Just when you thought Australia’s bond market couldn’t get any crazier on interest rates, on Friday it tipped Australia’s official cash rate (OCR) to peak at 4.15% by mid-2013:
Fancy 4.0% of interest rate hikes in just 12 months?
If the bond market’s forecast came true, it would mean Australia’s OCR would rise by around 4.0% in just one year – easily the fastest increase in history.
It would also lift Australia’s average discount variable mortgage rate to 7.50% by June 2023 – well over double the 3.45% that presided immediately before the RBA’s first interest rate hike in April 2022:
Bond market tips highest mortgage rate since October 2008.
That would be the highest discount variable mortgage rate since October 2008 and comes at a time when Australia’s household and mortgage debt loads have never been higher:
Australia’s household and mortgage debt have never been higher.
The impact on mortgage holders from the bond market’s OCR forecast is shown in the below table. A household with an average discount variable mortgage would see their mortgage repayments rise by 57% from their April 2022 pre-tightening level:
Australian mortgage repayments would soar by 57% under the bond market’s forecast.
For a household with a $500,000 mortgage, this would represent a whopping $1,265 increase in monthly mortgage repayments.
Thousands of Australian households would be forced into severe mortgage stress at the same time as house prices crash.
The Australian economy would also be plunged into a sharp recession given household consumption – the economy’s main growth driver – would contract sharply, since households would have far less disposable income to spend.
For these reasons, we should all hope the bond market is wrong and the RBA does not lift rates nearly as aggressively.
Otherwise, households and the economy face interest rate Armageddon.
