There was an interesting coincidence of news stories last week. One was telling us that first home buyers are encouraged by low interest rates to enter the housing market (http://www.news.com.au/business/money/story/0,28323,25833231-5013951,00.html). The second was Kevin Rudd warning us that interest rates are likely to be heading upwards fast in the future (http://www.news.com.au/perthnow/story/0,21598,25840282-5017962,00.html).
This seems eerily similar to the practises that caused the global financial crisis in the first place. Namely, low "teaser" interest rates to encourage people to enter the market, followed by a ramping up of interest rates down the track.
There is an unfortunate tendency for people in this country to borrow as much as they possibly can when buying a house. Unfortunately these people will not be able to afford their loans any more when interest rates start moving up again. We could very well be facing our own subprime meltdown.
This just highlights the problems posed by government intervention into the markets. While they may be well intentioned, and appear to be effective initially, there is a good chance they will cause even bigger problems down the track.
If you think property is a good investment right now, think again.
Monday, July 27, 2009
Subscribe to:
Posts (Atom)