Australia’s house prices fall, interest rates rise but analysts say

SYDNEY — In a country where real estate ownership dominates barbecue conversations and dinner parties, Australian Lili Zhang is like many homeowners.

While she has a healthy portfolio of properties, she is now facing the biggest threat to her investment, rising interest rates.

Zhang, who is in her 40s and works in finance in Sydney, owns her own home worth $3 million Australian dollars (nearly $2 million) and invests in two other apartments in the city’s popular eastern suburbs.

To finance that, she has taken out bank loans worth about A$3 million (nearly $2 million).

Mortgage rates have fallen to below 2% in recent years, but like many countries, interest rates are rising rapidly in Australia as the central bank looks to tame inflation, which is at a record high of 6.8% in the 12 months to August.

The Reserve Bank of Australia has hiked interest rates for five straight months raising the official cash rate to 2.35% from just 0.1% in April in an effort to rid the “scourge” of inflation, according to governor Philip Lowe.

Banks have passed on the increased borrowing costs through higher loan rates, which are now hovering between 4% and 5% and on track to rise further. 

Zhang said her repayments will soon double to about A$16,000 a month and she is worried. 

Her tenants are on fixed rental agreements and she cannot raise rents to cover her new mortgage outgoings. Neither is she expecting a commensurate pay rise.

“Not the time to panic, but the feeling of not seeing the end of the tunnel on rising costs is keeping me from sleeping tight at nights,” Zhang said, adding that the central bank was slow to react to rising costs. 

“I thought we had inflation last year already, yet we didn’t see any steps to curb rising costs.”

“During the election [in May], everyone was blaming war or lockdowns. It’s just a convenient excuse,” she added.

“We are too late to tame inflation, I don’t need to be an economist to know … those bills when I check out at the [supermarket] counter are already telling me what to expect in the coming months.” 

Zhang says she’s also cutting back on expenses, including her favorite takeaway coffees, which is exactly what the RBA wants to see. 

But while overall spending may be trimmed, thus cooling inflation, the Australian housing sector now enters a new state of flux where buyers are reluctant to buy due to high interest rates on loans, or they’re waiting for prices to fall further. And sellers are not sure if they want to sell at a cheaper price. 

In other words, the…