Economists, market collude to decimate Australian house prices

The delusional futures market continues to forecast apocalyptic rises in Australian interest rates.

As shown in the next chart, the market believes that the Official Cash Rate (OCR) will hit 2.75% by December and peak around 3.6% by June 2023:

Market forecast for Australian interest rates

Steepest rate rise in Australia’s history.

Australia’s economists have also become increasingly hawkish, ramping up their OCR projections:

Capital Economics is forecasting a 25 basis point rise next week, followed by 40 basis points in August, and a rate of 3 per cent by early-2023.

ANZ is one of two big-four banks tipping a 40 basis point increase next week, and is forecasting a cash rate path to about 2.5 per cent by mid-2023, before further rises to above 3 per cent after an assessment by the RBA…

Nomura Australia senior economist Andrew Ticehurst said he was “definitely” in the camp that believed the RBA would need to act faster…

Peter Tulip, chief economist at the Centre for Independent Studies… said the RBA should raise rates “aggressively”…

Last month, freelance journalist Tarric Brooker showed that mortgage interest payments would experience their biggest ever rise if the economists’ let alone the market’s OCR projection came to fruition.

Brooker’s analysis was based on the following OCR forecasts:

  • CBA: Cash rate to peak at 1.6%
  • Westpac: Cash rate to peak at 2.25%
  • NAB: Cash rate to peak at 2.6%
  • ANZ: Cash rate to peak at 3%
  • Futures Market: Cash rate to peak at 3.56%

Every interest rate forecast other than the CBA’s would see Australian mortgage interest repayments rise by more than they did in 2002-2008, which currently holds the record for the steepest rise in repayments:

Forecast increases in mortgage interest repayments

Most economists and the market forecast a record rise in mortgage interest repayments.

The CBA’s interest rate forecast is the only one grounded in reality. Australians are so indebted that households will struggle to cope with even a 1.6% rise in mortgage rates, let alone the magnitude of hikes projected by the other economists and the market.

The interest rate projections put forward by the median economist and market risk a full blown house price crash, a severe contraction in household consumption spending, and an unnecessary recession for the Australian economy. Are they mad?

Unconventional Economist
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Comments

  1. not to worry, your old employer (the squid variety) thinks rate hikes are manageable because net debt as a percent of income has fallen (nothing like a stock vs flow argument, where the flow is variable as is the value of the collateral, it’s like the gfc never happened for these clows), punters are almost 2yrs ahead of repayment schedules (this one i do believe, but the recent buyer isn’t), mp(lol) for the last 6 years (yes, they seriously said this) and implied rise of debt servicing is manageable (a tautology if i have ever seen one).

    • would that, by chance, be the same squid that in 2007/8 sold short CDS and CDN products which another division was creating and hawking as triple AAA rated securities lol lol

  2. So if they don’t increase capital will flee overseas and the poo will drop?
    Funny everyone was happy with a decade of the lowest rates in Australian history. Not a peep but raise them and they all scream blue murder.

    • Jumping jack flash

      This is one reason why when they move rates down, everyone moves together, and the same as when they move up. There’s just too much pressure to conform.

  3. Surely, the lenders just extends the terminal end date to make whatever Cash rate eventuates ‘affordable’ at any roll-over time?
    50-year mortgages accommodate a lot of principal ‘forgiveness’ at the expense of higher interest costs.
    50 years not long enough? Make it ‘whatever it takes’ (Japan had 100 years mortgages if I recall). Make them perpetual if necessary. “Interest Only” in everything but name.

    • That requires a refinancing event that triggers a new loan assessment criteria in the new rates.
      Basel 3 put a pin in a few of these financial workarounds.

    • JuliusSeizure

      Oh they’ll definitely workshop it, though I suspect filial piety and its analogues were unique cultural factors that allowed Japan to push through with multi-generational loans.

      Also, the clouds of real estate cynicism are already rolling in and the sudden necessity for 50-year mortgages would have a real stench of desperation!

  4. The interest rate projections put forward by the median economist and market risk a full blown house price crash, a severe contraction in household consumption spending, and an unnecessary recession for the Australian economy. Are they mad?

    …or cunning?

    The long term trend average price for an average house is 4 times wages… always has been, always will be. You can have cyclical trends pull it away, even to extremes… but this is it… 4 times.

