Will interest rate hikes continue? – ‘If they don’t, I can see a big problem arising.”

05th Aug, 2022 | In The News, Articles, First Home Buyer

In this article:
Mark Bouris' take on the rising interest rates and his prediction for the remainder of 2022.

With CoreLogic revealing that house prices fell nationally by 1.3% in the month of July, there’s plenty of concern amongst commentators and homeowners that house prices will continue to fall on average to drastically low levels, following the Reserve Bank’s (RBA) fourth consecutive month of increasing the official cash rate. 

Mark Bouris joined Peter Stefanovic on Sky News to highlight some concerning data surrounding house prices and predict where he sees house prices heading into next year. 

Bouris said, “Well if you look at the CoreLogic numbers, nationally, house prices are down 1.3% In the month of July alone, but if you look at Sydney, they’re down 2.2% and Melbourne is down 1.5%.”

“And if you extrapolate for the last six months, Sydney house prices are down by 5.2% which is the largest drop in house prices in Sydney since the beginning of the GFC. So it’s fairly catastrophic in terms of house prices.” 

There is some justification for the RBA’s decision to increase the official cash rate to 1.85%: “The actions of Philip Lowe are supposed to be a response to the over exuberance of our economy,” said Bouris, “…and whether or not that’s demand in Australia which is causing inflation or if it’s external supply problems that are causing inflation problems, we don’t know.”

So the big question is, according to Bouris, “Are Philip Lowe’s actions actually going to have an impact on the inflation number and if they are going to have an impact on the inflation number, which segment of the marketplace is going to be affected?”

Most likely, it will be mortgage holders, who will have to tighten the purse strings to continue affording their mortgage repayments. Anecdotally however, Bouris says that many commentators predicting a blood bath in the housing market have made some assumptions that are misleading. 

“I’m in Canberra today and last night I went downstairs and had my dinner at the hotel. The bar last night was packed full of  people who are aged 20 to 35. On a Tuesday night! Everybody was out. What it tells me is the average age of an Australian today who gets a mortgage is 34 years of age. 20 years ago, the average age was 24.”

Bouris suggests that the RBA’s decision to increase interest rates to help combat inflation may not have the impact it is intended to, as the age of mortgage holders has increased drastically. 

“There’s an assumption with interest rates: more people have mortgages and more people are going to be affected by interest rate rises, whereas that assumption is not as relevant today as it was in the past.”

Bouris continued, “At the end of the day, interest rate rises are not going to be the thing that is going to slow the economy down. The thing that will slow the economy down, I think, will be inflation, the cost of living, and adding to that cost of living by increasing interest rates doesn’t help anybody.”

So where are house prices headed going into 2023?

Many are making predictions that interest rates will continue to rise heading into the new year, meaning it is possible that house prices will continue to drop. Bouris was not expecting this only a few months ago:

“The way things are happening at the moment, I didn’t expect this two months ago when the rate rises started. But the way the rate rises are going (ie, four consecutive increases) I see house prices and the market across the board down 20%.” 

“I know that sounds like a big call, but if I forecast through to June next year, and if things keep going the way they’re going, I see rate rises creating a real deficit in the amount of equity that people hold in their homes and that’s a problem.”

However, Bouris is optimistic: “Instinctively I think that just can’t happen,” he said.

“I just can’t see the Reserve Bank allowing themselves to do that. If I pick up the Daily Telegraph today, they’re calling for the Reserve Bank Governor to resign. So I would imagine that pressure will start to seep down through the Reserve Bank, and maybe they may start to be a little bit more moderate in the way that they’re hitting us up with these rate rises. But if they don’t, I’d see a big problem arising.”

Tune into Mark’s appearance on Sky News by clicking the video above. 

If you’re concerned about your mortgage repayments or you’re concerned about entering the property market in the current environment, now is the time to engage a YBR Home Loans mortgage broker. 

Our home loan experts can assess your options and shop around for the best deal possible to meet your circumstances. With a little bit of preparation, you can weather any rate rise storm.

If you have any questions, reach out to our home loan experts today!

Learn how much you can save through refinancing.

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