The imminent end of the interest rate hiking cycle is likely helping to underpin a recovery in the property market, the head of the Reserve Bank says.
After entering a downturn in 2022, the residential property market started rebounding earlier this year, and before many experts expected.
Reserve Bank Governor Philip Lowe said a major driver of the recovery was the "understandable perception in the community that the peak of interest rates is either now or close at hand".
Shifting population dynamics since borders reopened were also adding to demand for housing and new supply was failing to keep up.
"(When there is) a strong demand relative to supply, rents go up and where rents go up, (property) prices tend to go up," he told a parliamentary economics committee hearing in Canberra on Friday.
A third reason was the rising nominal incomes due to inflation, with Dr Lowe noting that while some suffer when interest rates rise, others do reasonably well.
"So people are saying, 'Well, if I can afford the current rate of repayments, and as long as I keep my job, there's going to be strong demand for housing going forward, and it's a good time to buy property'."
Dr Lowe stressed this was not financial advice but rather the perception circulating in the market.
But speaking alongside incoming deputy governor Michele Bullock and other senior officials, he said there were a few reasons to expect housing market dynamics to change.
This included the anticipated rise in unemployment as the economy slows.
He also said nominal income growth would start to slow, and the catch-up in migration since borders reopened had "almost run its course", suggesting population dynamics would start to go back to normal.
The central bank has hiked interest rates 12 times since May last year but has kept the cash rate on hold for two consecutive months, fuelling speculation the peak has been reached.
In the context of interest rate settings, Dr Lowe said recovering home prices would likely encourage people to "spend bit more" in aggregate.
But he said it would have a marginal effect and had not triggered a change in the path for interest rates, although it would support stronger economic growth next year.
Commenting on the transition from low fixed rate loans, which has been a source of concern and uncertainty for the RBA, he said the bulk of borrowers were coping with the jump in their monthly repayments
He said borrowers who had already made the transition from fixed rate loans were falling behind on their repayments at about the same numbers as those on variable mortgages for some time.
Dr Lowe said one of the reasons this transition was happening smoothly for most borrowers was that it was "the most telegraphed increase in mortgage repayments ever".
"People have known this is coming ... they knew their mortgage repayments were going to go up a lot and they started saving a bit more," he offered by way of explanation.
He said some banks have been proactive and called customers to help them prepare to transition off their low fixed rate, and that borrowers took advantage of a couple of years of very low interest rates to build up decent financial buffers.
© AAP 2023