Property shock as fixed rate mortgages skyrocket

You can thank the RBA for this little snafu:

National Australia Bank has jacked up its fixed home loan rates for the second time in two weeks as lenders look to entice borrowers to variable offerings as wholesale funding costs march higher.

Australia’s second-largest lender on Thursday hiked its fixed home loan rates by up to 0.51 per cent, according to RateCity. It follows similar moves by peers Westpac and CBA earlier this month.

NAB increased its three-year fixed term rate by as much as 51 basis points, bringing it to 2.79 per cent.

The property price boom was driven in some significant measure by these rates:

Damien Roylance, mortgage broker and MD at Entourage Finance, told Australian Broker that he had been seeing 9 out of 10 customers choose a fixed rate in recent weeks.

“We’re having the conversation with every single customer at the moment,” he told Australian Broker. “The rates are just too attractive.”

“Owner occupier rates starting with a 1 in front is something that we’ve never seen before, and most people don’t think that a variable rate can go below what’s on offer.”

House prices are going to slow fast on this. The equivalent of four rate hikes in a month is pretty extraordinary stuff.

The RBA has allowed a market inflation panic to overwhelm its forward guidance for Australians that rates would be anchored until 2024.

They have every right to be angry at it.

Houses and Holes
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  1. Can the RBA be taken to court for misleading the public with their forward guidance nonsense?I am happy to make a contribution if someone like MB can take the lead

  2. Goldstandard1MEMBER

    Just remember, this is more powerful that the acual increase/number. It’s signalling that interest rates are and will continue to go up. This decreases FOMO. FOMO is very powerful with this market, along with rates themselves and gov policy as we know. Bnich and the group saying the turn will be on by Christmas will be correct. Once the election is over, then the big falls come. The world and Australia is primed for it. Yes I know it’s all been said before but we all agree it had to happen sometime and the question is when? Suggest it’s ON like DONKEY KONG. I am more interested in how long it will take to wipe out the 20% (14% in Melb) gained in the last 12 months. I’m calling 10 months but we won’t see it until 2023 because all the data is delayed.

    A waterfall begins with a drop of water, this probably is that drop.

  3. Dumb question, what happens to inflation if AUD tanks to say 40c as I read on these pages this morning?

    • The Travelling PhantomMEMBER

      Not dumb at all, I’ve been asking those fundamental questions too
      👉What’s the effect of Evergrande collapse on Oz?
      👉When we’ll see the effect of inflation or deflation (as lots argue each way)
      👉iron ore price goes to zero, so what? When we’ll see an effect?
      Add to it how MB post highest record of job ads then high unemployment..and few other of those confusing posts

      • I suspect longer term you can add more onerous terms of trade conditions put on Australia due to our tardy and lacklustre climate policy. It will get progressively more difficult to get overseas finance or sell products that are perceived as ‘high carbon’. It seems everyone but the Government are preparing for this. Many companies I work with already budget for a carbon tax of $30/t in their internal finances, along with actively decarbonising their operations.

        • Which makes Scotty’s recent imbroglio with the French midget even more the act of un imbécile qui venait livrer un pamphlet du village.

      • Aussie dollar hammered, I’m guessing these are more for those who see some impact to this FX changes on a daily basis, for me, everything is longer time frames, so saying crash in these articles doesn’t mean much to me…stocks are in a bubble, timing the exit though, has to happen between now and first half 22 for me

      • Low iron/coal price makes Aud drop.
        RBA stops suppressing bond yields so that foreigners buy gov bonds and stop the Aud falling.
        Yields are the periodic profit on bonds, and bond interest rates sets bank loan rates, because bank loans are packaged as bonds and sold on the bond market.
        So all this flows through to monthly home loan repayments.
        Double the loan interest payments, and house prices have to halve for the same affordability.

    • It’s a good question John. I suppose it’ll depend on the percentage of those imported goods that make up the CPI basket but surely would push it up.

    • If the AUD tanks, then it will be due to economic and financial problems, which are deflationary.

      Hence, you will have a tug between inflation due to AUD falling, and demand declining significantly due to economic issues. Also, keep in mind that high-ish inflation has its own decelerating effect, as it crimps demand.

      People will also start sourcing more locally, which will also crimp imported inflation due to the AUD.

      As to whether there will be NET inflation (which is what matters), that is a something that would have to be considered as the sum of the two forces.

      There will not, therefore, be inflation just because the AUD falls, not even if it goes to 40 cents USD.

    • Camden HavenMEMBER

      Industry will be brought back onshore an will be protected. Higher prices is not inflation. Higher prices and ever higher costs leading to ever higher prices.

