Steve Keen, head of economics, politics and history of the university foresees two or more interest rate cuts by the Reserve Bank of Australia (RBA) in 2015.
"The unemployment in Australia now is the worst it’s been in 10-15 years, and the only thing keeping it up is the housing bubble because that is pumping borrowed money into the economy, people are spending that money, and of course also foreign buyers pumping money and buying real estate," he said.
"Those are really the only two massive inflow sources into the economy. If the housing bubble pops then that inflow also stops and we therefore have a downturn driven by having finally a housing bubble bursting,” he added.
Keen said he may well be surprised to see it plummet below 2%, but wouldn’t be amazed.
"Partly the economy itself slowing down so much that the negative returns in rental become excessive. Those people are having carrying costs and of course passing those carrying costs on to the Australian public through negative gearing, but they none the less have those carrying costs to handle,” he said.
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