With the Reserve Bank poised to make another big 0.5% rate rise tomorrow (which the banks will quickly pass on to borrowers) comes the news that mortgage stress was already at historically high levels in Sydney, even before rates started to rise!

While the NSW capital is renowned for high property prices, the suburbs with the most stress were actually lower-priced, lesser-income parts of Sydney. This poses the question that with house prices spiking right across the country since mid-2019, are a lot more overborrowed Aussies in other cities and regions caught in a property price fall trap and locked into big loans?

And what should happen if we end up in a serious recession, like Facebook’s founder, Mark Zuckerberg has predicted for the US economy?

Let me add that US economists disagree and think a mild recession is more likely, and here our number crunchers on the economy think we will dodge a recession but it’s not easy to ignore a guy whose businesses (i.e. Facebook and Instagram) have a pretty good snapshot on what we’re thinking, buying and doing!

From the Census, the SMH’s Matt Wade has highlighted those Sydney suburbs most under mortgage stress pressure, which is defined as those spending more than 30% of their income to cover mortgage repayments or pay rent. And here are those vulnerable suburbs:

1. Burwood, where 25.9% of home borrowers were already paying over 30% of household income on mortgage repayments.

2. Canterbury-Bankstown (25.6%).

3. Fairfield (25.4%).

4. Cumberland (24.7%).

5. Parramatta (24.3%).

6. Georges River (23.9%).

Other suburbs where rate rises are going to hurt are Campsie, Hurstville, Guildford-South, Granville and Minto-St Andrews.

Wade also points out that renters are feeling it in many suburbs but “in Fairfield, 55 per cent of tenants were paying over 30 per cent of household income on rent, while in Greenfield Park-Prairiewood, the share was 52.3 per cent and in Condell Park 51.7 per cent”.

Being the most expensive city means Sydneysiders will go into mortgage stress first, but if we see too many more interest rate rises, more and more suburbs around the country will join these borrowers stressed out with big monthly repayments.

Will this be a concern for the RBA as it’s set to raise interest rates by 0.5% tomorrow to take the cash rate to 1.35%? Many economists think the cash rate is heading to 2% by year’s end, but that would mean another 0.65% rise on top of tomorrow's hike!

I think the RBA is close to a pause on rate rises and may sit back and see how the last increases affect the economy. Right now, economic data isn’t showing that we’ve been scared into cutting down spending, but we’re mainly seeing April and May data, with the first frightening rate rise not arriving till June. And then there are big petrol price rises, which also act as virtual interest rate increases.

I’m not expecting the RBA boss to ease up on his ‘tough guy’ talk on rates any time soon. In fact, he’s doing something that we call in the economics business, “jawboning”, which can be used to scare or inspire consumers, businesses and borrowers.

Dr Phil Lowe is in the business of scaring us this year to beat down inflation. If he has his way with our confidence to spend, we might end up with fewer rate rises than many economists have predicted. And fewer rises reduce the chances of a recession here. I’m betting that will be the case, but economics is a very imprecise science because it deals with society. We know how unpredictable people in our social circles can be, so try working out the behaviour of people for an entire country!

Good luck Dr Phil, we need you to keep us out of recession.