ANALYSIS: Yes, house prices will rise with lower interest rates, but that's not the only effect
Higher prices for new dwellings help developers. They often lead to an increase in construction jobs as developers anticipate better conditions for selling properties.the average quality of the rental stockPerhaps even more important is the pseudo-psychological effect of existing home owners feeling wealthier when house prices go up. This can lead to increased consumer spending — and this can have a big economic effect, given consumer spending accounts for about 60 per cent of GDP.
Would corporate tax cuts provide a bigger boost to investment? You bet. Are there diminishing returns to rate cuts as the cash rate approaches zero? That's very likely to be the case. Rate cuts do something to drive down unemployment, drive up consumer prices, and boost investment generally.But they certainly do also drive up residential property prices.
If they borrow too much and are unable to repay their loans, that's very bad news for them. Defaulting on a mortgage is a wrenching experience. Most people try hard to avoid that.
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