Key facts
- Two or three more Reserve Bank interest rate hikes could devastate the property market.
- Higher borrowing costs are expected to outweigh falling prices, worsening housing unaffordability.
- The RBA is widely expected to increase its cash rate to 4.6% on Tuesday.
- This increase would add $100 to the monthly mortgage interest bill on a $700,000 loan.
- Shane Oliver, AMP chief economist, stated that further rate hikes would be 'overkill'.
- Tom Devitt, senior economist at Housing Industry Australia, noted the national affordability index hit a historic low in June.
- Taylor Nugent, senior economist at NAB, anticipates further property value declines due to potential rate hikes.
Further interest rate increases by the Reserve Bank of Australia could devastate the property market and worsen housing unaffordability, according to economists. The RBA's monetary policy board is widely expected on Tuesday afternoon to announce an increase in its cash rate to 4.6%, from 4.35%. This decision will add approximately $100 to the monthly mortgage interest bill on a $700,000 loan.
Shane Oliver, AMP's chief economist, stated that two or three more rate hikes would be "overkill" given the current economic conditions and household finances. He warned that a cash rate of 5.1% would cause significant problems for mortgage holders and be "devastating" for the property market, potentially leading to a 15-20% drop in home prices, compared to the current expectation of a 10% decline.
Tom Devitt, senior economist at Housing Industry Australia, noted that the national housing affordability index reached its lowest point in history at the end of June. He indicated that the prospect of further rate hikes has altered expectations for improvement in affordability, suggesting no improvement is now anticipated in this cycle.
Taylor Nugent, a senior economist at NAB, commented that the possibility of additional rate hikes suggests property values will continue to fall for longer than previously expected. Nugent also highlighted that the fundamental issue of too many people chasing too few homes persists, contributing to a lack of rental properties and rising rents, impacting both buyers and renters.