Cottage Garden in Tissington, Derbyshire
Creative Commons License photo credit: UGArdener

This morning, Reserve Bank of Australia Governor Glen Stevens appeared on Seven Network’s Sunrise program to talk up interest rates and talk down the property market.

Using tabloid television to broadcast RBA views is unprecedented. It prefers to communicate via densely written statements, opaque economic speak and background briefings to senior business journalists.

The Governor is worried. Very worried. His message was to all Australians.

The property markets in the UK, USA and Europe have collapsed, yet Aussie house prices are being driven higher by speculators deliberately limiting supply and households grimly buying, fearful of another upward spike in prices.

He knows anyone taking out a mortgage now will likely be crushed between the jaws of rising interest rates and falling house prices. He cannot use such language, but that is his point.

The RBA has made it clear: interest rates in Australia are rising and set to go much higher in a measured and determined manner.

Compare this with the US Federal Reserve Bank Chairman Ben Bernake’s assurance their central bank intends to maintain a “highly accommodative” monetary policy for “an extended period” – which means near-zero for the foreseeable future.

Fortunately, Australia’s economic path is different: our economy supported by credible government action, low federal government debt and booming mineral exports to Asia.

But the striking imbalance in our economy remains housing, with median house prices stuck at a staggering 6.8 times median family income.

The arithmatic is simple. Anyone buying now with a small deposit faces a lifetime of heavy principal repayments, plus those rising interest rates.

 You’ve heard it from the ‘Guv: put away your cheque book.