The Reserve Bank of Australia has today raised the official cash rate from 4 per cent to 4.25 per cent and says there is more to come.
In a media release following the rise, the RBA said “Interest rates to most borrowers nonetheless have been somewhat lower than average. The Board judges that with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process.”
Interest payments are still higher today than in 1989 due to high household debt levels. (1977 to Dec 2009)
» Statement by Glenn Stevens, Governor: Monetary Policy Decision – The Reserve Bank of Australia, 6th April 2010.
I think there are 4 – 6 rises (1% to 1.5%) to go in this cycle.
There are many signs of mortgage stress in the outer ring.
I have heard whispers that Woolworths can gauge mortgage stress when there outer suburban stores start to lose sales.
One of my friends is a Woolworths store manager in an outer suburban newly developed area – sales are down 10% over this time last year 🙂
I would not be surprised if interest rates increase 100 bps this year and a further 100 bps in 2011. The more I look at the domestic property market, the more I fail to see a large collapse like what happened in US, but more of a long term price fall, like in Japan post 1990s.
The only way I see a large drop in property prices is China falling over, and that would never surprise me one bit if that happened. So if you’re bullish on China driving Australia’s economic growth and hope Australian property prices will dramatically fall, you may have to wait a while 😉