Treasury head warns of housing bubble

Treasury secretary Ken Henry has labelled the residential property boom a “bubble” and warned that the debt-driven boom could deflate and cause wider economic problems. He said that the surge in consumer debt could trigger a sharp fall in consumption. However, he admitted that this is the least likely outcome with a more likely scenario being that GDP will rise, lifting incomes with it. Thus household savings will increase.

Dr Henry is on the Reserve Bank's nine-member interest rates board and had argued for a rate cut in June but was overruled by other board members who feared it would exacerbate the property boom.

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