In its latest assessment of the Australian economy, the International Monetary Fund (IMF) noted that a housing boom has led to “housing market imbalances and household vulnerabilities”.
In a table of economic indicators, the IMF predicts the Reserve Bank cash rate to rise to 2 per cent next year before continuing to climb to 3.5 per cent in 2023.
Meanwhile, mortgage rates are predicted to hit 7.1 per cent in 2022.
“That would be crazy,” AMP Capital chief economist Shane Oliver told Mortgage Business.
“A 2 per cent rise in mortgage rates would take interest servicing costs relative to income back to the pre-GFC peak and total servicing costs well above it,” Mr Oliver said.
The economist explained that the pre-GFC peak led to a slump in consumer spending, which was only reversed by massive rate cuts from late 2008.
“Taking the mortgage rate to 7.1 per cent would be akin to a 2.5 to 3 per cent hike in mortgage rates that I suspect would cause significant delinquencies and defaults and knock the economy into recession,” Mr Oliver said.
“I suspect that they have not properly allowed for much higher levels of household debt compared to the last time interest rates rose in 2009–10.”
Mr Oliver said that the only way the IMF’s predictions would be feasible is if Australia entered an economic boom with surging wages growth.
Digital Finance Analytics principal Martin North said that the IMF’s predicted rate rise would “cause some pain” and lift mortgage stress from around 920,000 to 1.24 million households.