A real estate expert who warned Australians to prepare for a massive interest rate hike before the Reserve Bank even intervened has revealed his forecast for 2023 – and it’s not pretty.
If Adam Flynn’s predictions come true, it will hurt more for families as the Reserve Bank continues to raise interest rates due to its worst inflation in 32 years.
By May, monthly mortgage payments are expected to have increased 55 percent in a year, amounting to an additional $1,261 for those with an average loan of $600,000.
The 42-year-old real estate agent, who was expelled from school at 16 before becoming a self-made millionaire, told FEMAIL housing problems would only get worse.
“I don’t think we’ve ever seen anything like what we’re about to see,” said Mr. Flynn.
Property expert Adam Flynn has revealed his grim predictions for 2023 – after being labeled a scaredy-cat last year
“I feel sorry for people who entered the market confident that rates would remain stable. But it didn’t come as a surprise to me.’
His exact prediction, made in January 2022, was that the ‘continued cheap money and low rates’ had left most Australian homeowners overstretched. At the time, the RBA’s cash rate was still at a record low of 0.1 percent, with Gov. Philip Lowe suggesting in 2021 that they would remain on hold until 2024 at the earliest.
This was before the Russian invasion of Ukraine led to an inflation spike, with the 32-year high consumer price index of 7.8 percent now well above the Reserve Bank’s target of 2 to 3 percent.
Mr Flynn explained that most people had ‘overspent’ on home loans because money had been cheap for too long – only to have to spend their dwindling savings on mortgage payments during a cost-of-living crisis.
At the time, he calculated that monthly payments on a typical $750,000 mortgage would increase by $750 per month.
That would involve a couple with a 20 percent mortgage paying off a $937,500 house, which would be the mid-market price in Canberra.
“I don’t want to be judgmental all day long, but I think there’s a bigger problem with maintainability (people’s ability to pay off their loans) than people putting on weight,” he said at the time.
But he underestimated the Reserve Bank, which has raised cash rates by 3.25 percentage points since May 2022 — the most severe pace of monetary policy tightening since it began publishing a target spot rate in 1990.
Monthly payments on a $750,000 mortgage are up $1,222 or 42 percent to $4,105, up from $2,883.
This happened when a floating rate from the Commonwealth Bank rose from 2.29 percent to 5.17 percent.
The 42-year-old single father-of-one has a real estate portfolio worth more than $7 million and has been in the real estate industry since he was 18
What are Adam Flynn’s real estate market predictions for 2023?
1 – That the cash rate will continue to rise in the coming months. But he doubts it will be more than five times as that would bleed the market.
2 – People who have ‘overpaid’ in a competitive market will come out of their fixed rate loans in July and realize they have overspent.
3 – People will have to move to more affordable housing, find a second job, pay a mortgage.
4 – People who cannot afford higher repayments must put their home up for sale.
5 – The housing market will be flooded in July.
6 – People can enter the market from July because they have a good idea of what their budget looks like and won’t expand too much.
Working couples with a $1 million mortgage have seen their repayments increase by $1,630 per month from $3,843 to $5,473.
He was called a scare maker, but things actually turned out much worse than he expected.
“A lot of mortgage payments have gone up by $1,875 a month, it’s outrageous,” he said.
And the pressure will continue, with Mr. Flynn predicting that borrowers with a $750,000 loan will pay an additional $1,500 to $2,000 each month by the end of 2023.
He warns that “getting rid of petty luxuries” to stay afloat may no longer be an option.
“This is not a question of cutting the avocado on toast, people will have to move into cheap accommodation and rent out their houses,” he told FEMAIL.
“They’re going to have to make a drastic change to make it work or come to the forefront and sell now.” Because it’s getting harder.’
Nine consecutive Reserve Bank rate hikes have pushed cash rates to a 10-year high of 3.35 per cent, with Australia’s major banks all expecting another 0.25 percentage point increase on March 7.
Mr. Flynn expects further increases to follow.
“There’s talk of four or five more rate hikes, it’s not sustainable, but five or six will be catastrophic, it’s going to bleed the market,” he said.
The Commonwealth Bank, Australia’s largest lender, expects two more rate hikes in March and April, which would push cash rates to a new 11-year high of 3.85 percent days before Easter.
