Finance guru Mark Bouris says he is hearing rumours of distressed homeowners quietly selling their properties in a “bad indicator” for the market.
The executive chairman of mortgage broker Yellow Brick Road on Wednesday issued a dire prediction for next month’s Reserve Bank meeting, saying it was “more than likely” the board would raise rates for the 12th time.
“Given what’s going on overseas, the UK just put their rates up, the US are considering putting their rates up, irrespective of the fact that inflation looks like it’s declining, I think there’s every chance of a couple more rate rises,” he told Sky News.
“Inflation is proving to be extraordinarily stubborn at 7 per cent.”
His comments came as fresh data showed wages growth increased to a decade-high of 3.7 per cent in the year to March, up from 3.3 per cent.
But the 0.8 per cent quarterly increase in the Australian Bureau of Statistics’ wage price index was slightly below economists’ forecasts of 0.9 per cent, weighing against the likelihood of the RBA raising rates again as early as June.
The RBA could raise the cash rate as high as 4.8 per cent. Picture: iStock
The RBA increased the official cash rate to 3.85 per cent in May to tame inflation, having paused in April following 10 consecutive increases.
Markets have priced in a 58 per cent chance of another rate rise by August, The Australian Financial Review reported on Tuesday, sharply increasing after the release of the RBA’s May 2 board meeting minutes.
“Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve,” the minutes said.
Mr Bouris said after reading the RBA minutes he “didn’t get any encouragement whatsoever in terms of thinking maybe we’re at a pause stage”.
“Actually on the other side, the feeling I got from it was that they’re more than likely to put rates up,” he said.
But he said he didn’t know “whether our economy can withstand” another 95 basis points of increases to 4.8 per cent, as some have predicted.
“That would definitely put us into a recession,” he said.
He said that cash rate would force a wave of mortgage defaults.
“I was talking to a well known auctioneer in Sydney yesterday and he said to me that whilst we’re not seeing mortgagee sales, he’s actually noting that, I don’t know what they are called, but there’s some person sitting between the borrower and the lender who is coming out and encouraging the borrower to put their property on the market,” he said.
Yellow Brick Road executive chairman Mark Bouris. Picture: Supplied
“Not as a mortgagee sale because as soon as you put it on as a mortgagee sale you get nailed … but they’re trying to get an orderly price. That’s a bad indicator – I don’t like the sound of that.”
In a separate interview with Nine News, Mr Bouris said the issue facing the RBA board was that despite wages going up, Australia was facing a productivity decline.
“Their argument is this – if wages go up today … but if productivity doesn’t go up, then [the board is] saying that the unit cost … if it is a coffee shop, et cetera … the owner of (the) business will put up their prices which will cause inflation,” he said.
“Because Australia is suffering from a productivity downfall. So I pay more wages. ‘OK, can you work a bit harder? Produce a bit more?’ But that’s not happening.
“This is what the RBA is talking about – what is the cost of each unit of output? That is a function of wages and everything else. Plus how many units you produce.
“If you can produce more, it doesn’t matter if wages go up. But the problem with Australia, we’re suffering our biggest downturn in productivity for 20 years.”
As rates rise, a growing number of homeowners are refinancing, with the Banking Association receiving up to 2500 requests per day.
Some homeowners are quietly selling to get an ‘orderly price’. Picture: iStock
“If you think you’ve got an interest rate that’s too high, go and try and get a better deal,” Mr Bouris said.
“There is always a better rate, always a better deal out there and borrowers are realising that just because they can’t afford their current position or are under stress, what will happen if they reduce their rate?”
But he warned “what worries me” is that people would ultimately end up paying more interest in the long run by extending their loan.
“The moment you refinance, you take your loan back to a 30-year period,” he said.
“So if you’ve only got 20 years left on your loan, 25 years left, you go and refinance and it goes back to 30 years. So you’re basically pushing the amount of time and you’ll actually pay more interest over the next 30 years than you would have over the next 20 years, because you’re paying interest – albeit a slightly lower rate – but over a longer period of time.”
Still, he said for many borrowers feeling trapped the best option was to refinance.
“While interest rates are high, the repayments per month will be lower than when interest rates go down,” he said.
“They will come down eventually, then you have more money in the pocket to start paying your loan off faster.
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“Then you’ll effectively reduce your 30 years back down to 25 years – but everyone’s got to be aware of that – they’ve got to know the strategy and put the strategy into play.”