He said there was an expectation was that Australia-wide home values would fall by between 15 per cent and 25 per cent because the Reserve Bank would lift its cash rate by between 100 and 150 basis points (1 per cent to 1.5 per cent).

The RBA has already hiked by 0.25 per cent and the Commonwealth Bank has forecast increases of 100 basis points by the end of the year with a 25 basis point hike in June, July, August and November). Other economists vary on the timing and increments while the money markets are pricing in much bigger increases.

“Given the value of residential rea estate in Australia is currently worth $9.9 trillion we are talking about losses on households worth $1.5 trillion, assuming just a 15 per cent draw-down in national home values, which is at the lower end of our expected range,” Joye said in livewire column.

“The precise size of the additional out of cycle hikes we will see from the banks is not known but their funding costs are soaring and they have already aggressively re-priced three-year, fixed rate home loans from 1.98 per cent only 12 months ago to 4.5 per cent today.”

He said the Reserve Bank and a lot of economists had made significant mistakes in their forecasting of the market including one which forecast a fall in home values during the pandemic. Instead, house prices rocketed and in Brisbane they are still increasing, but at a much reduced rate.

“There is no precedent for the RBA hiking through a period when house prices are falling materially,” Joye said.

“We think the RBA might persist through some of the initial payback but it is hard to imagine it wanting to further tighten financial conditions once they have wiped out more than 10 percentage points off Australian households’ most valuable asset.”