TLDR & TLDL: The Reserve Bank is expected to put up the Official Cash Rate by 25 basis points to 1.0% this afternoon and lift its forecast track for the OCR by another 20-30 basis points to a peak of around 2.9% by the end of next year. It may also say if it plans to accelerate its unloading of $55b of Government bonds, which it bought in 2020 and 2021 with money it invented to lower long term interest rates.
The question now as interest rates rise around the world in response to a post-Covid surge in inflation is: will this puncture the bubble of our housing market, which is the most highly valued in the world relative to incomes and rents and has risen the most in the world since Covid?
In part, we already know the answer because the fixed mortgage rates that most homeowners use have already almost doubled to around 4% in the last six months. Along with a tightening of high LVR lending rules and hiccups in lending decisions because of the CCCFA, house prices have only fallen 2.7% from their peaks in November. See more below the paywall fold and in the podcast above on why borrowers are so well placed to just sit on their hands and wait out the ‘storm’ of higher interest rates.
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