Newspaper article The Daily Mercury (Mackay, Australia)

Rate Increase Applies Brakes

Newspaper article The Daily Mercury (Mackay, Australia)

Rate Increase Applies Brakes

Article excerpt

THE media indignation to a certain bank lifting its interest rate above the Reserve Bank of Australia's interest rate increase seems to have inadvertently taken focus away from the ramifications of the interest rate rise itself.

Sometime in the mid-1990s to the early 2000s, house prices around the globe went on a bull run, which lasted twice as long as previous cycles and rose three times as much.

Since late 2007 property prices around the world have fallen, losing much of those gains, all except Australia, Switzerland and Sweden (Source: OECD).

Economic theory asserts that house prices, rents and incomes should move in tandem over the long run.

Why?

Consider house prices and rents first.

Buying and renting are alternate ways of meeting the need for shelter.

In the long run, therefore, house prices and rents cannot get out of sync.

Were that to happen, people would switch between buying and renting, bringing about adjustments both in prices and rents to bring them back in line. …

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