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The RBA’s advice that interest rates will continue to rise as house prices suffer their sharpest decline since 1983

The Reserve Bank of Australia has issued some chilling hints that it will keep raising interest rates even after Tuesday’s forecast rate hike, as house prices fall at their fastest rate in almost 40 years.

The Big Four banks all expect interest rates to rise another 0.5 percentage point on Sept. 6 — taking it from an existing six-year high of 1.85 percent to a seven-year high of 2.35 percent.

Should interest rates rise by that level, a borrower with a typical $600,000 mortgage would increase monthly payments by $173. Interest rates are already rising at the fastest pace in nearly three decades.

The RBA hiked rates by 50 basis points last month and its August minutes clearly indicated that home borrowers would be in even greater pain — with house prices already suffering their sharpest monthly decline since early 1983.

“Given high inflation, resilient economy and tight labor market, and taking into account the risks, members agreed that it was appropriate to continue the process of normalizing monetary conditions,” it said.

‘The Management Board expects to take further steps in the process of normalizing monetary conditions in the coming months, but is not on a predetermined path.’

The Reserve Bank of Australia has given some hints that it will raise interest rates further this year as house prices fall at their fastest rate in almost 40 years (a house in Melbourne is pictured).

The Reserve Bank of Australia has given some hints that it will raise interest rates further this year as house prices fall at their fastest rate in almost 40 years (a house in Melbourne is pictured).

RBA Governor Philip Lowe has previously suggested that interest rates would need to rise above 2.5 percent to stay above the neutral level – with the aim of monetary policy being to slow economic activity.

Property prices fall in almost ALL major cities in August

Sydney: Down 2.6 percent to $1,302,635

MELBOURNE: Down 1.5 percent to $948,879

BRISBANE: Down 2.1 percent to $864,149

Adelaide: down 0.2 percent to $707,364

PERTH: Down 0.2 percent to $588,308

HOBART: Down 1.7 percent to $772,443

DARWIN: Up 1.1 percent to $592,183

CANBERRA: Down 2 percent to $1,033,377

Source: CoreLogic data for August based on median house prices

The Commonwealth Bank, Australia’s largest home lender, expects a cash rate of 2.6 percent through November, while ANZ is forecasting a 10-year cash rate of 3.35 percent on Melbourne Cup day.

The era of record-low cash rates of 0.1 percent ended in May, with rate hikes totaling 1.75 percentage points every month since — the steepest since 1994.

Harsh monetary tightening has already impacted the housing market, with CoreLogic data showing a 1.6 percent fall in national house and unit prices in August — the sharpest monthly decline since January 1983.

National home prices fell to a median level of $738,321 last month.

But even with a 20 percent deposit, a $590,657 mortgage would be prohibitive for a full-time worker earning an average salary of $92,000.

In April, before the RBA hiked rates for the first time since November 2010, someone making $96,300 a year could borrow $600,000, Canstar analysis showed.

But that same potential borrower could now only borrow $500,000.

Banks have been required since November to assess a borrower’s ability to cope with a three percentage point increase in variable mortgage rates.

This means four straight rate hikes – with a likely fifth in September – will push house prices down, with banks’ ability to lend being constrained.

House prices fell in August in all capital markets except Darwin.

The RBA hiked rates by 50 basis points this month and in its August meeting minutes strongly indicated there would be more pain for home borrowers - with house prices already suffering their sharpest monthly decline since early 1983 (pictured is the Reserve Bank Governor Philip Lowe).

The RBA hiked rates by 50 basis points this month and in its August meeting minutes strongly indicated there would be more pain for home borrowers – with house prices already suffering their sharpest monthly decline since early 1983 (pictured is the Reserve Bank Governor Philip Lowe).

The average house price in Sydney plunged 2.6 percent last month, the steepest housing market decline since August 1985, bringing it back to $1,302,635 in a city where borrowers are much more sensitive to interest rate hikes.

