what will happen in the market now rates are rising

Summary of main arguments and market commentary (rates rising and impact on housing)

• Real estate has turned as conditions tightened quickly. Louis Christopher (SQM Research) argues that the Sydney and national markets flipped direction rapidly after a strong post-lockdown bounce. The shift from “extraordinarily strong” to turning down is linked to multiple interest rate rises, higher inflation, a change of government, and global shocks—including the Russia–Ukraine war.

• Sydney is described as the “epicenter” of the downturn.

  • SQM’s data suggests Sydney housing prices peaked around February and have been declining since.
  • By mid-year, Sydney prices are said to have effectively returned to January levels (with the “year-to-date” reference clarified as January-to-now).
  • Further declines are likely as the year progresses.

• Criticism of the RBA’s timing and forward guidance.

  • If he were running the RBA, Christopher says he would not have stated that rates wouldn’t rise until 2024.
  • He argues the RBA underestimated inflation pressures earlier—inflation was already accelerating before the war and appeared increasingly non-transitory.

• Different cities/regions are not moving in the same way.

  • Biggest falls: primarily Sydney, and to a lesser extent Melbourne.
  • Still rising (so far): most regions outside Sydney/Melbourne, based on his dwelling price trend readings.
  • Perth: prices are up and he sees no rapid slowdown; rents also show no clear weakening signal.
  • Adelaide: described as strong, with very low vacancy and no visible weakness in leading indicators.
  • Queensland/Brisbane: vacancy rates remain at record lows and the market is still framed as a seller’s market, but Christopher expects slowing as auction clearance rates trend down and prices look “toppy/expensive.”

• Local detail within Sydney: weakness is uneven.

  • Areas showing more noticeable weakness:
    • Blue Mountains: vendors reducing asking prices by roughly ~9% from peak
    • Parramatta: about ~5% reduction in asking prices
    • Lower North Shore: more sellers adding asking prices and leaving auctions/listing strategies that typically signal weakness
    • Upper North Shore: increasing correction
  • Areas described as relatively better:
    • Wollongong: still relatively strong
    • Eastern Suburbs: sales activity and clearance rates are slowing, but vendors are not yet broadly discounting

• Listing dynamics signal seller caution and “market reality” pressure.

  • Christopher highlights a rise in all listings, especially older listings (stock lingering for more than 90 days).
  • Explanation: older listings often reflect sellers anchored to past peak prices (“2021 price” mentality). Newer sellers are more willing to transact under current conditions, so when markets normalize, new listings sell better than old listings.

Interest rates outlook: further tightening is expected, with a policy dilemma

• Christopher says the RBA is modeling a cash rate around 1.75 by Christmas (from about 0.85 currently), implying roughly another 90 basis points.
• He expects another rise and warns the RBA faces a difficult trade-off:
  • If it keeps lifting rates to tame inflation, it risks a hard landing (recession / sharp housing declines).
  • If it pauses while inflation remains high, inflation could stay persistently above target.
• He also argues some inflation is global (oil/food/energy/raw materials) and not fully controllable domestically.

Borrowing power drop as a central mechanism for price weakness

• He says reduced serviceability/qualification is constraining buyers:
  • A cited estimate: borrowing power for an average borrower down by about $50,000.
• He distinguishes between:
  • Discretionary cooling: buyers become more cautious
  • Structural inability: buyers priced out due to reduced loan capacity

Forecast range and expectations for further falls

• SQM’s current forecast mentioned for Sydney: prices could fall up to ~7% over the calendar year, with potential additional downside because earlier forecasts did not fully incorporate further rate rises extending into the second year.
• Scenario risk:
  • If rates rise aggressively and then pause quickly, housing could find support (he notes that when inflation is high, people often seek real assets).
  • However, with inflation potentially still rising, he expects more declines in the near term.

Distressed sales are not expected to surge—unless lending rates go very high

• Christopher cites a distressed properties index and says bank arrears are at record lows, implying fewer forced sellers and therefore less of a “bear-case” collapse.
• He says forced selling is unlikely unless lending rates exceed a key threshold, framing the trigger around average lending rates above ~7% (with reference to banks’ stress test range from 2014 onward).
• Current discount lending rates are said to be around ~3.9%, potentially rising with further RBA moves.

Buyer and vendor psychology: waiting is common, urgency is limited

• The host describes auctions where buyers wait (e.g., “there’ll be another one down the road” and the market hasn’t bottomed).
• Christopher counters that sellers are generally not panicking—few vendors indicate they “have to sell,” consistent with low distressed pressure.

Presenters / contributors

• Tom (host/presenter)
• Louis Christopher (SQM Research; guest forecaster)