Yes, there will be casualties from interest rate hikes, but it needn't be a depression if done carefully.
I believe the RBA, if it were truly independent, has the skillset to carry out the rate rises that are necessary to rebalance the distortions in the economy, but there is political pressure from the current government to maintain extremely loose monetary policy. House prices were already falling in a pretty orderly fashion from mid-2018 until May 2019, before the Coalition was re-elected and then inexplicably, three interest rate cuts came in quick succession. At the same time, APRA removed the requirement for borrowers to need to be able to pay back loans at the higher 7.25% interest rate, a measure that had not been in place for very long, but was proving to have the desired effect. Within the next few months the average loan approved in NSW increased in size by about $110k and in Victoria by about $95k.
All the RBA needs to do is signal in advance their intentions, much like The Fed did in 2016-2018, where it signaled - and implemented - rate hikes every quarter by 0.25% (until Trump and Wall Street threw a hissy fit). This kind of move from the RBA would give borrowers a clear signal that the debt-fueled party is over, as well as time to consider what they need to do next. Those who borrowed prudently won't have a problem. Those who didn't will be forced to sell, and contemplate their next property move, whether it be a purchase (with less debt) or a rental. Supply would be created, and a gradual but sustained decline in property prices would follow, allowing new entrants into the market at lower, more reasonable prices. Not exactly rocket science.
