The report I mentioned last week by RP Data, that indicated property prices for Australian Capital Cities have continued to rise, was great news for homeowners and bad news for those trying desperately to buy a home.
With official interest rates in Australia at around 60 year lows of 2.5%, there is plenty of money being poured into property in our capital cities. There is also plenty of competition amongst lenders with the big players recently cutting some of their fixed rate loan offerings in anticipation of low interest rates for perhaps longer than some expect.
We should also remember that there is a housing shortage in Australia so this is also a possible factor driving current property prices.
The Australian economy still needs to show evidence that after a really tough May 2014 Budget it can still transition from a mining led economy that was in overdrive a few years ago. Until this is achieved we may not see interest rates move higher.
If the Australian economy falters and the Australian dollar remains high, or we have a global economy that falters in some way, a further interest rate cut in Australia could not be ruled out. In the long term this could prove to be a very bad scenario.
While Australian unemployment rates remain low and interest rates remain extremely low, property prices could go even higher if demand continues. Eventually the current boom cycle will end and when it does it may end badly with personal hardship from forced property sales and a falling property market.
It is important to remember that there is a property cycle with points in time where property is undervalued and overvalued. If property purchasers get in at the wrong time or pay too much, it can take up to 10 years or longer for things to sort themselves out so always do your own research.
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