      Its a job killer, so there will be a natural equilibrium

    • I think what your referring to is Purchasing Power Parity.
      This is the relationship of the costs of goods between countries and its effects on their currencies and visa-versa.
      As Australia’s currency falls it makes products in Australia cheaper relative to other countries. This increase demand of products and services and increase the price and increase demand for AUD causing it to appreciate.

      However what we are experiencing now is unique and in many ways in new territory.
      I will try to summarise below:

      The RBA is worried about the interest rate differential (IRD) particular between Australian and the US.
      The US looks to tighter much faster and harder than anticipated and much more than Australia.
      This is why the RBA stopped yield curve control without warning.
      Australia does not want to raise rates yet but is increasingly under pressure from the US.
      Australia is not ready yet for a tightening cycle and can cause the economy to slow before it even get flying off the ground.
      A widening IRD, even if both rates in both countries are rising will cause less investment in Australia and depreciated the AUD.
      Now the AUD has so far been supported by Australia terms of trade and still very decent commodity price.
      If the IRD widens (which it is and will more) and commodity price fall with TOT decreasing (which it looks like it might) the AUD can head down pretty fast while the RBA raises rates. strange times.

      • Thanks. I remember discussion about the IRD here some years back (“Australia will always have higher interest rates”) but haven’t seen it invoked this time around.

  4. Are they not dropping variable rates by the same amount..???
    Still going to lend the same $$$$ but forcing the borrower to take more future interest rate risk.

    • boomengineeringMEMBER

      Variable rates are there to rope suckers in that will be paying more either as rates rise or when end of term expires to become fixed or roll over at the inevitable higher future rate. The banks can subsidize the variable rate to a small degree and count it as like an advertising expense.

  5. Should be a good test for property values over the next few months, this is an aggressive adjustment to fix rates, let’s see how much it slows the FOMO. though probably not the best time to get a clear signal (slow xmas volumes + impact of border openings?)

      • Aggressive in terms of context and speed. ‘Rates not rising for 3 years’ to almost 3 rises off a very low
        base in as many weeks is just a tad aggressive no?

  6. Big 4 2 year fixed
    MAR 2019 – 3.76%
    MAR 2021 – 1.97%
    NOV 2021 – 2.34%

    And the 1-5 year spread is 0.87%
    Still awesome rates and the tight spread and the small rises shows that the banks are not to keen on raising them now or anytime in the next few years.

    Interesting that ANZ have a 10 year at 7.69%. What is ANZ smoking?

  7. The crunch is already on. Went to an open inspection of a very saleable deceased estate in Sydney’s inner west yesterday and not one other prospective buyer turned up. This would have been unthinkable just weeks ago. The agent talked of a “soft” landing. Watch this space!

    • Interesting. Reminds me of a friend (builder) who went bust in the late 80s after being worth north of $30m. All he says is it literally stopped overnight. One day he could easily sell his townhouses, units, factories and shops. The next day there weren’t any buyers.

  8. Hugh PavletichMEMBER

    New Zealand housing supply: Surplus on horizon …

    … Building out of the bubble … fast …

    House prices, sales rise in spring resurgence … Miriam Bell … Stuff NZ

    Paulson (Pavletich) comments on thread …

    Check Stats NZ latest building consents for the months of August and September … annualize them … and note that the consent rate per 1000 residents per annum (standard industry measure internationally) is now a whopping 10.4 … with Selwyn County a stratospheric 27.7, near a world record.

    Residential consents ramped up about 24% over the past 12 months. (access … Building consents issued: September 2021 … Statistics NZ )

    On a population comparison basis, it is likely New Zealand is currently the world leader at residential consenting … with Aust about 80% of our figure, Canada 60%, USA 46% and the Brits about 25% of us.

    It won’t be long before we exceed New Zealand’s national record during the time of the Kirk Labour government of 13.4 (December 1973 year) when the bubble popped and in inflation adjusted terms prices came back then about 40%. (access … Rise in new homes consented per 1,000 residents … Statistics New Zealand )

    We have a much bigger inflation mess to sort out now. … read further comments on thread via hyperlink above …

    ASB economists say Auckland’s housing shortfall will drop to ‘zero’ by late next year … David Hargreaves … Interest Co NZ

    … In case you missed it … an outstanding broad overview by independent economist Tony Alexander …

    NZ home loan rates going to continue to grow – economist … TVOne / TVNZ

  9. Im hopeful but not banking on reality returning to house prices. Our policy makers are in it the up their ears and have lots of tools at their disposal to keep the circus going. The main game is to transfer wealth and decimate savings and create a new serf class.