Using the Australian Bureau of Statistics established house price index since March 2002 and combining that with the variable mortgage rate at the time, we have created a time series that tracks home loan payments over time. For reference, to calculate the payment, we use the cash rate plus 2%, and a 30-year principal and interest structure.
Since March 2002 to present, home prices have increased by about 250%. Using the variables above, the monthly home loan payment has only increased by about 125%. This has occurred because as prices have risen, interest rates have fallen.
The current wholesale interest rate futures market is pricing rates to move from 0.10% to 2.36% by June 2023. If home prices do not rise between now and next year, again, using the variables above, mortgage payments are still set to rise by 22% solely due to rate increases.
Whilst nobody can predict the actual movement of interest rates, it could be more or it could be less, the current prediction should certainly give the housing market pause for thought.
