Sydney property prices, Inflation and Interest Rates.
Every June 30th since 2000, Property Search 4U captures and analyses the various elements of the Sydney property prices to paint a picture of what occurred in the previous 12 months and what could develop in the ensuing 12 months.
One of these elements is the correlation between the inflation rate (CPI) and the property lending rate. Our sources are ABS and RBA respectively.
Inflation rate – CPI
All groups of weighted average of Sydney
Housing loans; Banks; Variable; Standard; Owner-occupier
In reading the ensuing data, one has to remember that in general, as interest rates are reduced, more people are able to borrow more money. The result is that consumers have more money to spend, causing the economy to grow and inflation to increase.
The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to save as returns from savings are higher. With less disposable income being spent as a result of the increase in the interest rate, the economy slows and inflation decreases.
The Reserve Bank uses the short-term interest rate to affect the rate of inflation in our economy.
|JUNE 30th||CPI Sydney||Lending rate|
In the last 20 years, the average gap between the lending rate and the CPI was 3.28% except:
• In 2001, it was a mere 0.5%; Relationship between Inflation and Interest Rates
• In 2007, it was a painful 5.77% – pre GFC?
Property prices and inflation rate
Extending the money supply causes inflation and Sydney property prices to increase.
Property prices and interest rate
When interest rates are low, buying property is more affordable and consequently increase
the demand, competition and prices.
Needless to say, the reverse in both situations causes Sydney property prices to decrease.