Property price correction will happen if RBA lifts interest rates: Ben Kingsley

A significant increase in interest rates may see property prices enter a correction phase, according to Empower Wealth’s Ben Kingsley.

In a panel discussion on Look at Property this week, Ben Kingsley and observer Catherine Cashmore discussed the current market cycle and when a downturn may be expected.

Both were in agreement that a rise in interest rates may be a signal for an impending correction.

“Right now, because interest rates are so low, affordability looks still great back to 2002, according to CBA data … When interest rates are low, it makes values look higher,” explained Kingsley.

“If interest rates start to actually increase significantly, we’ll probably see a correction of some description in the market place,” he said.

Cashmore looked towards the common cycles in housing markets to draw similar conclusion.

“Housing cycles are long-term affairs, so they typically run around 18 to 20 years and within that period they have a mid-cycle downturn, which usually happens around nine years after the low,” she said, pointing to Christopher Joye’s expectation of a mid-cycle downturn.

“You will probably see that happen as interest rates start to rise and you could see a correction in prices. It won’t effectively be a crash as such, we have longer to go,” she said.

Interest rates are expected to begin increasing next year, with the majority of experts in Finder’s Reserve Bank survey opting for this forecast.

At present, June 2015 is the most common prediction for the first increase.

ANZ is on record predicting multiple interest rate increases across 2015.

The Organisation for Economic Cooperation and Development (OECD) have also advised the Reserve Bank to lift interest rates from the second quarter of 2015.

The move would prevent housing prices rising to risky levels and then unwinding sharply, say the OECD.