The Reserve Bank of Australia (RBA) has continued its fastest and largest rate hiking cycle, lifting the cash rate by 25 basis points to 3.35% at their February board meeting. The cash rate has risen 325 basis points since moving off record lows in May last year.

The trajectory of interest rates in the coming months is uncertain, tied to the outlook for inflation, which remains shrouded in uncertainty. The latest rise in the cash rate was broadly expected, but the exact path remains unclear. Mainstream forecasts range from the RBA holding the cash rate at 3.35% to another 75 basis points of hikes, with a median forecast of 3.6% implying one more hike of 25 basis points.

The latest rate hike takes recent borrowers outside of their original serviceability assessments, and some evidence of rising mortgage stress could start to emerge in 2023 under the substantially higher interest rate settings. However, a material rise in mortgage arrears is unlikely unless labor markets loosen substantially.

For those with a home loan, the latest increase adds roughly $77 per month in repayments to a $500,000 variable rate owner-occupier mortgage and $116 per month to a $750,000 mortgage. Since the recent low point in April, repayments have increased by approximately $821/month and $1,232/month respectively.

Higher interest rates pose a further downside risk to the housing sector, affecting purchasing activity and values. However, it is unlikely that housing values will appreciate until either interest rates come down or another form of stimulus is apparent, such as an easing in credit policy or demand-side incentives.

If you are considering buying or selling a property, it is important to stay informed of the changing market conditions. Contact me to book in an appraisal and make an informed decision in this ever-changing market.