The Full Impact Of The RBA Rate Hikes in 2023 Are Going To Double Dip Pockets
New research conducted by the Australian National University’s (ANU) Centre for Social Research and Methods 
has raised concerns regarding the impact of the Reserve Bank of Australia’s (RBA) latest rate hike on the nation’s housing market. The study anticipates a ‘double-dip’ correction in Australian house prices, signifying a potential sharp decrease following a short period of recovery. This has sparked apprehensions among homeowners who are already facing an increasing burden of mortgage repayments.
The RBA’s recent increase of 0.25 percentage points in interest rates is expected to impose a substantial strain on Australian households. According to the study, this rate hike is poised to set a new record for Australia’s mortgage repayment burden. Homeowners are predicted to allocate an average of 25% of their net income to mortgage repayments. When juxtaposed against the pre-pandemic levels, the rate hike implies that mortgage holders are now shelling out an average of 50% more.
The study’s lead, ANU Associate Professor Ben Phillips, highlights that the share of income dedicated to mortgage costs is at its highest since 1984. He attributes this increase to the culmination of 4.0 percentage points in interest rate hikes by the RBA and the surge in average debt levels within the last year. This situation is further exacerbated by the fact that mortgage holders are transitioning from a period of historically low-interest rates.
Professor Phillips elaborates that his model’s predictions are based on a “conservative” approach, taking into account only one additional interest rate increase from the RBA. The implications of these hikes in mortgage costs, according to him, could spell severe financial distress for some households or necessitate the reevaluation and reprioritization of household expenditures.
The issue of mounting mortgage costs is particularly pronounced for households with lower incomes. These households have witnessed the most aggressive increases in debt servicing costs, further highlighting the disproportionate effect of rising interest rates on various income groups.
Additionally, Brian Redican, Chief Economist at TCorp, reinforces the sentiment expressed by Phillips. He asserts that unless there is a reduction in interest rates, the Australian housing market could see a reversal in prices within the next six months. Redican notes that the recent rate hikes, including the one in May, are still permeating the market, causing households to face escalating mortgage rates. This is especially true for those transitioning from fixed-rate loans.
Redican emphasizes the significance of sentiment in driving the property market. However, he warns that sentiment can be highly volatile. The potential deterioration in affordability owing to increased mortgage costs could swiftly alter market sentiment. This could be particularly pronounced as households reassess their financial positions in light of growing repayment obligations.
A critical barometer of the Australian housing market’s resilience in the face of these challenges will be the
performance of property auctions in the coming weeks. The results of these auctions could provide valuable insights into the potential consequences of the RBA’s monetary policy decisions on buyer behavior.
In essence, the Australian housing market finds itself at a pivotal juncture. The recent interest rate hikes by the RBA have accentuated the burden of mortgage repayments for Australian households. The predictions of a ‘double-dip’ correction add a layer of uncertainty and apprehension regarding the future trajectory of house prices. This situation mandates close monitoring of market indicators and a consideration of the potential socioeconomic implications of this developing scenario.
There has been so much talk and many media releases that say absolutely contradicting things about the prices of our homes, interest rates and upcoming rate changes. No one really knows what will happen in many areas but let’s hope the government assists with getting more price friendly housing across Australia and lowers the entry barriers for lower income families and individuals.
