Will the Recent Peak in Interest Rates Boost Rental Property Searches?

We stumbled upon this recent report from Core Logic and wanted to share it with you. We’ve been doing a lot of research lately on the different factors that influence property buying and selling. This article dives into how changes in rental prices can indirectly affect real estate sales. The Reserve Bank of Australia (RBA) is thinking of hitting the pause button on interest rate hikes. Why does this matter for renters? Well, when the cash rate moves, it usually affects rent prices too. And with the cash rate headed for a decline over the next few years, that could mean good news for those who rent or lease?

Now, rent prices are still climbing, but they’re not skyrocketing like before. Looks like the rental market is gradually slowing down with rent growth decreasing since December 2022. 

Interest rates can impact rent. When rates go up, property investment becomes less attractive. This could slow down the construction of upcoming rental properties, leading to higher rent prices. Another factor impacting the rental market is the supply of rental accommodation available. When there isn’t enough rental accommodation available to meet the demand, you can bet your bottom dollar that rent prices will rise.

Investors may have increased rent prices to cover the cost of their mortgages, but they didn’t raise it by the full amount of the interest rate increase. ATO tax data has shown that nearly half of all Australian property investors were negatively geared in the 2020-21 financial year. That means they were making a loss on their investment.

Although rent prices have gone up, they’re not increasing at the same rate as before. We’ve seen a tightening of the rental market due to multiple reasons from investor uncertainty to less shared housing, and higher income growth. Even though interest rates have slowed down investment activity, they haven’t been the sole cause of rental increases.

 Rent prices are expected to start slowing down in 2024 for several reasons. As renting becomes less affordable, tenants may start to form share-houses, leading to a potential reduction in rental demand. Additionally, the costs of construction are tapering down, meaning fewer approvals. As the current pipeline of residential dwellings being constructed is completed, renters may move into their own homes rather than renting. It’s also worth noting that government initiatives around social and community housing provision, and build-to-rent projects will help increase the supply of rental homes.

How does this news impact good or bad agents’ performance?

Need to see the report, read more here on core logic’s latest report.