House prices to ‘reverse’ in six months

Modelling by the ANU’s Centre for Social Research and Methods shows homeowners will, on average, stump up a quarter of their take-home pay towards their repayments — with another rate increase meaning they will be paying 50 per cent more than before the pandemic.ANU associate professor Ben Phillips told news.com.au that while mortgage holders are coming off “a few years of very low interest rates, mortgage costs as a share of income are at their highest since 1984”.“There has been a very sharp increase in the last two years, obviously related to sharp increases in interest rates, but also higher average debt levels,” he said.The modelling is based on a “conservative estimate” that there will only be one more 25 basis point increase of the cash rate by the Reserve Bank by the end of the year.There have been 11 hikes since May with the RBA set to meet this afternoon to discuss further increases.About a third of economists polled by Bloomberg expect a 25 basis-point increase in the cash rate to 4.1 per cent but those at the three of the big four banks predict no change.Prof Phillips said for some households, an increase “will cause significant pain”.Rising house prices could reverse The modelling comes as predictions the sharp increase in house prices is also set to wane.TCorp chief economist Brian Redican told the Financial Review that unless interest rates start falling, property prices could reverse in the next six months.“We haven’t really seen an improvement on those hard-edge fundamentals that support a rebound in house prices this year,” he said.“Wages growth hasn’t picked up materially. In fact, real wages are still falling because they’re not matching the inflation, in terms of the ability to take out a large mortgage.“We’re still seeing the flow-on impacts of the Reserve Bank’s rate hikes. The rate increases, including as recently as May, are still running through the system. So people will be facing higher mortgage rates over the next couple of months, including those who are coming off their fixed rate loans.”His warning comes despite the fact the rebound in housing prices has been accelerating in recent months.National home prices have increased 0.33 per cent in May, bringing the 2023 rise to 1.55 per cent according to PropTrack’s latest house price index.Every capital city except Darwin recorded an increase and prices in all regional markets rose too except for regional NSW and regional Victoria.Mr Redican said the property market is “very much driven by sentiment at the moment” and the belief that the RBA is “near the end of its rate hiking process and a rate cut is imminent”.“Potential sellers aren’t selling because they think prices are too low, so they’re prepared to wait out for prices to rebound,” he said.“But the thing about those kinds of sentiment indicators or animal spirits is that they can turn quite quickly, particularly when we look ahead at those affordability issues, which are likely to get worse rather than better.”-with Eli Green, NCA NewsWire Via news.com.au — Australia’s leading news site https://www.news.com.au