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Experts Predict Further Housing Downturn Due to Home Loan Rate Hikes

By September 17, 2018 Blog No Comments

According to CoreLogic’ analyst Cameron Kusher, the latest rash of out-of-cycle interest rate hikes being imposed on owner-occupier homes loans could further reduce the demand for property and bring down the value of property prices.

His comments came after interest rate hikes on owner-occupier home loans by 15-16 basis points were announced by Commonwealth Bank CBA and ANZ. Mr. Kusher says it will not only affect residential owners, but also investors. Additionally, these issues are apt to drive large-scale regulations and tougher credit restrictions.

Westpac also increased their rates by 14 basis points due to what they call a “sustained rise in wholesale funding costs.”

It seems these major banks gave in to funding pressures after several months of altered pricing from smaller lenders, with NAB the only one of the big four banks to forgo the same rate hikes.

Mr. Kusher commented, “From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one.  After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn.”

He continued, “Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of 5.6 per cent from the peak in Sydney and 3.5 per cent from their peak Melbourne. This has occurred so far without higher interest rates or owner-occupiers paying off principal and interest; however, that is about to change.”

The timing seems to be interesting, according to Cameron, since it comes at the same time of the “spring selling season”. Usually lenders reduce their rates in the spring to boost borrower interest, but the rise in expenses have left them no other choice but to increase their interest rates as well.

The higher mortgage rates have been slowly driving away investors over the past year. Though the significant mortgage rate interest increases that have been announced are relatively small, the likelihood that higher mortgage rates will affect the housing market sentiment.

The decline of the housing markets of Melbourne, Sydney, Perth, and Darwin may be amplified.

“Overall this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further,” said Cameron Kusher.

Lenders are doing what they can to maintain profitability in the face of the lower mortgage volumes.