Whether you are looking to buy, sell or hold, there is a good chance you have wondered whether the property market will tumble when interest rates rise.

Past performance does not predict future results, but an understanding of history can help us prepare for the future.

With the talk of the Reserve Bank of Australia (RBA) increasing the cash rate in the next 18 months or so, and fixed rates already going up, as a result, let’s look at what has happened to property prices when interest rates rose in the past.

What does history show us?

According to a Property Investment Professionals of Australia (PIPA) analysis, history suggests that interest rates do not force property markets into booms or busts, but rather it’s often affordability, local economic conditions, consumer sentiment or access to lending. The PIPA analysis looks at the six periods of increasing cash rate movements since 1994, and the corresponding national house price movements.

  • June 1994 to December 1994: the cash rate increase was 2.75% and the house price increase was 1.1%
  • September 1999 to September 2000: the cash rate increase was 1.50% and the house price increase was 7.5%
  • March 2002 to December 2003: the cash rate increase was 1.00% and the house price increase was 35.7%
  • March 2006 to December 2006: the cash rate increase was 0.75% and the house price increase was 8.4%
  • June 2007 to March 2008: the cash rate increase was 1.00% and the house price increase was 8.9%
  • September 2009 to December 2010: the cash rate increase was 1.75% and the house price increase was 10.5%

What can we take from these figures?

To begin with, those holding out for a cash rate rise in the hope of buying during a price dip, history is not on your side – not once did house prices fall during the above periods. The strength or weakness of property markets is often influenced by more than just cash rate adjustments.

There are several factors at play, including some buyer hysteria. One of the main reasons for booming market conditions is easier access to credit, which was not the case two years ago when the rates were also low.

Most borrowers can also afford a rate rise: RBA and PIPA

The RBA does not seem overly concerned about borrowers being able to afford their mortgages when the cash rates.

The RBA believes that most borrowers are paying off more of their home loans than required by their contracts, particularly during Covid. People have been socking away money in offset accounts and redraw accounts during this period, and where you had lockdowns, some people were not spending as much as they usually would. If and when rates do rise, a lot of people will not actually need to raise their repayment, because they are already paying more than they need to.

The moral of the story?

You don’t need to sit around and wait for a cash rate increase to make your next move. If you are looking to crack the property market, get in touch today! Buyer’s agents will provide clear and objective guidance, market intelligence and experience to support the home buying journey. Using the skills and knowledge of a buyer’s agent can help you buy the property for you. Book a free 30-minute consultation to see how we can help you purchase the right property, at the right price.

Email: contact@purpleavenue.com.au


Purple Avenue is a Sydney based Buyers Agency. We provide expert guidance and advice to help you make the most informed decisions, and our buyer’s agents will be with you every step of the way to ensure the process of buying your home is as smooth and stress-free as possible.

Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether in business, health or financial.