A recent surge in interest rates has left its mark on the housing industry, extending its impact to the specialized market of SDA homes. The Reserve Bank has declared the most substantial single rise in the cash rate in 22 years, with the cash rate, representing the market interest rate for overnight loans between financial institutions, currently standing at 0.35% as of June 7, 2022 (http://asx.com.au).
The repercussions of an interest rate hike are far-reaching, affecting various businesses. In particular, businesses relying on mortgages bear the brunt of such increases. As interest rates climb, borrowers pass on the added cost to their customers, resulting in a rise in commodity prices. Within the housing industry, this has sent shockwaves through the market, impacting those with existing mortgages. Rental costs surge, and construction build expenses undergo changes. In the realm of SDA housing, ongoing construction builds accrue additional costs, necessitating a higher funding requirement for participants looking to reside in their chosen homes. The current approved SDA funding may no longer prove sufficient in light of these shifts in the market.
On the flip side, the interest rate increase can serve as a positive indicator for future property acquisitions. It provides an opportunity for new property buyers, investors, and developers to enter the market at a more stabilized price index. As the market begins to slow down due to tightening supply, demand, and inflation, this results in a higher barrier for borrowing, slowing down demand growth. In the property market, this slowdown in supply and demand growth helps curb inflation, thereby slowing down the increase in property market prices. This, in turn, creates a more favorable environment for new buyers, investors, and SDA developers, allowing them to purchase in a market that is stabilizing and reducing the consumer price index. Ultimately, this could mean increased potential for SDA home acquisitions and a greater availability of homes for participants.
By Peach Morato