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Australian homeowners are being warned to brace for a 15 per cent plunge in house prices with the big banks now all expecting a rate rise next week and more to follow.
The Reserve Bank of Australia is widely expected to raise the cash rate on May 3 by 0.15 percentage points from a record-low of 0.1 per cent following the biggest inflation surge in 21 years.
Three of Australia’s Big Four banks – ANZ, Westpac and NAB – are expecting the RBA to increase the cash rate on Tuesday, marking the first increase since November 2010.
They are also expecting the cash rate to hit two per cent by 2023 for the first time since May 2016, which would see monthly repayments on a typical $600,000 mortgage surge by $625 within a year.
Australian borrowers are being warned to brace for a 15 per cent plunge in house prices with the big banks now all expecting a rate rise next week with more to follow (pictured is Sydney auctioneer Karen Harvey taking bids for a Hurlstone Park house)
Just three weeks ago, the RBA predicted an increase in the cash rate to two per cent would cause Australian property prices to plunge by 15 per cent.
‘Estimates using a model of the housing market that takes into account historical relationships between interest rates and both demand and supply factors suggest that a 200 basis point increase in interest rates from current levels would lower real housing prices by around 15 per cent over a two-year period, relative to the baseline model projection in the absence of an interest rate shock,’ it said in an April 8 report.
Nationwide, the Australian median property price has surged 18.2 per cent during the past year to $738,975.
A 15 per cent plunge of $110,846 would only take middle-range prices back to about $628,129, CoreLogic data showed.
Sydney’s median house price has climbed by 20.6 per cent to $1.403million in the year to March.
A 15 per cent drop would see values fall by $210,473 down to $1.192million – or May 2021 levels.
In Melbourne, median house prices have risen by a more subdued annual pace of 11.9 per cent.
A 15 per cent drop would see values fall by $149,856 – from $999,037 to $849,181 – hitting the lowest levels since May 2017.
In Perth, where values climbed by just 7.2 per cent over the year, a 15 per cent or $85,216 fall in house prices – from $568,108 to $482,892 – would see the median level sink to a June 2009 low, in a market that peaked in 2014 after the last mining boom.
Three of Australia’s big four banks – ANZ, Westpac and NAB – are expecting the Reserve Bank to increase the cash rate on Tuesday, marking the first increase since November 2010. They are also expecting the cash rate to hit two per cent by 2023 for the first time since May 2016, which would see monthly repayments on a typical $600,000 mortgage surge by $625 within a year (pictured is a Melbourne auction at Glen Iris)
In Brisbane, house prices have risen by 32.1 per cent to $856,731 so a 15 per cent drop of $128,510 would take values back to $728,221 – which would be the lowest since July last year.
In Adelaide, house prices have climbed by 28.7 per cent in a year to $658,446, so a 15 per cent drop of $98,767 would take values back to $559,679 – an August 2021 low.
A national fall of 15 per cent would mirror what happened in Sydney between 2017 and 2019, before the pandemic, after the Australian Prudential Regulation Authority tightened the rules on investor and interest-only loans.
But during that two-year period, national property prices fell by a lesser 8.4 per cent.
The Reserve Bank is now tipped to raise rates next week, ahead of the May 21 election, after headline inflation in the year to March climbed by 5.1 per cent – the fastest annual pace since June 2001 following the GST introduction.
Inflation is also well above the RBA’s two to three per cent target.
An RBA rate rise next month would be the first during an election campaign since November 2007, when Liberal prime minister John Howard was voted out of office after 11 years.
Three of the Big Four banks – ANZ, Westpac and NAB – are expecting the cash rate to rise by a record-low of 0.1 per cent from next week to hit 2 per cent in the coming year.
Sydney’s median house price has climbed by 20.6 per cent to $1.403million in the year to March so a 15 per cent drop would see values fall by $210,473 to $1.192million in May 2021 levels (pictured is a house at Kellyville)
A 1.9 percentage point rise in the RBA cash rate by 2023 would see a typical Australian borrower, with a $600,000 mortgage, cop a monthly repayment jump of $625 – from $2,306 to $2,931.
This would occur as their variable mortgage rate rose from 2.29 per cent to 4.19 per cent.
RateCity.com research director Sally Tindall said borrowers needed to prepare for next week’s possible rate rise.
‘A rate hike next week is now a live possibility on the back of Wednesday’s surging and surprising inflation figures,’ she said.
‘Three of the big four banks are now predicting the RBA will pull the trigger on a May cash rate hike.’
The Commonwealth Bank, Australia’s biggest home lender, is the only major bank predicting a rate rise in June instead of May.
Unlike the other big banks, it’s forecasting a cash rate peak in this cycle of 1.25 per cent by February 2023 instead of 2 per cent as ANZ, Westpac and NAB are predicting.
Source: DailyMail
