According to Channel 10 Adelaide, The Reserve Bank of Australia has “denied” the Adelaide property market a much needed boost by leaving rates unchanged.
You could be mistaken for thinking it was 1989 and the official cash rate was 17 per cent. But, no, the report aired yesterday after the Reserve Bank left the official cash rate at just 2 per cent, a record low.
But it is not interest rates that is dragging on the Adelaide housing market, but rather Australians are up to their necks in debt. Household debt as a ratio of household disposable income now sits at 153.8 per cent in Australia, some of the highest levels in the world. At the height of the sub prime crisis in America, household debt peaked around 130 per cent in the USA.
Data from the Australian National Accounts, released today, show in aggregate, households are paying 4.96% of household disposable income on dwelling interest payments, still greater than the 4.18 per cent recorded in 1989 when mortgage rates were in excess of 17 per cent.
First home buyer, Hannah O’sullivan welcomed the central bank’s decision to leave rates at record emergency lows, but said it could have been better. If interest rates went down it would put a little more sense of urgency into buying, she remarked.
But this talk is scaring regulators, with naive first home buyers ignoring what will happen when the official cash rate inevitably rises. Regulators are urging all buyers to think long term as mortgages are 25+ year commitments. Rates won’t stay low for ever.
Australian Securities and Investments Commission chairman Greg Medcraft told a Senate estimates committee, borrowers need to do their sums on a mortgage rate of 7 percent, not 4 percent.
The Ten reporter said despite two cuts to interest rates this year, Adelaide property prices hadn’t spiked like had been the case in Sydney and Melbourne. Hannah O’Sullivan said “it is a little bit frustrating,” an interesting comment from a potential first home buyer.
Property lobbyist, Daniel Gannon added what the market needs right now is “major stimulation” and interest rates do provide one potential opportunity for first home buyers to get into the market.
And as for Hannah’s strange comment, some readers have conducted a Linked In search and believe she could in fact be a Human Resources coordinator for real estate agency Toop & Toop. Apparently the photo’s a good match too. It’s been a couple of years since we have seen real estate professionals double as first home buyers and potential investors without disclosure, a potential sign of desperation in a cooling market. (‘The Real Estate industry is increasingly misleading the public‘)
As we wrote in 2009, The next time you see an article in the media about someone buying a first house or investment property, be sure to run the potential owner through Goggle to see if they are an agent or associate. It’s a good chance they are.
» SA housing market lagging – Channel 10, 2nd June 2015.
» ASIC warns new borrowers on rates – Yahoo, 3rd June 2015.