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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: biometricgngboy who wrote (14024)	9/28/2003 11:21:54 AM
From: biometricgngboy	Read Replies (1) \| Respond to of 306849

Bubble may not be any trouble Sep 20 Will the looming housing bubble burst or merely deflate? If you believe the claims of Australia's biggest home lender, interest rates would have to rise by more than 3 per cent before there was a "significant impact" on customers. But others like Treasury Secretary Ken Henry, Reserve Bank deputy governor Glenn Stevens and the International Monetary Fund are not so sure. Commonwealth Bank chief exec-utive David Murray said on Friday that Reserve Bank figures and CBA's analysis showed Australians were not carrying too much debt. "Our customers want to invest in fully franked dividend stocks and they want to invest in residential and other property, and they are quite happy to incur some indebtedness to do that," he said. "The position looks, in historical terms - according to the Reserve Bank study and to our analysis and stress testing - quite reasonable." He indicated the standard variable mortgage rate of about 6.57 per cent would have to rise to almost 10 per cent before customers started defaulting on loans. But earlier in the week, Mr Henry and Mr Stevens both listed the housing boom as one of the major risks facing the domestic economy. While both men, and the IMF, were optimistic about the overall outlook, they displayed significant disquiet about potential problems caused by a housing collapse. "The short to medium-term challenges [are] the drought, the housing bubble - I use that term advisedly, not for quotation outside of this room - consumer debt, international outlook, the exchange rate and, of course, national security," Mr Henry told what he thought was a closed briefing. While few experts predict Australia's banks will get into trouble, there is concern about the possibility of a sharp economic contraction if the bubble bursts. However, acting Federal Treasurer Nick Minchin said on Friday: "Not all bubbles burst; many of them merely deflate. And as many economists will tell you, there's every reason to believe this one will deflate as have other so-called bubbles." The RBA has left the official cash rate at an expansionary 4.75 per cent since the middle of last year, due to the weak global economic environment. However, recent positive signs - including falling unemployment and surging confidence levels - have heightened expectations that there could be several rate rises before the middle of next year. Labor treasury spokesman Mark Latham said: "If the bubble bursts, then people would have to adjust their household balance sheet, they'd have to draw back on their spending. This is a real economic uncertainty." While standard variable mortgages (the most popular among home owners) have remained steady, fixed rates have already jumped in anticipation of the RBA's move. "If you're purely thinking about the variable rate, enjoy the respite because you won't have it much longer," said National Australia Bank chief economist Alan Oster. afr.com