the fact that delays in the banks’ operational implementation of changes to borrowers’ actual repayments have resulted in only one to two of the Reserve Bank of Australia’s four interest rate rises since May being felt by borrowers. Borrowers are aware that the wolf is at their door, but their cash flows have not yet been significantly disrupted.
The daily home values index from CoreLogic unquestionably supports Joye’s assertion. Despite a 3.8% decline in housing values across the five major capital cities, Sydney’s dropped by 6.7% and Melbourne’s down by 4.2%. It’s astounding how quickly prices are falling. The following graphic shows that the 5-City aggregate level quarterly losses are currently running at 3.5%, which is the fastest rate of fall since 1983. Melbourne’s quarterly values are declining at their quickest rate since February 2019, while Sydney’s quarterly decline (-5.6%) is likewise the steepest since 1983.
Whether the RBA keeps raising rates quickly will determine how severe Australia’s housing slump becomes. Australia is headed for its worst housing market collapse in recent memory if the futures market has its way and the official cash rate is raised to 3.6% by mid-2023 (implying an average discount variable mortgage rate of roughly 7%).
The negative transmission to household consumption, which is by far the main driver of growth, as well as housing development, would also put the Australian economy at risk of a recession. The RBA should be cautious when raising rates for just these reasons.
