Australian homebuyers could benefit from higher rates, central bank says

A worker stands on scaffolding at the construction site of a new residential complex in Sydney, Australia on February 20, 2018. Photo taken on February 20, 2018. Photo taken on February 20, 2018. REUTERS/David Gray

SYDNEY, Sep 19 (Reuters) – Australians looking to buy a new home could actually benefit from higher interest rates as they drive home prices down enough that they end up making mortgage payments lower than they could collide otherwise, a senior central banker said on Monday. .

Speaking at a housing conference, Reserve Bank of Australia (RBA) assistant governor Jonathan Kearns said the 225 basis point rate hike already passed could lower prices by at least 15 percent over a two-year period, as well as reduce borrowers’ maximum loan sizes. by about 20 percent.

“It is estimated that the net effect is that mortgage payments for new buyers will be higher for about two years as a result of higher interest rates,” Kearns said.

“But after that, the decline in house prices and the size of the mortgage starts to dominate,” he added. “This suggests that because higher interest rates lower home prices and therefore mortgage sizes, mortgage payments for new borrowers may end up being lower than if interest rates were not increased.”

The central bank has faced harsh criticism for raising rates for five straight months to 2.35%, as rates were forecasted unlikely to rise until 2024 last year.

As a result, the housing market quickly cooled off, with data from real estate consultant CoreLogic showing prices in the country fell 1.6% in July from June.

It was the biggest monthly drop since 1983, and annual price growth has eased to 4.7% from a peak above 21% at the end of last year.

Kearns also noted that about 35 percent of a home loan is fixed-rate debt, and these borrowers will not face an increase in their interest costs and loan payments until that fixed rate expires, likely from next year.

In addition to interest rates, Kearns stressed that many factors influenced housing prices, including rising incomes, migration and construction costs.

“In general, we know that higher interest rates will tend to drive down residential and commercial property prices, but there is significant uncertainty about the scale and even timing,” Kearns said.

Reporting by Wayne Cole; Editing Diane Kraft

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