If lenders pass on the 0.5 percentage point rate increase, the average homeowner with a $ 500,000 mortgage for 25 years will be affected with a monthly repayment increase of $ 142 for a total of $ 363 if the May and June rate increases are taken into account.
Shane Oliver, chief economist at AMP Capital, said rate hikes of this magnitude would fuel the fall in house prices by up to 20 percent nationwide.
“Buyers’ ability to pay decreases”
“We’re just at the beginning of interest rate hikes, so there’s more to come, which means more price drops,” Dr. Oliver said.
“Buyers’ ability to pay is declining rapidly, while confidence is collapsing as a result of talks on higher interest rates. As real estate prices begin to fall, it feeds on itself. So we have falling prices fueling weak demand. “
Tim Lawless, research director at CoreLogic, said that while the risk of prices falling by more than 20% seemed remote, the risk had increased for the market.
“It’s fair to say the market risk profile is higher now than in the past,” he said.
“Households are likely to be more sensitive to the cost of debt due to record levels of indebtedness, and the impact of high inflation will also have an impact on household balance sheets.
“If labor markets start to loosen materially, this is where I think the risk to the housing markets becomes more severe.”
Unlike the housing crash caused by macroprudential tightening during 2017 and 2019, current price falls were becoming more pronounced and rapid, Lawless said.
“The fall trajectory between the two falls followed a similar pace until the first rate hike, but now the rate of fall has become much more pronounced than what we were seeing in 2017,” he said.
Since the market peaked in Sydney, home values have fallen 3.3%, while for the same number of days since the market peak in 2017, values have fallen 2.4% , according to CoreLogic.
Melbourne is also showing a similar trend. Home values have fallen 2 percent from the high through July 4, compared to a 0.6 percent drop in the same time period from the maximum during the previous fall of 2017.
“The housing market is more fragile this time, so we’ve seen how the markets went from boom to fall in a few months,” Dr. Oliver said.
“At the moment, it is still difficult to see when the rates will be reduced. We are still facing a lot of rate hikes due to inflation, so it will be a painful 12 months. “