Fluctuations in the housing market are not unusual, according to the Finance Brokers Association of Australia (FBAA).
Playing down talk of a pending housing bubble burst, executive director Peter White said the reality is that property values are cyclical.
“Every seven years or so housing prices heat up and then cool off and the market takes corrective measures in response,” he said.
“The main risk to the housing market now is the extraordinarily long low interest rate environment in Australia.
“There is no question that interest rates are going to go up and as they hit six or seven per cent, it will cause financial hardships for some borrowers.”
Mr White said that doesn’t mean existing loans were wrong at the time they were written, rather, it’s a market movement on variable interest rates.
“That’s where the buffers being pushed out on serviceability calculations are having an effect to ensure that as the market rises, people can still afford to service their loans,” he continued.
“The problem doesn’t necessarily lie with the mortgage. Australia has one of the world’s highest users per capita of credit cards.”
Mr White said people are used to having a spare 100 dollars a week to spend on consumer goods because of lower interest rates, but that buffer is disappearing.
“Stresses in the property market in the future will be caused by interest rates going up.
“People who can’t afford to service their debt will potentially start selling their assets, which will cause a property glut in the marketplace and force prices down and that will have a negative effect as we go forward over the next ten years or so.”