“Although household, and the ratio of average dwelling prices to average disposable incomes have reached historically high and perhaps disconcerting levels, it’s worth considering that record low interest rates make servicing the debt increasingly manageable,” Kodari said in his Switzer Daily column. “When you take into account the rate of employment, it becomes difficult to see why property prices would come under immediate pressure continuing the percentage of the population working and relatively benign costs associated with debt servicing.”
Kodari argued that despite the fall in interest rates, borrowers are still opting to maintain the level of their mortgage payments, hence providing them more breathing room in case they lose their jobs. “This could help sustain the housing price boom for a little while longer,” he said.
The presence of negative gearing also allows taxpayers to convert a loss on one investment into a deduction at another more profitable investment. These tax subsidies, coupled with low interest rates, could prop up the market longer, although at the expense of retirees.
“Perhaps a period of price consolidation or modest price rises is the most likely outcome in the near term,” Kodari said, concluding that alertness and caution are necessary for dealing with the property market.
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