Horror risk facing Aussie homeowners

According to the International Monetary Fund’s (IMF) World Economic Outlook, Australia is facing the second-highest risk in the developed world – falling just behind Canada – as a result of our notoriously expensive house prices coupled with high household debt and increasing variable mortgage rates.

“Economies with high levels of household debt and a large share of debt issued at floating rates are more exposed to higher mortgage payments, with a greater risk of experiencing a wave of defaults,” the IMF said.

The warning comes despite the Reserve Bank of Australia’s (RBA) decision this month to hit the brakes after 10 consecutive months of brutal interest rate hikes.

The official cash rate now sits at 3.6 per cent, although it is all but certain to rise again in the months ahead.

And it comes amid heightened fears over a looming “mortgage cliff”, with almost 900,000 Aussies currently on cheap fixed-rate loans about to be slugged with major increases once they expire this year.

When those terms expire, the loans will revert from their record-low fixed interest rates to variable rate loans which are much higher thanks to the RBA’s rate rises, with some borrowers about to see their repayments effectively triple overnight.

Meanwhile, the IMF also explained that the dangers of a downturn had soared for advanced economies as a result of recent US and European bank failures, and dropped its forecast for global output growth by 0.1 per cent.

Australia’s growth is tipped to be 1.6 per cent this year and 1.7 per cent in 2024.

It cautioned that the world economy was “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner”.

It added the chances of a “hard landing” had “risen sharply”, with IMF chief economist Pierre-Olivier Gourinchas declaring that “the situation remains fragile” and that “downside risks predominate”.

Appearing on Sunrise from Washington D.C. this morning, Treasurer Jim Chalmers said the IMF’s latest figures were “pretty grim” for the global economy, adding: “Clearly in Australia, we won’t be completely immune from those developments.

“But we do enter this new period of global economic uncertainty from a position of relative strength: Our unemployment rate is low, we’ve got the beginnings of wages growth, we’re getting very good prices for our exports on global markets as well,” he continued. “And so it will be a difficult period, our own economy will slow considerably but in this environment, you would rather be Australia than almost any other country.”

RBA admits ‘terrible’ mistake

Meanwhile, RBA officials have finally admitted they “did a terrible job”.

Speaking at a panel in Melbourne on Wednesday, Ian Harper, who has been a board member for seven years, conceded that after Covid hit, the central bank struggled to balance the need to keep inflation within its 2 to 3 per cent target and maintain stability in the financial system.

“Both of those things led us to be extremely cautious – with hindsight, excessively cautious in how we set interest rates during that time,” he said, according to The Australian.

He added that “with the benefit of hindsight … it looks like we did a terrible job”.

“When you look backwards, oftentimes you see things much more clearly than you do at the time,” he said.

Deputy governor Michele Bullock also conceded the RBA’s repeated messaging that interest rates would not rise “until 2024 at the earliest” had been “garbled”.

“I will accept … that the message got garbled. People latch on to a date … and even now that we are raising interest rates, they still want us to put a date on when we are going to stop doing it,” she said.

“We should have resisted … a little bit more there.”