Australia is making the same mistakes as the US when it comes to the property market, according to economic expert, Professor Steve Keen.
As told to the Sunday Telegraph, Professor Keen said that the economic stimulus package, coupled with the first home buyers grant will see thousands of young homeowners risking bankruptcy, when the economy bounces back and interest rates increase.
Thousands of first home buyers are flooding into the market, lured by cheaper housing prices, lower interest rates and the First Home Owners Grant of up to $21,000 for newly constructed homes. However, Professor Keen believes that in trying to avoid an economic crisis caused by too much borrowing, Australia is encouraging the poorest in the community to take on even more debt.
His sentiments are echoed by Gerard Minack, chief economist at Morgan Stanley.
“I don’t care what rate you’re paying, if you have a mortgage five times your income and you lose your job, you’re toast.”
While he understands the reason behind the grants, he said that encouraging young people to enter the market at this stage of the cycle is “risky.”
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