The slump in Australian housing after the pandemic is expected to get worse next year. This is because hundreds of billions of dollars of mortgage debt fixed at record low rates in 2020 and 2021 will come due, forcing borrowers to refinance at very high rates.
Here are some facts about Australia’s indebted households, the strength of which is important to the Reserve Bank of Australia’s main scenario that the economy will have a soft landing next year.
Related: Australia’s stock market is up at the end of the day; the S&P/ASX 200 is up 0.96.
One of those with the most debt
Data from the International Monetary Fund showed that Australia’s households are the second most in debt in the world, after Switzerland. Their total debt was 119% of their gross domestic product (GDP) last year, which was second only to Switzerland.
According to the OECD, household debt has grown a lot in the past few decades. In 2021, it will be 211% of the net disposable income, which is the fifth highest in the world. In 1995, when OECD data collection started, the ratio was 96.5%.
The cost of living is at its worst ever. According to ANZ and CoreLogic, the national median home value was about 8.5 times the median annual household income in the first quarter of this year. This was a record high.
BOOM COVID
After a drop at the start of the COVID-19 pandemic, housing prices in Australia went up 24.6% between the end of March 2020 and the end of February 2022. This was because hundreds of thousands of people took advantage of the low interest rates to buy homes in one of the most expensive markets in the world.
When their fixed-rate loans end next year, the interest rates will go up from 2% to 4% to 5% to 6%. At the peak of the market last year, more than 40% of the borrowers took out fixed-rate loans. Before COVID, that number was only 15%.
RateCity, a website that compares mortgages, says that Australia’s big four banks (CBA, NAB, Westpac, and ANZ) have more than $270 billion in fixed-rate loans that will expire next year. The majority of people will pay off their fixed-rate loans around the middle of next year.
One-third of fixed-rate loans won’t be paid off until 2024 or later.
REPAYMENTS JUMP
In its October review of financial stability, the RBA said that almost 60% of people with fixed-rate loans could see their minimum payments go up by at least 40%.
The RBA says that monthly payments for people with fixed-rate loans that are due to end by the end of 2023 would go up by a median of about $650, or about 45%.
This is based on the idea that interest rates will go up by a total of 350 basis points to 3.6% by the end of 2023, which is mostly what the market expects to happen.
Related: A Tech Council report says that digital assets could add $40 billion a year to Australia’s GDP.
RateCity estimates that a homeowner with a home loan of A$500,000, A$750,000, A$900,000, or A$1,100,000 is now paying A$834, A$1,251, A$1,501, or A$1,834 more than before the first rate hike.