But Westpac, ANZ and NAB expect rate hikes in March, April and May that would push it even higher to 4.1 percent.
Three more rate hikes, starting this month, would see monthly payments on a $750,000 mortgage rise another $354 to $4,459 — a 54.7 percent increase since May 2022.
Adam says the increases will create a ripple effect on the property market and expects a rush of new homes to come up for sale
This is based on a floating interest rate from the Commonwealth Bank that will rise by 0.75 percentage point to 5.92 percent in the coming months.
Borrowers who took out a fixed-rate mortgage in May 2021 – at an ultra-low rate of 1.92 percent – will be pushed through to a ‘repayment rate’ of 7.43 percent.
RateCity calculated that this would increase loan repayments by 69 percent, as loan contracts in 2021 stated rates would be 3.33 percentage points above the RBA money rate — now expected to be 4.1 percent in May.
Which means three more rate hikes by May
$500,000: $245 up to $2,973 a month in May, up from $2,737 now
An increase of $1,051 or 54.7 percent in a year from $1,922
$600,000: $283 up to $3,567 a month in May, up from $3,284 now
An increase of $1,261 or 54.7 percent in a year from $2,306
$700,000: $330 up to $4,161 a month in May, up from $3,831 now
An increase of $1,470 or 54.7 percent in a year from $2,691
$800,000: Increased $377 to $4,756 per month in May, now $4,379
An increase of $1,681 or 54.7 percent in a year from $3,075
$900,000: Up from $424 to $5,350 a month in May, up from $4,926 now
An increase of $1,891 or 54.7 percent in a year from $3,459
$1,000,000: $472 increased to $5,945 per month in May, up from $5,473 now
An increase of $2,102 or 54.7 percent in a year from $3,843
Monthly repayments based on a variable interest rate from the Commonwealth Bank on a 30-year loan, rising from 5.17 percent now to 5.92 percent. This mirrors the Reserve Bank’s cash rate rising from 3.35 percent to 4.1 percent. Annual increase compares 2.29 percent floating rate in May 2022 when the RBA spot rate was 0.1 percent.
Adam says the increases will create a ripple effect on the real estate market and expects a rush of new homes to come up for sale.
“A lot of people bought into the boom when we had extraordinary capital growth,” he said.
This means that people entering the market paid ‘over expectations under the force of competition’ and under the certainty of fixed rates.
“These flat rates expire in June or July of this year, so people need to get up front and figure out what they can do to pay off their mortgage,” he said.
“People will have to think seriously about moving to more affordable housing and renting out their homes, and finding a second job to survive.”
Adam believes the ‘floodgates’ will open in July, with homes saturating the market.
He suggests that people put their homes on the market now if they feel they will have trouble keeping up with their mortgage once their fixed rate ends.
“You have to stand before everyone else,” he warned.
July will also be a good time for new buyers to enter the market – although rates are high, he thinks they will start to level off then – meaning people can borrow at what they can actually afford.
“They will understand the nature of the country,” he said.
“If you find something that suits you now, go for it, but keep in mind that there will be more to choose from halfway through the year.”
He says while buying sounds crazy, there will be market confidence. Investors will be lining up to make deals.
“People will be able to budget, the consecutive 0 percent increases have just been, well shocking isn’t even the right word.
“It’s something that people wouldn’t allow based on the advice they received from experts at the time.
Adam says the Reserve Bank had a duty of care that they failed to act upon when they advised people that rates would stay low before going up month after month.
“It’s really not great, people have relied on their advice for the financial security of themselves and their families and for it to have been so wrong is certainly disappointing,” he said.
“The level of arrogance is astonishing. I believe it has been depicted with a total lack of empathy for people’s lives.”
Who is Adam Flynn?
Adam Flynn was expelled from school at age 16 before getting a real estate job at age 18.
He now has an impressive $7 million real estate portfolio and has become an expert on the Australian market.
He has been in the real estate business for 24 years and until last year was never really afraid of ‘the bursting of the real estate bubble’.
He remained quietly confident in the Australian real estate market, even during the global instability following the September 11 attacks in 2001 and the global financial crisis in 2007.
The real estate expert, who oversees Coronis Property Management’s operations across Victoria, describes his job as ‘being on the coals’.
He saw people becoming more confident and “overextending” themselves to enter the real estate market – on historically low interest rates.