Tuesday will see a huge 75 basis point increase in interest rates for borrowers as inflation soars at the greatest rate in twenty years, according to two financial firms.
The Reserve Bank is expected to raise the cash rate tomorrow, from a three-year high of 1.35 percent to a seven-year high of 2.1 percent, according to Deutsche Bank and Compare the Market.
The big banks, on the other hand, forecast a less significant rate increase of 50 basis points, which would raise the cash rate to a six-year high of 1.85 percent.
For a borrower with an average loan of $600,000, a rate increase of 75 basis points, or 0.75 percentage points, would result in an increase in monthly payments of $256.
Also, since December 1994, this would mark the largest monthly rate increase.
The impact of higher interest rates on property values has been most severe so far in Sydney’s affluent and inner-city suburbs, where median house prices have fallen by double digits since peaking in late 2017 and early 2018.
Borrowers in May, June, and July have already experienced 1.25 percent rate increases, which is the highest increase since 1994.
The real estate market peaked around the beginning of 2022 due to speculation of rising interest rates, with wealthier suburbs being more adversely affected.
According to CoreLogic data, the median home price in Sydney’s inner south, which includes gentrified Redfern and Newtown, has fallen by 14.5% since peaking in October 2021.
The mid-point price dropped by 3.8% in just July to $1,773,641, representing a 7.8% quarterly fall.
The median house price in this affluent area of Sydney, which stretches from the city to Botany Bay, is $2,023,097.
With a 10% dip from the January 2022 peak, Sydney’s northern beaches have likewise experienced a double-digit decline in less than a year.
In this region, which stretches from Manly on Sydney Harbour to Palm Beach, the median home price dropped by 2.5% in July to $2,499,569 for a quarterly decrease of 7.8%.
The average price of a home in the top quarter is $3,071,743.
It was not the only coastal region to experience a sharp decline; Sutherland values have fallen by 8.5% since reaching a peak in January 2022.
Homes in this area of southern Sydney, which includes Cronulla and Miranda, decreased by 3% in July to $1,606,651 for a decline of 6.3% on a quarterly basis.
Since reaching its peak in October 2021, inner Melbourne, which includes St. Kilda and Brunswick, has experienced an 8.2% decline.
In July, the median home price dropped by 1.6% to $1,556,270, and over the previous three months, it dropped by 4.5%.
According to Tim Lawless, research director at CoreLogic, Sydney and Melbourne were more likely to experience property price declines of more than 15% and even up to 20%, potentially making this recession worse than the one that began in the early 1980s.
He told Daily Mail Australia that “the rate of decline is clearly accelerating.”
There is a good chance that the rate of decline will outpace the trajectory of previous downturns, and we will likely see housing values fall by a larger amount than the peak to trough declines recorded since the early 1980s, according to the expected interest rate trajectory.
Sydney real estate prices have decreased by more than 5% since their peak in January 2022, but in upscale areas, the decline is more than twice that amount.
More rate hikes, according to Mr. Lawless, would make the current recession worse.
It most likely will, he assured me.
The rest of this year and possibly into the following year will see significant increases in interest rates before they stabilise.
“Higher interest rates are a downside risk for housing markets, which explains why forecasts for where housing prices may end up are quite pessimistic.”
All banks anticipate the Reserve Bank to raise interest rates by an additional 50 basis points in September, which would mark the fourth straight 0.5 percentage point increase since May.
While Westpac predicts that the tightening cycle will reach its peak in February, ANZ expects the cash rate to peak at 3.35 percent in November.
By November, the cash rate is expected to be 2.6% according to the Commonwealth Bank, while NAB expects it to be 2.85%.