Interest rates usually are irrelevant: Terry Ryder

Interest rates usually are irrelevant: Terry Ryder
Interest rates usually are irrelevant: Terry Ryder

Media coverage of the Westpac decision to lift mortgage rates 0.2 percentage points has been typically sub-standard.

Many articles, inspired by economists suffering from limelight deficit syndrome, have portrayed this as a death knell for property markets.

As someone who has studied the relationship between interest rates and price movements, I can tell you that this is a not a reasonable conclusion.

Economists and journalists, with their simplistic thought processes, tend to believe that low interest rates = property boom, and rising interest rates = property decline. This contradicts both common sense and historical precedent.

Falling interest rates usually coincide with subdued property markets. The RBA cuts interest rates when the economy is struggling, consumer confidence is low and unemployment is rising – i.e. conditions which are least likely to produce property booms.

This is why most of Australia does not have booming property markets. Only Sydney, which is the centre of the one economy (NSW) that is really pumping, has had a boom. Melbourne, the capital of a state with an okay economy, has displayed some buoyancy but nothing approaching the dizzy heights of Sydney. 

Most of the state and territories have struggling economies and their capital city property markets – Perth, Hobart, Canberra, Darwin, Adelaide – have been stuck in neutral or reverse. Years of very low interest rates have been utterly irrelevant in all of these places.

Regional Australia is dotted with markets that have dropped sharply and others that have gone nowhere in terms of price movements. The exceptions are relatively few and most of them are located amid that one strong state economy, New South Wales. 

The bottom line is that interest rates usually are irrelevant. Economists appear to think they’re the only thing that matters and the sole determinant of outcomes in real estate. In truth, they have little or no bearing. 

Other factors have much greater influence. Sydney had its boom because a change of State Government in 2011 returned sanity and competence to governance, the economy started pumping again and infrastructure spending was revitalised. Money started circulating, businesses started spending, consumers started feeling good about things and the property market, which had been largely dormant for a decade, burst to life.

It would have happened whether the official interest rate was 2%, 4% or 6%.

Conversely, interest rates are most likely to be rising when the national economy is strong, with lots of jobs being created, confidence high and businesses spending big. These are the conditions that drive property booms – and the RBA will lift interest rates to dampen things down. 

Often it requires a long period of multiple rises to quell the buoyancy. Therefore, genuine national property booms – unlike what we have at the moment - usually coincide with periods of high or rising rates.

In the late 1980s, interest rates were lifted repeatedly without dampening the boom - and mortgage rates went as high as 17% before the bull run ended.

To suggest that a 0.2 percentage point rise by one lender will kill the (Sydney) boom shows a low level of understanding.

The reality is that the one major boom in the nation, Sydney’s, has been slowly deflating since the start of the year. APRA didn’t need to take action because the market was taking care of the situation without any interference from self-important bureaucrats.

And Westpac’s tiny nudge to interest rates will have no bearing on the situation.


Terry Ryder is the founder of You can email him or follow him on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of

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