Interest rate rises are unlikely to “break” the housing market or lead to a recession, according to Goldman Sachs.

Its lead economist Andrew Boak expects the RBA to increase the cash rate to 4.1% by early next year to bring inflation down.

He says that, while higher interest rates may cause some house prices to fall, he does not believe it will be to an extent that many borrowers will be faced with negative equity.

Boak believes Australia will avoid recession, as many businesses have returned to normal operations since the end of Covid lockdowns and population is continuing to grow.

He says the gains in the past two years mean few homeowners will fall into negative equity or default even if house prices decline.

According to CoreLogic, the capital city average house price has fallen 3% in the past 12 months, although several capital cities and all regional markets have recorded annual rises. Both PropTrack and SQM Research record higher national prices than a year ago.