19 Oct 2013

"Boom" Are property prices set to soar?

The Reserve Bank of Australia's dramatic move to slash interest rates could cause house prices to skyrocket out of the reach of first home buyers, an industry analyst has warned.

Known as "quantitative easing", the RBA has taken several actions to try and stimulate the Australian economy, including cutting interest rates three times in a year to the current level of 0.75 percent.

But a strong economy is not necessarily the golden ticket into property that young people are looking for.

Low rates mean high property prices

As IBIS World Senior Industry Analyst Michael Youren explains to 9news.com.au, the side-effect of these measures will most likely see the cost of property jump.

"A fall in interest rates generally translates into rising property values," said Mr Youren.

"As retail interest rates fall, customers can borrow more money, as the interest costs charged on a loan falls."

First home buyers could suffer the most

As Mr Youren explains, the simplest way to think of this mechanism is to picture an auction: if all of the potential home buyers at an auction suddenly had access to more money, they would be more likely to bid more, leading to the property selling for a higher price.

This is an edited story from 9NEWS.COM read full story HERE

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