Makybe people have very short memories. I hate going over old stories but 20 years ago when rates where well over 17% no one in their wildest dreams ever imagined rates would drop below 10%, let alone 6%!. Now, the majority believe they will never see rates over 10% again. While I don't see any reason for that to occur in the foreseeable future, no one can 100% rule that out.
Our leaders will be hard pressed to ensure our economy won't stall and sink, while on the other hand they would be fearful of out of control inflation. With so many now fully maxed out on their home loans our leaders would be very mindful of the fact that raising the rates could cause so much financial distress and would want to avoid falling house prices to prevent negative equity. That is what concerns me - how will our economy cope if people ever see their home prices fall in value? It's not something I wish for the economy because not many here would be able to avoid the impact associated with a housing crisis.
As stated in the previous post if we start to import inflation then our economy will self adjust local inflation via cutting back wages, rental fees, etc. And that is the hardest part - an economy can accept local inflation because the majority become winners - who wouldn't be happy with a wage rise? But how do you reduce someone's or an industry's wage without major backlash? It's virtually impossible unless workers become desperate to keep their jobs or even to get back into the workforce. Once that mindset becomes re-instilled into the work force we would see many willing to do many of the jobs no one wants to do at the moment.
Just an example of where we've come. Years ago if you bought $2000 worth of tiles it would have cost maybe $700 to have them laid. Now it's more like $3000. If you buy a split system air-conditioner for around $600 it will cost around $900 to have in installed.
Think about it - how many man hours does it take to manufacture an air conditioner? And how many hours does it take to install one? There's a massive discrepancy there - I would hazard a guess that it takes something like 25 man hours to manufacture a unit, while it only takes 2 to 6 hours to install one depending on the application. So as you can see we have a lot of room to readjust wages and tradesmen fees. So much so that many will have no problem undercutting each other if and when things turn ugly.
That is why I don't want house prices to fall much at all simply because the pain would be unbearable for the whole economy.
