Westpac’s shock rate-rise announcement has brought the property market to a screeching halt!

Or has it?

The media is now awash with talk of the other major banks also increasing rates and poring over this weekend’s poor clearance rates (69.3 per cent across the country).

Only a fool would argue that the growth we have seen would carry on forever.  But who is to say that these changes will simply generate growth in other areas?

There are two reasons why growth may simple evolve into something different.

The first reason relates to the banking sector; not all banks are obliged to follow Westpac.  The reason why Westpac has increased rates is because it, plus the other majors, are being forced to keep some of their capital in reserve to protect against bad debts (as a result this capital cannot be used profitably).  But not all banks face these legal pressures.

On the same day that Westpac announced its rate rise, Suncorp lowered its rates (and offered $1,500 to new customers).  Similarly competitive rates have also been offered by AMP and Auswide Bank.

The second reason why growth may also evolve is because of the property market.  The latest growth spurt has been driven by investors – at the expense of owner occupiers, especially first home owners.  Rate pressures on investors will clear the way for owner-occupiers to buy and get a foot on the ladder (especially as owner occupiers enjoy lower rates than investors).

Respected research house, SQM, have forecast that next year Melbourne will grow by 8-13 per cent and Sydney by 4-9 per cent.

Right now, many would be happy with those returns.

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