Freer Property and Finance

We anticipated that Interest rates would not rebound as quickly as many Australian commentators predicted (See August 2009 post), due to slower company earnings coming out of the worst recession since the Great Depression. Our position has been vindicated with the RBA undoing the cash rate increase from November 2010 the following Melbourne Cup day last year. This was followed by another cut in December and more a likely this year with the protracted debt issues in southern Europe and a struggling retail sector locally.

Do you agree that Reserve Bank Governor Glenn Stevens has a dilemma -  if he continues raising interest rates in order to quell demand, the effect is to also delay delivery of new housing product? Developers are cautious about lodging building approvals when buyers are withdrawing from the market (assuming they can even obtain construction finance in the tighter credit environment). The nascent recovery in the Sydney building industry is threatened by a too hasty normalisation of cash rates combined with the withdrawal of government incentives, the net effect of which will be diminished supply and accelerated house price inflation.

Interest rates may not rebound as quickly as many Australian commentators predict, due to slower company earnings coming out of the worst recession since the Great Depression.