Economists warn of a turning point in the housing market if the Reserve Bank hikes interest rates to 4 percent

AMP Capital chief economist Shane Oliver was a bit more dovish. Even with a pause, it would be some time before the full impact of rate hikes would be fully known, he said.

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“The whole process is still ongoing,” he said.

Fire sales are a possibility, he said, despite the recent stabilization in property markets.

“My inclination would be to think that if you get above 4 percent, that would lead to distress sales,” he said. “But it hasn’t happened yet and that has given some of us some confidence.

“As we continue to move higher, every time we see the RBA rate hike, the risk increases. Added to this are the ongoing unknowns caused by the flow-on effects of migration.”

However, bank failures in the US have increased the risk of a recession and thus the likelihood of a rate pause, Oliver said. Since the collapses, market expectations have moved towards a lower rate than previously predicted.

PRD Chief Economist Dr. Diaswati Mardiasmo thought a spike of over 4 percent was a given; The main question was how the Reserve Bank got there and how the federal government and the economy at large responded.

“Many of us have adjusted to a rate of 4 percent. A lot of people think of the summit being around four, so it’s more of a slow climb or a fast climb,” she said.

Mardiasmo said barring a further drop in purchasing power, high interest rates would mainly affect recent buyers who haven’t had much time to build up equity.

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“We’re not going to see a massive crash because of this in terms of the impact on the overall market,” she said. “But in certain pockets, there’s going to be a bigger problem, especially in packaged house and lot locations where there are a lot of first-time home buyers.”

Commonwealth Bank Australia economics chief Gareth Aird forecast just a 3.85 percent peak interest rate and a 15 percent national peak-to-trough fall in house prices.

Aird was the only Big Four bank economist not to predict a 4.1 percent spike.

He thought a wave of distressed sales was unlikely as the housing market had proved more resilient and stabilized in recent months.

“The pain will come from those who have already borrowed, have a fixed rate, and roll off to a much higher floating rate,” he said. “There will be some people in that group, but history generally shows that as long as they hold on to their jobs, people will find a way to make their mortgage payments and that just means they’re cutting their spending a lot more.”

“There are people who run into trouble servicing their mortgage, but the first reaction will be to pull back as much as possible on their discretionary spending.”