"drop rates further and that will test the governor's credibility. "
YC is right, the issue is debt levels, not IR. Stevens himself indicated in his speech in Adelaide (a very good speech FYI) that if he thought rate drops would re-ignite the housing market they would be very cautious. As it stands they believe rate falls will assist people to de (dis) leverage faster, but have very little impact on "re-igniting" the silly house price gains of the 2000's.
People like to harp on about 10-15% IR of the past, but when a house is 6 to 7 times average incomes versus then 3 to 3.5, a 6 or 7% IR is virtually the equivalent of over 10% IR's.
