The fact is nobody (including the RBA) knows how much rates will increase. The RBA and all major banks acknowledge normal rates (as opposed to emergency rates that we are at) is around 5%-6%.
International developments including inflation and commodity prices dictate how much the RBA need to adjust. One thing pretty sure is there will be 4-5 .25% hikes by the RBA this year alone just to bring things into neutral.
The banks however may pass on more hikes (Banana Smoothies) more to reflect the cost of funding given most of the Big 4's funding sources comes from overseas. As the housing crash evolves from likelihood to inevitability, overseas lenders will demand a risk premium and charge Aussie banks more.
Mildly tight monetary policy like we had in early second half 2008 is around 7.5%-8%.
The housing collapse here will play out exactly as in the US but swifter given the US didn't have a huge and volatile buy-to-let herd who will dump in unison. Over there they had a subprime problem where teaser rates expired and everything fell apart when rates resumed to higher rates. Australia has both a prime and subprime bubble problem so much bigger in scale and magnitude (hence the fallout has a massive footprint) and is due to the emergency 60 year low rate being rewind.
Take note: The Aussie FH buyers who took the grant with a giant loans and precious little equity and the countless "so called" debt-laden investors leveraging to buy one of more properties are as poor a systemic risks to the banks as the poor minorities in the US who were granted subprime loans.
Forget about more FHOG for 2 simple reasons. The government is broke. Secondly, there are few if any first home buyers left. The morons have already bought. The smart ones stood on the sideline and are waiting to pick from the rubble.
If anything, the biggest problems facing first home buyers in the next 2 years is that they will be spoilt for choice.
Unfortunately, Australia is likely to be dragged into a recession just as the rest of the world recovers from the GFC and unemployment will rise.
Rudd better not pull the bank guarantees just yet when we may need it most. Unfortunately, the budget is deep in red ink and money spent prematurely just when we may need money for future stimulus to get us out of a prolonged housing crash led recession.
Anyway, look out for the tell-tale signs by March !
