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Australia

RBA set for fourth rate hike this year; experts warn further rises could 'devastate' property market

Borrowing costs to rise but housing affordability may not improve

By LineZotpaper
Published
Read Time1 min
Sources3 outlets
The Reserve Bank of Australia is widely expected on Tuesday to raise its cash rate to 4.6 per cent, the fourth increase this year. Economists warn that while higher interest rates are intended to cool inflation, two or three additional hikes would devastate the property market without making housing more affordable.

The RBA's monetary policy board is predicted to lift the cash rate from 4.35 per cent to 4.6 per cent, its highest level since 2011, adding roughly $100 to monthly mortgage interest on a $700,000 loan. This would mark the fourth rate rise this year.

Experts caution that further increases, a fifth or even sixth, would be overkill. Two or three more hikes, they say, could be "devastating" for the property market. However, even with lower prices driven by higher borrowing costs, housing affordability would not improve; higher mortgage repayments would outweigh any price reductions.

The article by Guardian Australia economics editor Patrick Commins notes the conundrum facing the RBA: the need to contain inflation versus the risk of tipping the housing sector into a downturn that still fails to address the root causes of unaffordability.

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Analysis

Why This Matters

  • Mortgage holders face higher monthly repayments, with a $700,000 loan costing an extra $100 per month after the latest rise.
  • Two or three more hikes could trigger a property market downturn, affecting homeowners, investors, and the construction sector.
  • The policy trade-off highlights the limits of monetary policy: higher rates may reduce house prices but also raise borrowing costs, keeping housing unaffordable.

Background

The RBA has been raising interest rates in recent years to combat inflation. The board meets regularly to assess economic conditions, balancing growth against price stability. Housing affordability has been a persistent political issue in Australia, driven by supply constraints and demand.

Key Perspectives

Homeowners with mortgages: Face immediate higher repayments; repeated hikes could lead to financial stress and defaults. Prospective home buyers: May see lower property prices but higher borrowing costs, making entry no easier. RBA: Aims to bring inflation within target; further hikes may be necessary if inflation remains stubborn. Housing affordability advocates: Argue that interest rate policy alone cannot solve supply-side problems.

What to Watch

  • Tuesday's RBA announcement: the size of the hike and accompanying commentary on future moves.
  • Inflation data in coming months, which will guide the RBA's path.
  • Housing market indicators: auction clearance rates, price indexes, and mortgage stress data.

Sources

Zotpaper

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