What the banks are forecasting for 2022

WEST PAC: 3.35 percent cash rate through February 2023

This would include a 50 basis point increase in September and a 25 basis point increase in October, November, December and February

NO: 3.35 percent cash rate through November 2022

This would include increases of 50 basis points in September, October and November

COMMON WEALTH BANK: 2.6 percent cash rate through November

This would include a 50 basis point hike in September and a 25 basis point hike in November

SNAP: 2.85 percent cash rate through November

This would include a 50 basis point hike in September and a 25 basis point hike in October and November

Source: RateCity

Prices in Melbourne fell 1.5 percent to $948,879.

Adelaide, until recently Australia’s strongest property market, suffered a 0.2 percent drop in August, taking the median home price down to $707,364.

Perth, which had also braved the downturn, was also down 0.2 percent, with house prices falling to $588,308 midway through.

Brisbane remained Australia’s best-performing metropolitan market even after interest rates rose, but last month prices fell 2.1 percent to $864,149 – the sharpest fall in 42 years on record.

Prices in Hobart fell 1.7 percent to $772,443 – the sharpest drop since August 1998.

Canberra’s values ​​fell 2 percent to $1,033,377 – the hardest reading since October 1996 after former Prime Minister John Howard’s new government fired officials.

Regional markets, which benefited from workers being able to work from home, suffered a 1.5 percent drop in August – the sharpest since November 1989, when interest rates were 17 percent.

The regional home price of $615,712 is still more expensive than Perth or Darwin, with coastal values ​​dragging the median up.

Gareth Aird, head of Australia’s economics department at the Commonwealth Bank, said that while borrowers could absorb rate hikes in May, June and July, rate hikes eased somewhat in August.

“Up until July, most adjustable rate mortgage borrowers had no impact on their cash flow prospects,” he said.

The era of a record-low cash interest rate of 0.1 percent ended in May, with monthly rate hikes since then up to 1.75 percentage points - the steepest since 1994. CoreLogic data showed a 1.6 percent fall in national house and unit prices in August - the sharpest monthly decline since January 1983 (pictured is a Melbourne auction in April)

The era of a record-low cash interest rate of 0.1 percent ended in May, with monthly rate hikes since then up to 1.75 percentage points – the steepest since 1994. CoreLogic data showed a 1.6 percent fall in national house and unit prices in August – the sharpest monthly decline since January 1983 (pictured is a Melbourne auction in April)

“This allowed them to continue spending as they had before, so official spending data has been strong.”

Mr Aird said the fastest pace of rate hikes in nearly three decades meant some borrowers would now struggle to adjust.

“The rapid pace at which the RBA has tightened policy, overlaid by full recognition of the lags between rate hikes and the impact of cash flow on a home borrower, means the RBA board is flying blind to some extent,” he said .

“Many households with mortgages will need to adjust their spending patterns in the coming period as the lagged impact of rate hikes weighs on their cash flow.”

Inflation rose 6.1 percent in the year to June, the fastest pace since 1990, which discounted the one-off effect of GST implementation in 2000.

Both the Reserve Bank and Treasury Department expect the CPI to hit a 32-year high of 7.75 percent later this year.

What another 0.5 percentage point rate hike in September will mean

$500,000: Increase by $145 to $2,472 from $2,327

$600,000: Up $173 to $2,966 from $2,793

$700,000: Increase by $202 to $3,460 from $3,258

$800,000: Increase by $231 to $3,955 from $3,724

$900,000: Increase by $260 to $4,449 from $4,189

$1,000,000: Increase of $289 to $4,943 from $4,654

Calculations are based on a cash rate increase of 0.5 percentage points from 1.85 percent to 2.35 percent, increasing a Commonwealth Bank variable loan for a borrower with a 20 percent deposit from 3.79 percent to 4.29 percent would let

https://www.dailymail.co.uk/news/article-11179725/RBAs-clue-rates-rising-property-prices-suffer-steepest-drop-1983.html?ns_mchannel=rss&ns_campaign=1490&ito=1490 The RBA’s advice that interest rates will continue to rise as house prices suffer their sharpest decline since 1983

Bradford Betz

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