Here’s a great idea; lower prices and repayments to stimulate buying! This is a recipe that is sure to work … and this is exactly what the Australian Government considers as successful aversion of economic disaster.
The Australian Government (Federal and Local) knew/thought they had to do something bold to avoid economic disaster in the recent economic turmoil so decided to manipulate housing markets by offering thousands of dollars to first time buyers (as a cash advance so very small deposits are needed to buy houses after the government handout). The government is very proud that house prices have held up relatively well whilst house prices in many other countries have plummeted. Of course interest rates have been falling at the same time so not only is a small deposit needed to buy but also repayments are at an all time low. This week the government has been shouting out its ‘success’ at averting worse economic performance.
Mmm … so what happens when interest rates rise? People have over extended themselves to buy houses because of the government giving cash advances to buy. At the same time repayments were calculated using the lowest interest rates in a very long time. Interest rates will rise in the near term which will have a significant effect on those who have extended their monthly budgets to afford the repayments.
Oh dear, it looks like all the government has really done is create a false bubble of house buying (isn’t this exactly what caused the recent financial/economic troubles in the first place?). The worst is yet to come in the housing market methinks!