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A property expert who warned Australians to prepare for a big rise in interest rates before the Reserve Bank acted has revealed his forecast for 2023, and it’s not pretty.
If Adam Flynn’s predictions come true, it will be more painful for families as the worst inflation in 32 years prompts the Reserve Bank to continue raising interest rates.
By May, monthly mortgage payments are expected to have increased 55 percent in one year, which equates to an additional $1,261 for those with an average loan of $600,000.
The 42-year-old real estate agent, who was kicked out of school at 16 before becoming a self-made millionaire, told FEMAIL the housing difficulties would only get worse.
“I don’t think we’ve ever seen anything like what we’re about to see,” Flynn said.
Property expert Adam Flynn has revealed his grim predictions for 2023, after being labeled a fear monger last year.
‘I feel sorry for the people who entered the market confident that rates would hold steady. But it was not a surprise to me.
His accurate prediction, made in January 2022, was that “continuing cheap money and low rates” had left most Australian homeowners overburdened. At the time, the RBA cash rate was still at a record low of 0.1 percent with Governor Philip Lowe in 2021 suggesting they would be kept on hold until 2024 “at the earliest.”
This was before the Russian invasion of Ukraine caused a surge in inflation, with the 7.8 percent consumer price index, the highest in 32 years, now well above the 2 to 3 percent target. cent from the Reserve Bank.
Mr Flynn explained that most people had “overextended” on home loans because money had been cheap for too long, only to now have to spend their dwindling savings on mortgage payments. during a cost of living crisis.
At that time, he calculated that the monthly payments on a typical $750,000 mortgage would increase by $750 per month.
That would relate to a couple with a 20 per cent mortgage deposit paying for a $937,500 house, which would be the median price in Canberra.
“I don’t want to be all doomsday about it, but I think there’s a bigger issue with serviceability (people’s ability to repay their loan) that people are putting weight on,” he said at the time.
But it underestimated the Reserve Bank, which, since May 2022, has raised the cash rate by 3.25 percentage points, the most severe pace of monetary policy tightening since it began posting a target cash rate in 1990.
Monthly payments on a $750,000 mortgage increased $1,222, or 42 percent, to $4,105, from $2,883.
This occurred when the Commonwealth Bank’s variable rate spiked to 5.17 percent, from 2.29 percent.
The 42-year-old single father has a property portfolio valued at more than $7 million and has been in the real estate business since he was 18 years old.
Couples working on a $1 million mortgage have seen their payments jump $1,630 a month to $5,473 from $3,843.
They called him a fearmonger, but things actually got a lot worse than he expected.
“A lot of mortgage payments have gone up $1,875 a month, it’s outrageous,” he said.
And the pressure will continue, with Flynn predicting that borrowers with a $750,000 loan will pay an additional $1,500 to $2,000 each month by the end of 2023.
He cautions that “getting rid of the little luxuries” to stay afloat may no longer be an option.
“This is not a matter of taking the avocado out of toast, people will have to move to cheap accommodation and rent their houses,” he told FEMAIL.
‘They’re going to have to make a drastic change to make it work or get in front and sell now. Because things are going to get more difficult.
The Reserve Bank’s nine consecutive interest rate hikes have brought the cash rate to a 10-year high of 3.35 percent, with all of Australia’s big banks expecting another 0.25 percentage point hike next year. 7 of March.
Flynn hopes there are more raises to come.
“There’s talk of four or five more rate hikes coming, it’s not sustainable, but five or six will be catastrophic, it’ll bleed the market,” he said.
The Commonwealth Bank, Australia’s largest mortgage lender, expects two more rate hikes in March and April, which would take the cash rate to a new 11-year high of 3.85 percent days before Easter.
But Westpac, ANZ and NAB all expect rate hikes in March, April and May that would take it even higher to 4.1 percent.
Three more rate hikes, starting this month, would see monthly payments on a $750,000 mortgage rise another $354 to $4,459, marking a 54.7 percent increase from May 2022.
Adam says the increases will cause a ripple effect in the housing market and he expects a flood of new homes to come up for sale.
That’s based on a Commonwealth Bank variable rate in the coming months that will increase by 0.75 percentage point to 5.92 percent.
Borrowers who took out a fixed-rate mortgage in May 2021, at an ultra-low rate of 1.92 percent, face a ‘reversal’ rate of 7.43 percent.
RateCity calculated that this would see repayments increase by 69 percent because the loan agreements in 2021 said rates would be 3.33 percentage points above the RBA cash rate, which would now hit 4.1 percent. in May.
Adam says the increases will cause a ripple effect in the housing market and he expects a flood of new homes to come up for sale.
“A lot of people bought during the boom when we had extraordinary capital growth,” he said.
This means that people who enter the market pay ‘over the odds under the force of competition’ and under the security of fixed rates.
“These fixed rates will expire in June or July of this year, so people need to be ahead of the curve and figure out what they can do to pay off their mortgages,” he said.
“People will have to seriously think about moving to more affordable accommodation and renting out their houses, and getting a second job to survive.”
Adam believes the ‘floodgates’ will open in July and houses will saturate the market.
He suggests that people put their homes on the market now if they feel they will have trouble keeping up with their mortgage once their fixed rates expire.
“You have to put yourself in front of everyone else,” he warned.
July will also mark a good time for new buyers to enter the market, although rates are high he believes that is when they will start to level off, meaning people can borrow against what they can actually afford.
“They will understand the lay of the land,” he said.
“If you find something that suits now, go for it, but keep in mind that by mid-year there will be more to choose from.”
He says that while buying sounds crazy, there will be confidence in the market. Investors will be lining up to close deals.
‘People will be able to budget, back-to-back increases from 0 per cent have just been, well, shocking isn’t even the right word.
“It’s something that people weren’t allowing based on the advice they were getting from the experts at the time.
Adam says the Reserve Bank had a duty of care that it broke when it warned people that rates would stay low before raising them month after month.
“It’s really not great, people relied on his advice for the financial security of themselves and their families and for it to have been this bad is certainly disappointing,” he said.
“The level of arrogance is staggering. I think he’s been portrayed as having a complete lack of empathy for people’s lives.’