Impact on Australian property market from February rate hike

Flexdoc Founder Peter Esho believes higher interest rates will slow down some segments of the Australian property market. Over-leveraged buyers and fringe developments are particularly exposed.

But Esho argues that the broader housing market remains resilient.

“Rates will bite. No doubt. But the real issue is supply, or the lack of it,” he says.

Supply Shortages Are the Real Story

Australia’s housing supply remains structurally tight. For years, developers have been slow to bring new stock to market. Rising construction costs, zoning delays, and red tape have all contributed to a shortage of new dwellings.

At the same time, migration has surged post-COVID. More people are arriving and staying longer. This adds to demand, particularly in major cities where rental vacancy rates are near record lows.

“The problem isn’t that people don’t want to buy. The problem is that there just isn’t enough to buy,” Esho says.

Employment Is the Safety Net

Esho notes that the labour market is doing its job. Unemployment remains historically low. Most households are employed and servicing their loans, even with higher mortgage repayments.

“Jobs are sticky. That’s what matters. As long as people are working, there won’t be forced selling,” he says.

This means that the forced liquidation scenarios some analysts have feared are unlikely to materialise in the short term.

Quality Assets Will Hold Their Value

Rather than a broad-based correction, Esho expects a segmentation in the market. Premium, well-located properties in supply-constrained suburbs will continue to attract demand. On the other hand, fringe developments and low-quality stock may face price pressure.

“Property isn’t monolithic. The average buyer today is more cautious, but they’re still out there, they just want value,” Esho says.

Long-Term Outlook Remains Constructive

For long-term investors, Esho sees opportunity. The current market is filtering out speculation and repricing risk. But the core demand story hasn’t changed — people need homes, and there aren’t enough.

“Assets backed by scarcity, population growth and income support are still worth owning, even in a higher-rate world,” he says.

In other words, interest rates might shake sentiment, but fundamentals still matter. And right now, those fundamentals remain intact.

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