RBA Rate Cut May Have Increased Housing Bubble Risk

Geoff Schippers, a mortgage broker in Sydney, has seen an increase in clients looking for homes to buy since the central bank dropped its benchmark rate to a record last week.

“At least 70 percent of my clients are now contemplating investing in a residential property or properties,” Schipper, principal at Scout Finance, said. “A few months ago that proportion was very small. People who were sitting on the sidelines are now motivated to get into the market.”

The Reserve Bank of Australia, which cut the interest rate to 2.25 percent on Feb. 3, faces a conundrum in one of the world’s hottest property markets. As the central bank tries to stimulate economic growth while unemployment rises, its rate reduction also threatens to inflate a housing bubble after speculators pushed prices to record highs.

Bloomberg

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