 Rising rates spell trouble
Rising interest rates could spell trouble for the property markets according to some industry insiders.
Harry Triguboff, chairman and managing director of Meriton Apartments, says the recent improvements in housing prices do not signify a boom and is urging the Reserve Bank of Australia to be cautious about raising interest rates.
While recent data indicates modest rises in housing prices, other factors will come into play in the coming months. The boost to the first home owners grant is coming to an end in December, and has already been reduced from last week. This will no doubt pour cold water on the rush of first home buyer activity seen so far this year. Unemployment is still a concern for many Australian households and jobs data is looking average.
Mr Triguboff is worried that potential buyers will be put off by rising rates with the Reserve Bank signalling the first rate rise could be as early as November, with more to follow in 2010. Any rate rises will affect housing affordability, and when coupled with the reduction to the first home buyer grant, new development could be affected.
No other country is even considering raising their rates (which are much lower than ours). Should the rates be raised from 3 per cent to 5 per cent, as suggested, this will result in borrowers' mortgage payments being 40 per cent higher than what they are paying today, and for no additional benefit, says Mr Triguboff.
Mr Triguboff also comments that as well as home owners feeling the pinch from increased interest rates, rents are likely to rise causing financial stress to renters as well.
He fears that if the RBA raise rates, building of new dwellings will fall and rents will rise, causing people to leave the major cities. He also says Australia is a small economy and people have traditionally made money of their properties, but if fearful of the consequences if rates are raised.
Many people share the view that if rates rise now, all the good done from the government stimulus packages could be undone.
Currently the official cash rate sites at a 49-year low of 3 per cent. The RBA is due to meet tomorrow for its monthly policy meeting and is expected to leave rates on hold for now. But the RBA has signalled it will look to raise rates at some point in the near future.
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