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Sharp rate hikes could spell trouble for housing


housing bubble hand2A significant increase in interest rates could trigger a housing collapse, an investment consultant has claimed.

Institutional investment consultancy Frontier Advisers has claimed any sharp rate rises would see Australian house prices overvalued by more than 50%, The Australian has reported. According to The Australian, the Frontier report claimed a rise of 1.5% could cause a housing collapse.

In spite of its warning, the group said it did not believe a house price collapse was likely. Should house prices suffer a correction, Frontier said the decline could be mitigated by first home buyers entering the market.

The report also pointed to high levels of household debt, The Australian said. Frontier noted that, while most debt was held by high-income households in a good position to service it, property debt had grown significantly for low-income households. Middle-income households were the most highly geared.

Will Australian housing go bust?

Frontier noted, though, that evidence suggested the credit quality of home loans had not fallen.

“While people trying to enter the property market will be increasingly anxious about the price they need to pay for a house in many parts of Australia, the great majority of households are servicing an existing mortgage,” Frontier director of capital markets and asset allocation research Chris Trevillyan said.

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