Housing Price and Interest Rate Hike: A Tale of Five Cities in Australia.

Australian housing prices are reported to be overvalued and unaffordable for the past two decades. Many researchers and practitioners have attributed the persistent growth in housing prices to the prolonged period of low borrowing costs. However, due to inflationary pressure, the Central Bank has raised its cash rate consecutively in recent months. This paper aims to examine whether interest rate rises affect housing price in different parts of Australia. Evidence generated from the analysis reported bipolar results between the large and smaller cities, whereby housing prices in Sydney and Melbourne show a significant negative relationship with interest rate changes while Brisbane and the Gold Coast and Perth and Adelaide, respectively, are showing negative but insignificant results during the study period. Short-run trend projections on housing prices indicate that Sydney, Melbourne, Brisbane and the Gold Coast are on a downward trend while Adelaide and Perth will maintain its current momentum before plateauing out later next year. Likewise, control variables, such as oil prices, inflation rate and stock market performance, are found to be related to housing prices in larger cities only. These findings have implications on housing policy, house purchase decisions and investment portfolio management strategy. [ABSTRACT FROM AUTHOR]