What the interest rate rises will cost in your part of the real estate world

Interest rate hikes will affect each area of Queensland and NSW differently, with some local economies suffering greater losses of disposable income as a result of Tuesday’s Reserve Bank interest rate hike of 0.25%.

An onthehouse.com.au analysis of REX, a new index of house prices in Queensland and New South Wales, reveals the vastly different ways higher mortgage payments can remove money from local economies as home owners struggle to pay more for their home loans.

Further increases in interest rates before Christmas are likely, with many economists forecasting another 0.25% rise in November and another in December, adding to economic pressure in different areas.

Australia has made economic news around the world for being one of the first nations to increase interest rates since the Global Financial Crisis in September last year.

Reserve Bank governor, Glenn Stevens, says the rate rise of 0.25% - with more expected in November and December – are because the risk of economic carnage from the Global Financial Crisis has passed.

Stevens says Australian economic growth and unemployment are much better than expected only a few months ago.

The Real Estate Exchange (REX) – a new Australian residential property index online portal based on median sales and repeat sales – has shown Australian house prices improved in NSW and Queensland between June 2009 and August 2009.

REX shows Sydney is up 4.5% to $487,373 while Brisbane is up 5.29% to $325,326.

In regional areas of NSW and Queensland, REX is showing:
Illawarra, up 3.3% to $349,427
Newcastle, up 2.7% to $312,760
Sunshine Coast, down 0.25% to $392,655
Gold Coast, down 0.41% to $381,318
Cairns, up 0.25% to $277,626

The new residential property portal Real Estate Exchange, called REX for short, uses the median sales and repeat sales method developed by America’s prestigious Case-Schiller and used by the Australian Bureau of Statistics.

onthehouse.com.au managing director Michael Fredericks says the interest rate hike is a good indication that the Reserve Bank of Australia sees strength in the overall increases in Australian house prices.

“REX will be monitoring price movements across NSW and Queensland to give Australians free information about the value of their largest asset – their home,” he says.

“It clearly shows how much house prices can vary from region to region and gives in depth information at regional, city and suburb level, including the actual underlying sales data supporting the calculations.”

It also reveals how interest rate rises will affect different areas of NSW and Queensland, with a 0.25% hike in expensive areas like Sydney affecting the local economy more than in affordable places such as Cairns.

The analysis assumes home owners have managed to secure a house at the region’s median price and have a 20% deposit and pay the variable interest rate on the outstanding 80% Loan Value Ratio.

“In areas like Sydney, a quarter of a per cent interest rate rise costs average home owners $113 a month which is bound to affect spending in small businesses like restaurants and shops,” Fredericks says.

“In Cairns or Wollongong, you can see that the average effect of interest rate rises might not be so dramatic because households lose $80 a month.

“If we see further interest rate rises before Christmas, it’s likely that different regions will start feeling economic pain from reduced local spending.”

City	REX Property Price Index		80% LVR Mortgage	Rate hike per month
Sydney	$463,000	+4.50%	$370,400	$ 113
Wollongong	$342,000	+3.30%	$273,600	$ 83
Newcastle	$315,000	+2.70%	$252,000	$ 77
Brisbane	$432,000	+5.29%	$345,000	$106
Gold Coast	$410,000	- 0.41%	$328,000	$101
Sunshine Coast	$415,000	- 0.25%	$332,000	$102
Cairns	$325,000	+0.25%	$260,000	$ 89

 *Assumes a 25-year mortgage on a house at the REX median price with a 20% deposit and interest at the September variable rate of 5.74% compared to October’s likely new rate of 6.24%

 

“Good news for the economy is bad news for interest rates,” says Macquarie Bank’s interest rate strategist Rory Robertson, who is predicting more rate rises before Christmas.

Mortgage Choice, Australia’s largest independently owned mortgage broker, says borrowers should be looking to refinance to mortgage products with low rates and quality features to bring financial costs down.

“A mortgage is a debt that should be managed carefully, not simply maintained – as tempting as that may be,” says Mortgage Choice’s senior corporate affairs manager Kristy Sheppard.

“For example, switching to a mortgage with an interest rate 25 basis points lower, from a $300,000 loan over 30 years at 5.5%, would mean a saving of approximately $47 a month and a total saving of approximately $16,920 over the loan term.

“If that borrower continued to pay the 25 basis points extra over the 30 years, they would save approximately $41,180 in total interest and two years off the loan term.”

 

Do your research! 

onthehouse.com.au offers property sales data for you to do your property research.

• Check out Listings and Latest Sales Prices in your area for FREE!
• Sign up FREE for our Property Sales Reports to do some in-depth research on historical property sales.

Tags: Interest Rates, Property Prices

---

Back to More News