“If the cash rate moves above 2.5 or 3 per cent range, that would be arguably pushing the economy into a contraction,” he said.
“Chances are it is going to result in a weaker economic performance and loosening in labor markets,” Lawless said. “If that’s the case, you’d have to imagine a larger proportion of home owners would be falling behind on their repayments and having to sell their property in a falling market.”
Credit ratings agency Moody’s expects delinquency rates to increase moderately for the remainder of 2022 because of rising inflation, higher interest rates and worsening housing market conditions.
PRD chief economist Dr Diaswati Mardiasmo said strong demand on a number of fronts was also helping put a floor on property prices.
“There are so many vacant jobs … companies are struggling to find people,” Mardiasmo said. “Our wages’ growth is also on the up. Many people are getting pay rises, and people who have been able to switch jobs and take advantage of the labor with a 10 to 15 per cent salary increase. ”
She said rising interest rates were a factor that could weigh on demand, and with it prices, but households’ strong savings buffers would help safeguard the property market from a deeper downturn.
“The flow of our money that has gone into mortgage offset accounts and principal repayments is at its highest level at the moment over the past five quarters compared to the past 10 years,” Mardiasmo said.
“If the cash rate goes up, it’s more of a rebalancing of where the flow of money goes. You might see a slight change in that more of it goes to interest and a little less in the offset and principals. ”
Mardiasmo said distressed listings would increase and price falls would accelerate if the cash rate exceeded pre-pandemic levels after households borrowed record levels of debt.
“We probably can handle all the way up to 2 or 2.5 [per cent] if you stretch but if you go anywhere above 3 that’s when you would see distressed listings growing. ”
Domain’s chief of research and economics Dr Nicola Powell said the country would need a broad and high unemployment rate to see distressed listings increase and big price falls.
“When you see people being forced to sell, that’s what can really rock property prices,” Powell said.
“It is unlikely for us to see an increase in distressed sales and listings due to the fact that other things in the economy are going against that.
“We have a very low unemployment rate and competitive jobs market and to see a material lift in distressed listings would see a high unemployment rate.”