Property Search 4U

Sydney property prices, Inflation and Interest Rates

Sydney property prices, Inflation and Interest Rates

Sydney property prices and the relationship between 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

Lending rate
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.

Our Reserve Bank uses the short-term interest rate to affect the rate of inflation in our economy.

Sydney property prices, Inflation and Interest Rates.

JUNE 30th CPI Sydney Lending rate
2000 3.3% 7.80%
2001 6.3% 6.80%
2002 2.8% 6.55%
2003 2.4% 6.55%
2004 2.3% 7.05%
2005 2.4% 7.30%
2006 3.8% 7.55%
2007 1.7% 8.05%
2008 4.3% 9.45%
2009 1.3% 5.80%
2010 2.9% 7.40%
2011 3.8% 7.80%
2012 1.3% 6.85%
2013 >2.6% 6.20%
2014 2.8% 5.95%
2015 2.2% 5.45%
2016 1.5% 5.40%
2017 1.9% 5.25%
2018 2.1% 5.23%
2019 1.7% 5.15%

In the last 20 years, the average of the gap between the lending rate and the CPI was 4.0% except:
• In 2001, it was a mere 0.5%; Relationship between Inflation and Interest Rates
• In 2007, it was a painful 6.4% – pre GFC?

Property prices and inflation rate
Increasing the money supply causes inflation and Sydney property prices to increase.

Property prices and interest rate
When interest rates are low, buying property can be more affordable and consequently increase the demand and competition.

Needless to say, the reverse in both situations causes Sydney property prices to decrease.