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Experts warn further RBA interest rate hikes could devastate the property market and fail to ease housing unaffordability as borrowing costs outweigh lower prices.
Further interest rate hikes by the Reserve Bank of Australia could devastate the property market without making housing more affordable, experts warn, as the RBA is predicted to lift the cash rate for a fourth time this year on Tuesday to 4.6%, from 4.35%, adding another $100 to the monthly mortgage interest bill on a $700,000 loan.
Property Market Faces Devastating Rate Hikes
Two or even three more Reserve Bank interest rate hikes would be devastating for the property market but still leave housing more unaffordable than ever, experts say.
Higher borrowing costs would trump lower prices, according to analysts. A number of analysts are tipping a further interest rate rise, the fifth this year, on Melbourne Cup day.
Financial markets are even pricing in a 60% chance of a sixth rate increase by mid-2027.
RBA Rate Hikes and Economic Impact
Shane Oliver, AMP’s chief economist, said two or three more rate hikes would be overkill given the already weakened state of the economy and families’ finances.
A rate hike on Tuesday would push the cash rate to its highest level since late 2011, and a further increase at the next meeting in November would push it to 4.85%, the highest since just before the GFC, Oliver said.
Another hike to 5.1% is going to cause major problems for households with mortgages, he said, pointing out that debt burdens have become substantially larger over the past two decades.
And it would be devastating for the property market. The higher you go the greater the chance you hit a tipping point, and instead of a 10% decline in home prices, you get more like a 15-20% drop.
Housing Affordability Outlook Dims
The silver lining from falling home values is that it makes it easier for first-time buyers to get into the property market.
Devitt said he had expected affordability to improve over the second half of this year and perhaps into 2027, but that was predicated on the RBA not pushing borrowing costs higher.
In this cycle we now don’t see any improvement in affordability at all, he said.
Taylor Nugent, a senior economist at NAB, said the prospect of more interest rate hikes suggested property values would fall further and for longer than anticipated.
Beyond prices, Nugent said the fundamental issue with the housing market, too many people chasing too few homes, was evident in an.
RBA Interest Rates Property Market Shane Oliver Housing Affordability NAB Cash Rate
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