• Robert Baharian

The Real Impact of Rate Rises on Property

Rates are rising. We all know this. In fact, the market has already priced in central rates at between 2%-3% depending on what time frame you are looking at. Stock markets are adjusting their valuations. Crypto has collapsed. Private Equity and Venture are probably yet to feel the full force of these devaluations. The property market is still functioning, however listings are falling and prices are falling. Who said property doesn't go down?

This isn't good. Good for who? Good for what? Broad statements such as this are dangerous. Lately I've been reading numerous doom and gloom predications for the property market. These headlines are great for just that - headlines.

I decided to look back through history, specifically through periods of time where rates where rising, and analyse the impact this had on property prices. I took the Corelogic 5 City Aggregate and the RBA Cash Rate since 1980, and here's what I found:

Source: Refinitiv Datastream / Corelogic / Baharian Wealth Management

In the eight rate hike cycles since 1980, there was only 1 period that saw property prices decline during a rate hike cycle - 1994-1996. Although, 1981-1982 was up only 0.44% a positive return 87.50% of the time with an average return of 16.16%.

I then calculated the price return for property from the first rate hike cycle spanning 1, 2, 3, and 5 years. We saw 2 periods of declines 1 year following the first rate hike in 1981-1982 and 1994-1996 with a decline of -0.20% and -2.57% respectively - a positive return 75% of the time. Stretching out to 2 years, returns were positive 87.50% of the time, with 1 cycle resulting in a loss of -0.11% after 2 years.

Finally, I calculated the price return for property from the last rate hike for the same time frame. We only see one period, 1988-1989 where prices fell -1.85%, 1 year from the last rake hike. No other periods resulted in negative returns. In other words, 100% of the time, prices were positive.

I won't describe the entire table. You can see the numbers for yourself.

Next time you are engrossed in such headlines, pause, look through the headlines and ask yourself - what is this person trying to sell me? Everyone has vested interest. Some must shove the conflict in your face, others, well, to a lesser degree let's say. Research for the greater good? Research by fund managers for assets they don't manage? I'm skeptical.

You can read the headlines or look at the facts. You choose.

My colleague Matt Rigby and I talk more about this in last week's The Wide Lens podcast.

You can also listen to the podcast on Spotify or wherever else you listen to your podcasts.