Government Services Minister Bill Shorten said he would not describe the current situation where households are struggling to repay mortgages under high-interest rates and inflation as a “household catastrophe.”
“I wouldn’t use such language to be honest,” he told ABC radio on April 13.
But he acknowledged that there was “no question” families were struggling to fork up thousands of extra dollars for their mortgage.
“[The government is] trying to help with inflation. So we’re trying to do budget repair. We’re trying to look at the blockages in the economy. We’re trying to do relief in terms of cost of living,” he said.
“We’re doing what we can tackling inflation, but there’s no doubt that families are doing it very hard with mortgage increases.”
It comes after the chief economist at Commonwealth Bank, Stephen Halmarick, said high-interest rates and inflation, compounded with higher levels of tax, have led to a collapse in real household incomes.
He believes that the economy will be hit so hard that the Reserve Bank of Australia (RBA) may need to begin cutting interest rates by the end of the year.
“This will only get worse through 2023 on the lagged effect of higher interest costs and as wages growth struggles to keep up with the pace of inflation.”
He forecasts that the unemployment rate will lift much faster than the RBA’s expectation of three percent by mid-2025 and reach 4.5 percent.
RBA Takes Extreme Caution
In its latest monetary policy decision, the RBA decided to pause moving interest rates after 10 consecutive hikes.The board said it recognised the lag effect of the monetary tightening policy and the fact that the full impact of the significant increase in interest rates since May 2022 had not flowed into the economy.
It offers temporary but much-needed relief for many Australian homeowners whose mortgage payments have skyrocketed since last year.
Finder’s research revealed that 36 percent of Australians were struggling with their home loan in March, up from 24 percent in May 2022 when the RBA first lifted the interest rate.
Data from the Australian Bureau of Statistics show that the number of homeowners with mortgages jumped from 32 percent in 2018 to 37 percent in 2020, meaning rising rates are impacting more households than before.
The same data figures show that 31 percent of Australians rent, and 30 percent own a home without a mortgage.
So Far, So Good
Meanwhile, property researcher CoreLogic said that its data showed little indication of an increase in distressed sales, suggesting that Australians have dealt well with rising mortgage rates so far.Head of residential research Australia, Eliza Owen, noted that according to the RBA, Australian housing debt represented around 145 percent of the country’s total disposable household income.
“Debt levels are undoubtedly high, so it is important that Australian unemployment remains contained to support mortgage serviceability,” she said.
The value of properties has also remained buoyed by migration and supply issues, despite expectations of a market crash due to the aggressive monetary tightening cycle.
In fact, the national average value of an Australian home increased during March, the first time in almost a year.
“While it may still be too early to call the bottom of the market, the steep price falls to date have seen limited increases in home loan defaults or forced sales,” Owen said.
“For now, there is room for cautious optimism about the Australian housing market. Many households have accrued strong savings buffers through the low-interest rate period, and labour markets remain extremely tight.”
