According to the Parramatta mortgage broker, she can typically determine whether the person on the other end has completed their calculations within thirty seconds of a phone call. Those who haven’t seem at ease. Those who have are more reserved. The silence is unfamiliar to her after nine years of doing this.
Sydney economists have begun referring to this silence as the “mortgage cliff,” though some prefer the term “edge of cliff,” which the banks themselves now use in retention discussions. It describes the point at which fixed-rate loans made during the pandemic, when money was practically free, expire and switch to adjustable rates that are closer to 6.5%. There is no need for a chart because the math is brutal. A household may have to pay an additional $1,000 per month for a loan that is locked at 2.1 in early 2022 and rolls onto a variable rate higher than 6. The difference is closer to fifteen hundred in Sydney, where the median mortgage exceeds A$750,000.
You can practically see the stress when you drive through Kellyville on a Saturday. The pavers are still brand-new, the lawns are still mostly green, and the double-story homes appear largely unchanged from three years ago, but the For Sale signs have returned. In the Hills district, real estate brokers now discuss a different type of vendor: the household that just ran out of buffer rather than the upgrader or downsizer. The outer ring of Greater Western Sydney, including Penrith, Greystanes, and Richmond, has an exceptionally high percentage of first-time homebuyers who borrowed close to the maximum amount that banks would permit and who fixed at rates that now seem like something from another nation.
The worst might already be factored in. In the cautious language central bankers use when they are reluctant to commit, the governor of the Reserve Bank has essentially said as much. According to last year’s Financial Stability Review, the majority of fixed-rate borrowers were managing, arrears were still low, and buffers had withstood more shock than anticipated.
Because it’s reassuring and nearly accurate, some economists maintain that the cliff was always a staircase. However, comfort travels unevenly, as anyone who has recently sat in a Penrith bank branch will attest. From headline statistics into kitchens, into conversations about school fees, into the gradual erosion of unused vacation time, there’s a feeling that the suffering isn’t so much going away as it’s shifting.
For their part, the banks are taking sides. Only at a price that preserves margin do they want the customer to stick around. When borrowers file a discharge form, they frequently discover that the retention team’s call results in a rate that no one offered when they just politely inquired. It’s a strange ritual that combines bluff and negotiation. As you watch it happen, it seems as though the banks are aware of each household’s precise proximity to the edge, even though the household does not.
The RBA, inflation, and the state of the world economy all affect what happens next. It appears that investors think the cycle is almost over. Families are less certain. The question of whether prices hold is no longer relevant in Sydney, where real estate has long been regarded as a form of civic religion. The question is whether the occupants of the homes do.
