Cash rate at 15-year-high, and Aussie home loans more than double 2011 levels

The average Aussie home loan was just $288,300 in 2011, when interest rates last reached their current peak of 4.6 per cent, which means we are borrowing more than twice as much as we were 15 years ago.

On Tuesday, the Reserve Bank of Australia increased the official cash rate target by 25 basis points, and banks have already begun passing the increase on to customers.

Shortly after the RBA’s decision, Macquarie Bank announced home loan variable interest rate increases, and the country’s big four banks followed suit.

Australian Bureau of Statistics data shows the average home loan size for first-home buyers in August 2011 was $283,900, but the average loan size for all owner-occupied homes has jumped to $731,000, according to its latest quarterly estimates.

Prices have followed a similar trajectory. For example, despite a major downturn in the housing market, the median house price in Sydney is still $1 million higher than it was 15 years ago.

The latest Domain House Price Report showed the city’s median house price was $1,733,891 in June, compared with $649,058 in September 2011.

In Brisbane, the median house price rose from $417,762 in September 2011 to $1,212,562 in June this year.

Although the rates are now at a 15-year high, University of Sydney economist Dr James Graham says Australians shouldn’t expect house prices to drop to 2011 levels.

A lot has changed since then, with population growth, particularly in capital cities, adding to housing demand.

Graham also points to increases in income and the economy, as well as changes to productivity, technology, jobs, immigration, and the financial sector.

“You could just look at interest rates and say, ‘Well, I expect prices to go back down to those 2011 levels,’ but it’s probably not going to go all the way back down because of all these other changes that have taken place as well,” he says.

“But certainly interest rates being higher does put downward pressure on prices.”

The RBA’s announcement on Tuesday marked the fourth cash rate increase so far this year.

Mortgage holders are facing a significant downturn in Australia’s housing market that has seen prices fall across major cities in recent months.

The Domain House Price Report showed the median house price for the eight combined capital cities was down 1.4 per cent over the last quarter. Sydney and Melbourne’s median house prices both fell by over 3 per cent in the same period.

The property market has also been rattled by sweeping incoming tax changes first unveiled in the federal budget in May.

Under the reforms, negative gearing has been scrapped and will be limited to new builds from July 1, 2027. The 50 per cent capital gains tax will also be replaced with cost base indexation and a minimum 30 per cent rate on gains.