The RBA lifted rates yesterday meaning a full 1% rise to borrowers over the past month. This move back to normal interest rate levels as against Emergency Setting is good as it means we are coming out of the worst effects of the Pandemic and moving towards shaping a New Normal.
The Question as to what happens with house prices in Cairns has been posed to me over and over.
Just like the Emergency Settings in lifetime low interest rates the double-digit capital growth on property can’t exist for ever and some normality and easing should be expected. But a new high tide mark has been set and a new normal average has been set in Cairns as the market cannot supply enough housing to meet demand
So, when you see the cost of borrowing goes up 1% but Cairns prices rose on average 15.24% to a new record average of $431,000 (which even outstrips Townsville at 9.80% to an average of $356,000) there is a huge gap in the cost of money and the capital growth in property.
The key this time around is that Cairns has a structural undersupply of housing so this is not greed or FOMO this is being caused by the many people that cannot find accommodation. The simple rules of supply and demand flow through and we cannot fix our undersupply problem quickly.
So the new normal has arrived – with emergency interest rates being replaced with a new normal rate and the higher average Home price in Cairns.
James Fennell B. Economics (UQ) BBus (QUT) AICD Fellow