What would another rate rise do to home values? It's complicated

Australian home values rose by 8 percent over FY24 despite the impact of 13 interest rate rises between May 2022 and November 2023 putting immense strain on household budgets. A lack of supply of homes for sale amid strong buyer demand trumped the usual dampening effect of higher rates in FY24. Additionally, strong jobs and population growth coupled with relative affordability turbocharged home values in the two best–performing capital city markets of Perth and Brisbane, where median prices lifted 23.6 percent and 15.8 percent, respectively, in FY24.

CoreLogic’s head of research Eliza Owen notes that when interest rates began to rise in May 2022, there was a peak-to-trough 7.5 percent fall in the Australian median home price before a new growth cycle began in early 2023. Since then, there have been 17 consecutive months of growth. Property values in Sydney, Brisbane, Adelaide and Perth are now at record highs, having recovered all their losses in the downturn of 2022. Regional Queensland, South Australia and Western Australia are also at record-high median values.

“There are a few explanations for why housing values have continued to rise even as the cost of debt has risen, and borrowing capacity has eroded,” Ms Owen said. “Tight labour market conditions and an accumulation of savings through the pandemic have broadly underpinned mortgage serviceability, mitigating a need to sell as rates have increased, the construction sector remains squeezed, and unable to deliver a large backlog of dwellings, and strong population growth has increased demand for housing, both for purchase and rent.”

“The composition of buyers may also be propping up purchases, with higher deposit sizes indicating the current buyer profile may be less debt-dependent than when interest rates were at record lows,” she said.

Many first home buyers have higher deposits because of the Bank of Mum and Dad. Additionally, data from property settlement company PEXA shows one in four sales across the eastern states in 2023 were cash sales to buyers not purchasing with debt, who were therefore unaffected by higher mortgage rates. Such buyers included downsizing baby boomers and high-income earners and foreign investors in the prestige sector.

For most of this year, interest rate cuts have been anticipated due to falling inflation, which may have also stoked some buyer enthusiasm, Ms Owen said. However, recent data indicates inflation may be stickier than expected as it nears the Reserve Bank’s target band of two to three percent. As a result, some economists now expect at least one more rate rise to keep inflation on a downward course.

“Another rate rise would slow housing demand, and some cracks are already showing,” Ms Owen said. “Despite resilience in the headline numbers, there are some suggestions that demand is already weakening. Another 25 basis point rise in the cash rate in August, all else being equal, would take monthly repayments on the current median dwelling value to over $4,000 per month.

“Not only is this further out of reach for prospective buyers, it would likely also represent a further blowout in the premium of holding a mortgage relative to renting. The bigger that premium becomes, the weaker demand for purchases may become relative to renting, despite rent growth still sitting well above average.”

The Reserve Bank released the minutes of the board’s June meeting on Tuesday. In its deliberations, the board noted that the narrow path to returning inflation to target by 2026 “was becoming narrower” and recent economic data “reinforced the need to be vigilant to upside risks to inflation”. The board also noted that “the extent of uncertainty at present meant it was difficult to rule in or rule out future changes in the cash rate target”.

Many luxury hotels only build on their gilded reputations with each passing decade. But others are less fortunate. Here are five long-gone grandes dames that fell from grace—and one that persists, but in a significantly diminished form.

The Proto-Marmont |

The Garden of Allah, Los Angeles

A magnet for celebrities, the Garden of Allah was once the scene-making equivalent of today’s Chateau Marmont. Frank Sinatra and Ava Gardner’s affair allegedly started there and Humphrey Bogart lived in one of its bungalows for a time.

Crimean expat Alla Nazimova leased a grand home in Hollywood after World War I, but soon turned it into a hotel, where she prioritised glamorous clientele. Others risked being ejected by guards and a fearsome dog dubbed the Hound of the Baskervilles. Demolished in the 1950s, the site’s now a parking lot.

The Failed Follow-Up |

Hotel Astor, New York City

The Astor family hoped to repeat their success when they opened this sequel to their megahit Waldorf Astoria hotel in 1904. It became an anchor of the nascent Theater District, buzzy (and naughty) enough to inspire Cole Porter to write in “High Society”: “Have you heard that Mimsie Starr…got pinched in the Astor Bar?”

That bar soon gained another reputation. “Gentlemen who preferred the company of other gentlemen would meet in a certain section of the bar,” said travel expert Henry Harteveldt of consulting firm Atmosphere Research. By the 1960s, the hotel had lost its lustre and was demolished; the 54-storey One Astor Plaza skyscraper was built in its place.

The Island Playground |

Santa Carolina Hotel, Bazaruto Archipelago, Mozambique

In the 1950s, colonial officers around Africa treated Mozambique as an off-duty playground. They flocked, in particular, to the Santa Carolina, a five-star hotel on a gorgeous archipelago off the country’s southern coast.

Run by a Portuguese businessman and his wife, the resort included an airstrip that ferried visitors in and out. Ask locals why the place was eventually reduced to rubble, and some whisper that the couple were cursed—and that’s why no one wanted to take over when the business collapsed in the ’70s. Today, seeing the abandoned, crumbled ruins and murals bleached by the sun, it’s hard to dismiss their superstitions entirely.

The Tourism Gimmick |

Bali Hai Raiatea, French Polynesia

The overwater bungalow, a shorthand for barefoot luxury around the world, began in French Polynesia—but not with the locals. Instead, it was a marketing gimmick cooked up by a trio of rascally Americans. They moved to French Polynesia in the late 1950s, and soon tried to capitalise on the newly built international airport and a looming tourism boom.

That proved difficult because their five-room hotel on the island of Raiatea lacked a beach. They devised a fix: building rooms on pontoons above the water. They were an instant phenomenon, spreading around the islands and the world—per fan site OverwaterBungalows.net , there are now more than 9,000 worldwide, from the Maldives to Mexico. That first property, though, is no more.

The New England Holdout |

Poland Springs Resort, Poland, Maine

The Ricker family started out as innkeepers, running a stagecoach stop in Maine in the 1790s. When Hiram Ricker took over the operation, the family expanded into the business by which it would make its fortune: water. Thanks to savvy marketing, by the 1870s, doctors were prescribing Poland Spring mineral water and die-hards were making pilgrimages to the source.

The Rickers opened the Poland Spring House in 1876, and eventually expanded it to include one of the earliest resort-based golf courses in the country, a barber shop, dance studio and music hall. By the turn of the century, it was among the most glamorous resort complexes in New England.

Mismanagement eventually forced its sale in 1962, and both the water operation and hospitality holdings went through several owners and operators. While the water venture retains its prominence, the hotel has weathered less well, becoming a pleasant—but far from luxurious—mid-market resort. Former NYU hospitality professor Bjorn Hanson says attempts at upgrading over the decades have been futile. “I was a consultant to a developer in the 1970s to return the resort to its ‘former glory,’ but it never happened.”

What would another rate rise do to home values? It’s complicated

As talk of a rate cut before the end of the year quietens, another rate rise may be on the horizon

For every hotel spotlighting its historical bona fides, there are many that didn’t stand the test of time. Here, some of the most infamous.