afternoon.
But Ms Bullock said she preferred not to speculate on house prices.
“Frankly, I wouldn’t like to predict real estate prices. Every time we try to do this, we seem to get it wrong,” she said.
The most aggressive interest rate hikes since 1989 had initially caused property values to fall in 2022, but in 2023 they have soared again, reaching record levels last month in Brisbane, Adelaide and Perth.
Reserve Bank Governor Michele Bullock admitted she did not realize house prices would rise as interest rates continued to rise.
Sydney’s median house price jumped 11.7 per cent in the year to February to an even more unaffordable $1.396 million in a city that receives a larger share of migration to abroad, according to data from CoreLogic.
This puts prices in the city just 1.9% below the January 2022 peak, with Sydney’s peak having been reached four months before the RBA raised rates for the first time since 2010.
But in Brisbane, median house prices climbed 15.7 per cent over the past year to $899,474, while in Perth they climbed 18.6 per cent to $718 $560.
Both towns attract an influx of new residents from the interstate.
The house price rises came as immigration levels hit a record high of 518,000 in the last financial year, with the annual level only moderating to 481,620 in January.
Strong population growth has led to increased demand for real estate, despite high interest rates reducing bank lending.
This has seen wealthier and more skilled migrants buying homes instead of competing with many others for rental accommodation during a housing crisis, making long queues at rental housing inspections common.
Ms Bullock noted that high immigration had boosted demand for goods and services in the Australian economy.
“Overall demand has increased due to population growth,” she said.
“It is true that as interest rates rise, household borrowing capacity falls because your repayments increase, allowing you to borrow less.
“It’s true that this effect exists, but ultimately I think the greatest strength in housing comes down to supply and demand.”
The Reserve Bank on Tuesday left interest rates unchanged at 4.35 per cent, their highest level in 12 years, but Ms Bullock said it was too early to rule out a further rate rise as inflation was still too high.
“The war is not yet won, so we remain vigilant and we cannot exclude anything or exclude anything,” she said.
“We are not confident enough to rule out further interest rate changes.”
The most aggressive interest rate hikes since 1989 initially caused property values to fall in 2022, but in 2023 they climbed again (photo: an auction in Melbourne).
The house price increases came as immigration levels hit a record high of 518,000 in the last financial year, with the annual level only moderating to 481,620 in January (pictured , Sydney’s Wynyard Station).
Monthly inflation data showed the consumer price index at 3.4 percent in January.
But the more comprehensive quarterly CPI data shows annual headline inflation of 4.1 percent in December.
The Reserve Bank does not expect inflation to fall within its target range of 2 to 3 percent until December 2025.
While some capital cities are seeing rising prices, Hobart has suffered from rising rates, with the median house price rising to $696,508, 12.2 per cent below the March 2022 peak.
Melbourne’s median house price of $942,779 is 4.1 per cent lower than the March 2022 peak.
The RBA’s 13 rate rises in 18 months mean banks can now only lend to a borrower, with a 20 per cent mortgage deposit, up to 5.2 times their pre-tax salary.
Banks are required to assess a borrower’s ability to handle a 3 percentage point increase in variable mortgage rates, but rates in 2022 and 2023 have climbed 4.25 percentage points.