Homeowners: ‘Mother of all shocks’ coming as 15pc of borrowers tipped to default


A portfolio manager has claimed Aussie homeowners will need to brace for the “mother of all shocks” later this year.

Chris Joye, the co-founder and portfolio manager of Coolabah Capital, a fund manager with $8 billion in assets, has made bold predictions regarding the Australian housing market in the past. But now, he believes as many as 15 per cent of borrowers could default before Christmas.

In October 2021, when house prices were on the rise and the Reserve Bank of Australia’s governor Philip Lowe had stated that interest rates would remain unchanged until 2024, Mr Joye predicted a significant drop in Australian house prices, ranging from 15-25 per cent.

He recently appeared as a guest on the Equity Mates Investing podcast, where he issued his latest prediction on the Australian property market, warning that Australians should prepare for more struggles as one in four Aussie home loans may switch from 2 per cent fixed rates to 6 per cent variable rates in 2023.

Mr Joye’s predictions are supported by the Australian Bureau of Statistics’ recent analysis, which indicates that at a Reserve Bank cash rate of 3.6 per cent, 15 per cent of all Australian borrowers experienced negative cash flow.

While some economists believe that the Reserve Bank’s interest rate increases are coming to an end and that interest rates may even be cut by year-end, Mr Joye cautioned that a second hiking cycle may occur, which is not factored into bond markets or equity markets.

“There is a risk we get a second hiking cycle which is not priced into bond markets or equity markets. If inflation sort of bobs around 3 per cent to 4 per cent to 5 per cent, anything above 3 per cent, we really risk getting a second hiking cycle,” he continued.

“[Stimulus has meant that] households may be more resilient to rate hikes than they have been in the past, and it may mean that central banks need to raise rates further than they might otherwise. So I remain very negative on the economic outlook.”

This could be disastrous for everything except cash, and there may be no growth for the next few years as the world contracts.

Mr Joye believes that as interest rates rise and borrowers struggle to meet their mortgage repayments, many Australians will have to sell their homes in the second half of 2023. He advises hopeful first home buyers to start planning now and to look for properties that will become available once the market clears.

“If we get a second hiking cycle that’s not priced at all, it’s a disaster for [sic] everything. And the only thing that will do well is cash,” he said.

“The reality is there‘s going to be no [sic] growth for the next few years. The world is not growing. It’s going to contract.”

RBA ensnared in ‘international squeeze’

According to Solomon Lew, a billionaire and former RBA board member, governor Philip Lowe has found himself ensnared in a global dilemma concerning interest rates and inflation.

Mr Lew recently unveiled Premier Investments’ interim results, which included record half-year sales and a hefty dividend. He appeared to express sympathy for the RBA’s quandary, as it contends with inflationary pressures worldwide and more forceful rate tightening from foreign central banks.

Despite the challenges, Mr Lew is optimistic that the country is nearing the peak of the cycle of interest rate hikes.

“They are caught in an international squeeze and that is creating the issue,” Mr Lew told The Australian.

“So higher inflation … the big issue has been rising interest rates on homes, and that’s become an issue, but I think that we may be seeing the top of that cycle at this point in time.”

Mr Lew also noted that the rising rates are affecting consumers, as evidenced by lower discretionary spending.

He believes that retail sales figures scheduled to be released this week will enable the RBA to better evaluate the impact of the rate hikes since May and determine whether pausing in the current cycle is the wise course of action.

“The RBA has continued to lift rates higher in response, which no doubt will cause consumers to watch their discretionary spending,” he said.



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