Most people aren’t in a position to buy a house outright with cash; they have to take out a home loan or mortgage. This means a bank or other lender loans them the money, which they pay back, usually over 25 to 30 years. The cost of doing this is essentially governed by the interest rate the bank charges; and that’s largely decided by the Reserve Bank.
When interest rates rise, the cost of borrowing goes up. And when it goes up, people have to pay more each month for their mortgage or loan repayments. If interest rates quickly increase, it becomes more difficult to continue repayments and property may have to be sold. So, there are more properties on the market at the same time many people are put off buying. With more houses on the market and less people wanting to buy them, prices fall.
Another important factor in the property market is the size and make up of the population at any one time. As a general rule, if the population is rising, there will be more and more people who want houses and this pushes prices up. However, things aren’t quite that simple, as you also have to take into account the age of the population.
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