Fluctuations in the housing market are not unusual, according to the Finance Brokers Association of Australia.
Playing down talk of a pending housing bubble burst, FBAA executive director Peter White said that the reality is that property values are cyclical.
“Every seven years or so, housing prices heat up and then cool off and the market takes corrective measures in response,” Mr White said.
“The main risk to the housing market now is the extraordinarily long low interest rate environment in Australia.
“There is no question that interest rates are going to go up, and as they hit 6 or 7 per cent, it will cause financial hardships for some borrowers.”
Mr White said that this situation doesn’t mean that existing loans were wrong at the time they were written, but rather, it’s a market movement on variable interest rates.
“That’s where the buffers being pushed out on serviceability calculations are having an effect to ensure that, as the market rises, people can still afford to service their loans,” the director continued.
“The problem doesn’t necessarily lie with the mortgage. Australia has one of the world’s highest users per capita of credit cards.”
Mr White added that people are used to having a spare 100 dollars a week to spend on consumer goods because of lower interest rates, but that buffer is disappearing.
“Stresses in the property market in the future will be caused by interest rates going up.
“People who can’t afford to service their debt will potentially start selling their assets, which will cause a property glut in the marketplace and force prices down, and that will have a negative effect as we go forward over the next 10 years or so.”
[Related: Arrears drop for second month in a row]
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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