Tuesday, October 14, 2003

Homeowner debt cannot withstand interest rate rises: "Australia's debt binge has worsened, with more home borrowers admitting they would have trouble meeting mortgage payments in the event of a modest lift in interest rates.

"One in four home borrowers would struggle to make repayments if interest rates edge up just 1 percentage point, a Hawker-Britton UMR poll of 1000 people taken between September 23-28 showed. In June last year the survey found only 15 per cent would be troubled by a rise of that magnitude.

"A 2 percentage point hike in rates would leave 44 per cent of respondents in trouble, up from 32 per cent in June 2002. Almost three-quarters said a 3 percentage point rate hike would cause trouble, up from 48 per cent 15 months ago."

"In a worrying development for the Reserve Bank, borrowing for residential property investment jumped 5.5 per cent in the month to a record $6.83 billion. It has warned segments of the house market popular with investors - especially inner-city apartments - are oversupplied and in danger of a shakeout. Investment housing lending is 35.1 per cent higher than a year ago, rising 20 per cent in the past four months."

Another ominous signal we are heading towards a serious downturn. Deliberately ignoring geonomic analysis, the only 'remedy' available to conventional economists is to raise interest rates. This will prove extremely difficult politically, as per above, which means that the boom will roll on until a possibly greater crash.

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