“If the cash rate moves above the 2.5 or 3% range, that could be pushing the economy into a contraction,” he said.
“It is likely to translate into weaker economic performance and a slowing of labor markets,” Lawless said. “If that’s the case, you should imagine that a larger proportion of homeowners would be late in their payments and would have to sell their property in a falling market.”
Credit rating agency Moody’s expects default rates to rise moderately over the rest of 2022 due to rising inflation, higher interest rates and worsening real estate market conditions.
PRD chief economist Dr Diaswati Mardiasmo said strong demand on several fronts was also helping to lower property prices.
“There are a lot of job vacancies … companies are struggling to find people,” Mardiasmo said. “The growth of our salaries is also on the rise. Many people are receiving salary increases and people who have been able to change jobs and take advantage of the workforce with a salary increase of 10 to 15 percent. “
He said rising interest rates were a factor that could weigh on demand and thus prices, but strong household savings pads would help protect the real estate market from a deeper fall. .
“The flow of our money that has been earmarked for mortgage clearing accounts and principal repayments is at its highest level right now over the last five quarters compared to the last 10 years,” Mardiasmo said.
A cash rate that moves too high and too fast could affect the economy and the real estate market. Credit: Simon Schluter
“If the cash rate rises, it’s more of a rebalancing of where the cash flow is going. You may see a slight shift in the fact that it’s more directed at interest and a little less at compensation and principal “.
Mardiasmo said troubled lists would increase and price falls would accelerate if the cash rate exceeded pre-pandemic levels after households borrowed record debt levels.
“We can probably handle up to 2 or 2.5 [per cent] if you stretch, but if you go anywhere above 3, that’s when you would see the troubled lists grow “.
The head of research and economics at the domain, Dr. Nicola Powell, said the country would need a broad, high unemployment rate to see struggling lists rise and prices fall sharply.
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“When you see people being forced to sell, that’s what can really drive up property prices,” Powell said.
“We are unlikely to see an increase in sales and listing in distress due to the fact that other things in the economy are going against it.
“We have a very low unemployment rate and a competitive job market and seeing a substantial increase in distressed lists would mean a high unemployment rate.”