Experts say the trajectory of Australian home values will depend on how fast and how high interest rates move after the Reserve Bank of Australia lifted interest rates for the fourth time in as many months.  

The RBA raised interest rates by another 50 basis points to 1.85% this week after it raised the cash rate 50 bps in July.  

It comes as Australian home values fell 1.3% in July, with Brisbane, Canberra and Hobart joining Sydney and Melbourne in recording month-on-month declines. 

Canstar analysis estimated that the latest rate rise would likely add a further $148 to monthly repayments for borrowers with a $500,000 loan or up to $297 for borrowers with a $1 million loan. 

The impact on home loan repayments of the combined May, June, July and August cash rate rises if passed on in full by lenders would add almost $500 to the monthly repayment for a borrower with a 30-year $500,000 mortgage or $1,000 for a $1 million loan over the same period.  

CoreLogic Research Director Tim Lawless said as the cash rate finds a ceiling, that will probably be the cue for housing values to find a floor. 

“The trajectory of home values will depend on how fast and how high interest rates move, along with the performance of the broader Australian economy, labour markets and demographic trends,” Lawless said. 

“In turn, sensitivity of highly indebted households, and dampened consumption resulting from lower house prices means the RBA may continue watching the housing market closely.” 

Canstar’s finance expert Steve Mickenbecker said the housing market was showing signs that the expected correction was underway.  

“House prices have started to fall, especially in Sydney and Melbourne, and auction clearance rates are down,” Mickenbecker said.  

“It hasn’t taken four Reserve Bank cash rate rises to slow down new borrowing, with the latest ABS new loan commitments showing that new housing lending fell in June by 4.4%.  

“New borrowing has now fallen below last year’s level but is still up on pre-pandemic volumes. 

“With more rate increases ahead, buyers and sellers are nervous about what is to come from this year’s spring selling season. Investors, who were previously the most bullish sector, are leading the exit.” 

Lawless said the cash rate could rise at least another 75 basis points before peaking, according to most bank forecasts. 

“With this in mind, the decline in housing values is expected to become steeper and geographically more widespread,” Lawless said.  

“Nationally, home values are already falling at the fastest pace since the Global Financial Crisis (GFC), while Sydney values are declining at the fastest pace since at least the early 1980s, having fallen -5.3% since peaking in mid-February, with most of that decline (4.8%) occurring since May’s cash rate increase.”