Why a $250b mortgage pain wave might be coming
As Mott points out, “in the previous cycle, households tended to default for three reasons: unemployment; family disorders or health problems”. But this cycle is likely to look very different, with unemployment unlikely to rise from historical lows. Instead, what worries Mott is the speed with which interest rates are rising, and how fast housing debt has accumulated in recent years. The inflation/tariff story is well known; Expectations for a 0.5 percent rate hike on Tuesday will bring rates to 1.85 percent, from just 0.35 percent in May, and ANZ expects rates to hit 3.35 percent by the end of the year. Warning from history But Mott also provides some interesting historical context for how debt has accumulated, looking at the last 10 housing cycles to study the potential impact of rising interest rates on credit growth. Particularly striking is the magnitude of the growth in mortgage commitments in the two years prior to this housing decline; The 70.1 percent increase in housing c...