One Rate Hike Can Lock Buyers Out Of The Market For Over A Decade, Says Economist | The Business

Ahead of a potential fourth interest rate rise from the RBA on Tuesday, new research shows just a quarter of a percentage point increase has an immediate and lasting effect on home affordability disproportionately hurting younger households. Using housing statistics and a detailed large-scale model, Dr James Graham from the School of Economics at the University of Sydney looked at how monetary policy affects Australians' ability to buy and own homes over time.

He revealed his early findings on The Business, telling Alicia Barry, "a standard 0.25 percentage point increase in interest rates leads to an immediate five percent decline in home purchases, and buying remains low for up to two years,"

Although home ownership eventually begins to recover, Dr Graham says the modelling shows it does not return to its pre-rate-rise level for more than a decade. "It's not everyone that's being locked out. It's a proportion of those potential home buyers. But for them, that's a really big deal. They were getting ready, very excited about that first home purchase. Now they've missed out and it could be a long time before they come back."

Alicia Barry asked if the RBA by raising rates is unintentionally fighting against government policies designed to get people into homes? James Graham said, "yeah, I mean the RBA is not tasked with sort of stabilising the housing market, so it's not exactly its main job. So it is very unintentional. It's not something they're trying to do, it's not something they would like to do, but they are tasked with stabilising inflation in the labour market. So you're right, this is an unintended consequence."
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