THIS week's cash rate rise was broadly expected by experts, but the trajectory of interest rates over the coming months remains highly uncertain and is tied to the outlook for inflation, which in itself is shrouded in uncertainty, according to CoreLogic research director Tim Lawless.
The Reserve Bank of Australia (RBA) lifted the cash rate a further 25 basis points, to 3.35pc, at its February board meeting, continuing what is the fastest and largest rate hiking cycle on record.
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The rise was partly in reaction to the latest core inflation reading, which was higher than forecast.
Mainstream forecasts for the cash rate reflect the uncertainty around inflation outcomes, ranging from the RBA holding the cash rate at 3.35 per cent, through to another 75 basis points of hikes.
However, a recent survey from Bloomberg puts the median forecast at 3.6pc, implying one more hike of 25 basis points is in the wings.
Mr Lawless said the latest rate hike take recent borrowers outside of their serviceability assessments at the time of origination.
"Since October 2021, lenders have assessed new borrowers on their ability to service a mortgage under an interest rate scenario that is at least 300 basis points above their origination rate," Mr Lawless said.
"The latest lift in the cash rate will push these recent borrowers beyond their serviceability tests."
It is likely some rising mortgage stress will start to emerge in 2023 under such substantially higher interest rate settings, however a rise in mortgage arrears is unlikely unless the labour markets loosen.
The unemployment rate sits at 3.5pc and forecasts from the RBA and Treasury, as well as the private sector, have the unemployment rate holding well below the decade average of 5.5pc.
CoreLogic believes the latest increase in the cash rate adds about $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, on the same loan amounts, repayments have increased by about $821/month and $1232/month respectively," Mr Lawless said.
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"For the housing sector, higher interest rates represent a further downside risk to purchasing activity and values, although it's reasonable to assume most Australians had already 'priced in' today's rate hike."
Mr Lawless said it's unlikely housing values will start to appreciate until either interest rates come down or another form of stimulus becomes apparent, such as an easing in credit policy or demand-side incentives.
Since last April, CoreLogic's national Home Value Index has dropped by -8.9pc - the largest and fastest decline on record, which followed one of the fastest and most significant upswings on record.
Home transactions have also trended lower, with estimates to the end of January putting the annual number of sales down -19.1pc relative to the same period a year ago, but holding 4.6pc above the previous five-year average.
