House prices must cool off soon

Melbourne home values have risen almost 20 per cent in the last year, more than any other major capital city, said Tim Lawless, managing director of RP Data. “The growth run we had in 2009 has continued into 2010 with house values rising 5.4 per cent in the three months to February 2010.”

However that run can’t continue forever said Lawless who warns that house price growth is generally cyclical. “You would think that growth has to taper off especially with interest rates likely to rise on Tuesday and by up to one per cent over 2010.” If house prices do cool off, the last thing you want is to be caught out with high repayments and not being able to sell at a good price.

The RBA governor Glenn Stevens has been on television this week talking about the need to factor in rate rises to borrowing decisions. “The banks that are lending the money should be, and I'm sure are, testing the potential borrower, ‘Can you handle some rise in interest rates?'” said Glenn Stevens last week.

Source: Herald Sun