Mortgage bubble in Australian capital cities? 27-Apr-2015

According to the article picked up in Newsensus, Risks of mortgage defaults in Sydney and Melbourne are growing as soaring house prices are matched with bigger loans and deteriorating affordability, ratings agency Moody’s warns.

Since 2012, RBA has cut the interest rate into record low level, which currently stays at 2.25% and was above 4.0% in early 2012. In line with the interest rate falling, AUD has declined against major currencies including USD, GBP, NZD but not JPY that has fallen.The timing when mortgage price started going up steeply was near that interest rate started being cut.
Typically, it could say that lower interest rate helps buyers to buy houses and it has lead to housing price up. In UK, lower interest, as well as help to buy scheme, has helped people to buy houses and the housing market has gone up steeply for a last few years.

A below figure describes Australian cash rate target vs Residential Property Price Index. Since 2012, Residential Property Price Index started going up steeply until 2014 while the cash rate has been cut over the period.

Although it is not evidence that the lower interest helped people to buy houses, the timing matches between the rate cut and residential price going up from 2012 to 2014.

Ref. Australian Bureau of Statistics

(Newsensus available at Google Play)