When a central bank raises interest rates it’s meant to stress consumers and businesses out — out of spending that feeds into higher prices. So, it’s no surprise that mortgage stress is on the rise in Australia after 13 rate rises. However, the revelation that a third of homeowners are suffering mortgage stress is huge, and it’s another reason why the Reserve Bank has to be careful about further rate hikes.

Yesterday, I reminded you that January 31 will be crucial for the course of interest rates with the December quarter Consumer Price Index released on that day. That said, the RBA board has to be careful that it doesn’t only look at what was happening to prices from October to December (that’s the December quarter, because by the time they decide on whether rates rise it will be February 6.

Monetary policy works with a lag so the bang for the RBA’s rate rises to slow the economy undoubtedly is hitting harder now than this time last year, when rates were lower and there were still a lot of borrowers on low fixed rate home loans. These borrowers are now on high variable rate loans.

I always look for other indicators to check whether policies from the Government or the RBA are actually working, and this Finder survey certainly says those rate rises are working big time.

Here are some of the key take outs from that survey:

1. 35% of those Aussies with a home loan have mortgage stress.
2. That’s 1.1 million homeowners who are finding it difficult to come up with a January mortgage repayment.
3. Two years ago the mortgage stress number was 24%.
4. Card spending hit a record high in November, which actually means a new problem is developing for those coping with rising home loan rates.
5. A survey by RateCity.com found 29% of users were taking on debt to plug a hole in their budgets.
6. Refinancing of home loans hit record levels in 2023.

Mackenzie Scott in The Australian talked to PropTrack senior economist Eleanor Creagh, who noted the likely peak in rates meant the worst was probably over for borrowers. “Households can feel more confident in that although rates have increased significantly, they can settle in to this higher level and from here, the next move is likely to be a cut. The number of home loans past due and in arrears has increased in recent months but remains below global financial crisis levels.”

Interestingly, one unusual indicator of how the RBA’s rate rises are working is this news from Flight Centre about air fares: average international outbound fares across all carriers decreased across all cabin classes in the second half of 2023, compared to the previous year.

Here are the price reductions, which should be another reason for the RBA to hold fire on further rate rises:

1. Economy fares are down 12.9%, at an average savings of $280 per ticket.
2. Business fares are down 7.99%, at an average savings of $834 per ticket.
3. First Class fares are down 8.02%, at an average savings of $1,282 per ticket.
4. Routes with the biggest drops (outbound from Australia) include Hong Kong, New Zealand, USA, and the UAE.

The point of the rate rise exercise is to stop spending that keeps prices so high that it feeds into inflation. Clearly, those 13 rate rises are now stopping those with home loans from flying high and that will help interest rates fly a lot lower later this year!