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MFAA Prosper : Mortgage and Finance Brief 06
worried about the coming investment boom producing a surge in inflation similar to that generated in 2007 and 2008. At that time the domestic sector was growing strongly, house prices were rising rapidly, outside of Sydney at least, and unemploy ment fell to a 30-year low. In his most recent statement on the decision to raise rates in November, the RBA Governor Glenn Stevens said, “The economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. Looking ahead, notwithstanding recent good results on inflation, the risk of inflation rising again over the medium term remains.” To ensure these inflation risks do not arise, the RBA needs a buffer. It needspart of the economy to grow less than trend, and we have above-trend g rowth in resources and business investment. So how can the RBA create a buffer? One way is to get the household sector to grow more slowly and thus release some of the vital capacity needed by the resources investment boom. This means the RBA is raising rates to encourage the household sector to save a bit more, and spend a bit less, resulting in household consumption growing a little slower than it otherwise would. Thus you can see that the cost of managing this boom is falling on Australian households and, by inference, those sectors and industries that are dependent on household demand. There are some differences this time Household debt has continued to rise, even if at a slower pace that what we have come to expect as normal over recent years. So Australian households are even more leveraged than they were before the GFC, and thus more sensitive to interest rates, than they have been in the past. In addition News Inner Middle Outer Year Median % Change Median % Change Median % Change 2005 $830,000 $624,000 $402,670 2006 $840,000 1.2% $610,000 - 2.2% $386,000 - 4.1% 2007 $890,000 6.0% $620,000 1.6% $385,000 - 0.3% 2008 $975,000 9.6% $665,000 7.3% $389,740 1.2% 2009 $926,000 -5 .0% $620,000 - 6.8% $380,000 - 2.5% 2010 $1,100,000 18.8% $730,000 17.7% $425,000 11.8% Total $270,000 32.5% $106,000 17.0% $22,330 5.5% SYDNEY PRICES MAY PROVIDE A LESSON Sydney is a more mature market and prices fell in the outer regions in 2006 and 2007 while they rose elsewhere. However, outer prices had smallest fall in 2009 as they did in Perth.
Mortgage and Finance Brief 05
Mortgage and Finance Brief 07