21/07/2022
Sandwiched between the bullish and bearish economists with seemingly opposite views on what the future holds for the Australian housing market is the average Joe (or Jane), probably a middle-class professional from Sydney’s western suburbs who was priced out of the pre pandemic housing market surge riddled with investors and finally had the courage to chance a mortgage with the hope of the rates staying at affordable levels.
What are they to make of a potential 15% (Gareth Aird, CBA Analyst) or erratic 30% (Christopher Joye, Coolabah Capital) downgrade in property prices?
If this is your predicament, talk to your Mortgage Broker about some alternatives that might help ease the burden of increasing mortgage repayments.
Excerpts from FRA Article - RBA slaps down the property doomsayers by John Kehoe, dated July 20 2022.
(Used for educational purposes only.)
“In one corner are the likes of Commonwealth Bank of Australia economist Gareth Aird and Coolabah Capital head Christopher Joye, a columnist for The Australian Financial Review.
They are concerned that sharply higher rates will accelerate house price falls, reduce household wealth, further dent already low consumer confidence, cut spending and noticeably slow the economy.
“National house prices to fall by at least 15 per cent.
The impact on households with a mortgage will be very significant. The impact on households with a mortgage will be very significant given the percentage change in the mortgage rate will be incredibly large,” he says. “We expect forward-looking indicators of the economy to slow sharply while backward-looking indicators, notably the unemployment rate, inflation and wages, will continue to strengthen.”
Joye is more bearish, saying house prices could fall by more than 30 per cent if the RBA fulfils “uber-aggressive” market expectations for an increase in its cash rate.
Bullock says a 10 per cent national house price fall will put only 0.4 per cent of home borrowers in negative equity.
If house prices fall 20 per cent, only 2.5 per cent of borrowers would be in negative equity, below the 2018 level of 3.25 per cent.
The negative equity estimates are surprisingly low, even allowing for the earlier huge increase in house prices fuelled by emergency-level borrowing rates.
People who took advantage of ultra-low fixed rates face sharp increases in refinancing costs during the next two years.
A caveat other analysts point to is that the RBA’s average national house price scenario omits that outer suburbs will typically experience larger price falls. These areas have more marginal borrowers susceptible to job losses, loan defaults and mortgage stress.”
