Warning of huge housing price falls if the Cash Rate exceeds 4.00%
02 March 23 - Courtesy of ABC TV
SQM Reseach founder Louis Christopher warns that recent small increases in the median price of house sales could be a "false dawn", and that if the RBA raises the Cash Rate above 4.00% there could be further significant drops in housing values.
Based on our own experience as a lender and mortgage manager over the last 40 years we believe that the real estate market has only experienced the start of a significant decline in values, given the current state of the world economy and inflation rates. When this is combined with over 800,000 borrowers about to suffer a massive increase in repayments as their cheap fixed rate loans expire in the next few months, we see further shocks ahead. Economists are forecasting that it will take 9 years for our wages growth to catch up to 2020 levels. This will result in flat housing prices for almost a decade.
Sydney dwelling values down almost 14% - Melbourne values down 9.7% - Brisbane down 10.9% from the peak in February 2022
16 February 2023:
The succession of interest rate hikes has bitten deeply into dwelling values in the more vulnerable regions -such as the western suburbs of Sydney, and the outer suburbs in Melbourne. Borrowers who took out loans when interest rates were at their lowest, have already seen their repayments exceed the 3% serviceability buffer used by lenders to calculate debt servicing. Adding to significant increases in household living and business costs with little or no real increase in wages - many are now starting to experience severe cashflow difficulties.
There has been little sign that the current high inflation rate is likely to reduce in the short term. Further interest rate increases will start to create real serviceability problems for households and small businesses.
Homeowners and investors who purchased at or near the top of the market who are forced to make the decision to sell, have to face the very real possibility that they could experience a shortfall and sell for a loss. If sale proceeds don't cover the mortgage and costs of sale, the lender has the right to pursue the borrower for the shortfall.
A Finder survey found that approximately 429,000 Aussie households missed a mortgage payment in the last 6 months.
Of those approximately 25,7000 had missed multiple payments
Borrowers with an average loan size of $600k will be paying approximately $1,000 per month more than they were paying in April last year.
Analysts estimated that the average mortgage payments were still around 1.80% (180bpps) behind the current rates.
Further rate increases are forecast.
KPMG estimates that more than 800,000 fixed rate mortgages are due to revert to variable rate this year, and that the average borrower will face an annual increase in mortgage repayments of $16,500 when they switch.
If the cash rate increases 3 more times household expenditure could potentially fall by $20 billion