Two-thirds Australian homeowners with a variable mortgage will see interest rates rise in the coming months. ANZ predicts a 18% plunge in house prices, but it may ease.
Moody’s credit ratings agency is concerned that rising interest rate will make it harder for Australians to pay their mortgages. This could lead to higher default rates.
The ANZ Bank is forecasting an 18% plunge in capital-city house prices in 2023, compared to the peak of 2022. However, this would be followed up by a 5 percent increase in 2024.
Under this scenario, Sydney’s median house price would plunge by $255,053, falling from April’s peak of $1,416,960 to $1,161,907 by late 2023, based on CoreLogic data.
The prices of Sydney houses in 2022 are already down 10.6 percent, to $1,257.625, according to October. A recovery in 2024 could bring them back to the level they were in 2024.
Two-thirds Australia’s homeowners with a variable loan will face higher interest rates in the months ahead. ANZ is predicting an 18% drop in house prices. (pictured: a Melbourne auction).
Felicity Emmett, senior economist at ANZ, and Adelaide Timbrell, senior economists at ANZ, said that property prices would continue to fall until next year because higher interest rates reduced the bank’s lending capacity.
According to them, the main factor that drives down prices is a reduction in borrowing capacity, and not a rise of forced sales.
“With our expectation that cash rates will peak in May next years, we believe that most of the price impact will be fully reflected by 2023.”
ANZ expects the Reserve Bank of Australia (RBA) to continue increasing the cash rate up until it reaches an 11 year high of 3.85 percent by May 2023 – an increase of 9 years from 2.85 per cent.
It expects another 0.25 percentage points rate increase in December, to reach a new 10-year high at 3.1 percent.
This is despite Australian Bureau of Statistics data that shows inflation increasing by 6.9% in the year up to October. That’s a decrease from 7.3% in September.
Stephen Wu, a Commonwealth Bank economist, stated that this indicated that inflation is likely to reach its peak by 2022 and not decline into 2023. This could be a sign of hope for homeowners.
Finn Robertson and Catherine Birch, both ANZ economists, noted that almost two-thirds (or more) of Australian home borrowers had a variable mortgage rate. This meant they would see a significant increase in monthly mortgage payments.
The ANZ bank now predicts a 18% plunge in capital city home prices by 2023, compared with the peaks of 2022. This would be followed by a 5% rise in 2024. (Sydney branch pictured).
They stated that “Australian households have higher debt at floating rates, which facilitates faster transmission of monetary policies to the real economy.”
“The floating rate shares are admittedly lower than normal at 65 per cent, compared with about 80 per cent prepandemic.”
Moody’s credit rating agency is concerned that rising interest rates could lead to higher rates delinquencies (where a borrower defaults or is 30 days behind in their repayments).
It stated that slowing economic growth, multiple interest rate increases over the past year, and high costs-of-living will impact borrowers’ ability to repay loans by 2023.
“We expect loan delinquency rates and default rates to moderately increase.”
ANZ anticipates that arrears will rise once interest rates reach their peak in mid-2023. The bulk of the super-cheap 2 per cent fixed rate loans, which are worth 62%, will expire in June or September next year.
Moody’s credit ratings agency is concerned that rising interest rate will make it harder for Australians to pay their mortgages.
A borrower with a $600,000 mortgage will see his monthly payments increase by $3,145 to $3.517 if interest rates rise to 2.85 to 3.85 Percent.
This would be in addition to the $839 increase that occurred in May.
In one year, the monthly payments would have risen to $1,211, or 52.5 percent.
ANZ warns that interest rates could rise if inflation, which hit a 32 year high of 7.3 percentage points in September, is not able to return to its 2 to 3 percent target.
According to it, “That would eventually signify an extended tightening process, a higher terminal liquidity rate, and prolonged pressure on housing price,”
Banks are less able to lend because of higher interest rates. This is because banks must assess the ability of a borrower to deal with an increase of three percentage points in variable mortgage rates.