The chances of crash in house prices just jumped on bank rate hikes

Increasing risk of house prices crash
The chance of house prices crashing in the next 12 months has increased dramatically as the Reserve Bank of Australia raises interest rates aggressively, experts say.

"I think it's fair to say the risk of a house price crash over the next 12 months has been heightened significantly by the big jump in interest rates," said Mark Bainey, Sydney-based developer and chief executive of Capio Property Group.

Many buyers will not have the capacity to purchase anymore as the cost of mortgage rises, and it might put pressure on existing homeowners who may be forced to sell as repayments increase.

The RBA lifted the official cash rate by 50 basis points to 1.35% on Tuesday, the highest since May 2019.

$CommBank (CBA.AU)$, $ANZ Group Holdings Ltd (ANZ.AU)$ and $Macquarie Group Ltd (MQG.AU)$ then followed closely to pass on the full 50 basis points to home loan customers on Wednesday.

When lenders pass on the 0.5 percentage point rate increase, the average home owner with a $500,000 mortgage over 25 years will be slugged with a monthly repayment increase of $142 for a total of $363 if the May and June rate rises were taken into account.

Weakening buyers capacity to pay
Household are likely to be more sensitive to the cost of debt due to levels of indebtedness, and the impact of high inflation will also have an impact on household balance sheet.

"Buyers' capacity to pay is dwindling rapidly, at the same time confidence is collapsing as a result of higher interest rates talk," AMP Capital chief economist Shane Oliver said.

"At the moment, it's still hard to see when rates will be cut. We're still facing many rate rises because of inflation, so it's going to be a painful 12 months ahead." Dr Oliver said.

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