Reserve Bank unlikely to cut rates

Warnings to homeowners not to wager their houses on the RBA cutting interest rates come amid forecasts of a property price crash by Christmas.

Experts believe that Australia’s high inflation is likely to keep the rates stable in the short term, as the domestic economy remains strong and the Reserve Bank is worried about inflation.

There is little reason for them to cut rates beyond the crisis of confidence that is emerging across the rest of the globe.

Australia’s real estate market is considered the most overvalued in the Western world. It is thought that the property market of Australia could follow a similar path to Japan’s crash during the late 1980s, when housing prices dropped by 60 per cent. Prices could fall to where they were in mid-2000, which would mean young families would be able to afford housing again.

The debt problems Europe and the US are currently facing has led the money markets to price in a cut of 1 percentage point in the official Australian official cash rate by the end of 2011.

A cut that size would help struggling families save $200 a month in average monthly repayments on a loan of $300,000.

However, even if the RBA cuts rates, interest rates could shoot up as costs of borrowing rise in the global market.

Demand on charities for financial relief has risen by 12 per cent, an increase many blame on mortgage stress and cost of living pressures. January to March this year saw a 30 per cent rise in arrears on mortgage payments, with repossession notices served to home owners by lenders at their highest in two years.