    But, when you’re a cunning globalist, how to do extract wealth out of a house, from the worker ???

    You make the punter pay 12 times wages for it… LULZOLLZLZ !!!

    The point of wealth extraction is the point you sign the loan. What the punter is obliged to do then is pay week after week, month after month, of P&I payments. It doesn’t matter what the underlying price is, the repayments of the loan is what matters. The price of the house is immaterial then.

    Much like if I sold you an Hyundai i30 for $135,000… doesnt matter if it’s ‘worth ‘ $22,000 once you drive it out of the drive way…. it’s the $135,000 over time from you to me which matters.

    Housing loans… well 2% for the well educated mortgage broker.. 98% for me… that’s how globalists finance works…..

    LOLULLZZLOLZ #!#!

  5. I’m guessing you recognize the name “Peter Tulip” and know what his old job was.
    Admittedly he is now in private industry and needs to sell his opinion but still ….

    Brave call to suggest Peter is clueless wrt the real world working of the RBA or for that matter the Australian Housing market.
    From memory he’s a Phd Student of Jesus Fernandez-Villaverde, enough said, we all know what kind of economic model he is running.

  6. DingwallMEMBER

    This merry-go-round journey needs to end. If the powers to be hadn’t pushed us into this high house prices/low wages garbage, we would not be anywhere near as worried about increasing interest rates. We built the house of cards, it needs to fall down.

    • It is why you need crashes….. everyone on the way has clipped too big a ticket, you cannot get consent for all of them to take a voluntary reduction in their clip.

      A crashes forces the final outcome, regardless of consent.

    • Jumping jack flash

      This is why you need to ignore inflation and just let wages rip. It allows more debt to be created without needing to lower interest rates every 10 months or whatever they were doing. There’s nothing to worry about, we’ve been doing it for decades.

      Pretty sure everyone used to work for like $20 a week once, and in 1982 I could buy a pie and sauce from the school canteen for 80c.

      80c won’t even buy the sauce these days

  7. The Travelling PhantomMEMBER

    Well done on the economists and the market to collude for such a wonderful event

  8. Not sure why recessions are feared so much, avoiding them at all cost is how we got this housing bubble mess.

  9. JoeJackMEMBER

    “The interest rate projections put forward by the median economist and market risk a full blown house price crash, a severe contraction in household consumption spending, and an unnecessary recession for the Australian economy. Are they mad?“

    I thought that pretty much everyone in a position of power in the country are mad.

    That’s the primary reason we are in such as mess.

  10. So how did we get to the position that interest rates are so low that a 1.6% rise is catastrophic? This makes no sense. I want to know how we got to this point & why we let it be such a disaster that a 1.6% rise would be really bad. To me something very bad has happened “way back in time” (.. Flawse..). If we don’t get on top of what happened & why & who allowed it we will never be able to fix this. There seems to me to be so many who have done so much to make this a disaster.

  11. As a side note – Canada just raised its official rate .5% to 1.5% and has officially stated that the:

    ‘Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target.’

    Canada is also highly leveraged into housing and experienced a widespread boom during the pandemic. Granted inflation is higher in Canada than Australia currently (6.7%), but from what I can tell the RBA/BOC mandates are similar regarding inflation.

  12. – No, they are not “bonkers”. They are simply “Data Driven” like one J. Powell & P. Lowe. They follow what a force called Mr. Market dictates. I actually expect that rates will come down again. But this will be sign of a weakening economy. In both cases we will see that there will be growing gap between incomes and expenses for households.
    – Pass me the popcorn …………………………

  13. – Keep in mind the rates at the long end of this chart already have come down in comparison with the chart one month ago.

  14. – And rising rates is the result of workers being able to “negotiate” better wages. This is the price we pay for better working / payment conditions. Take it or leave it …………………………

  15. “an unnecessary recession for the Australian economy.”
    Why is a recession unnecessary? If the RBA actually allowed us to go into recession earlier we wouldn’t be in such a mess now.

  16. Goldstandard1MEMBER

    I really don’t get this argument that the symptom of bad policy (high housing values vs income) are the reason the disease should not be fixed (lower risk and allow cash rate to be 3.5%+. Crash kind of has to happen or it gets worse. This time is probably it-too many strong forces at play this time.