I do not fully agree that if the US lowers interest rates...

I do not fully agree that if the US lowers interest rates further assuming they do - that we will follow. However ever I do think that any increase in interest rates here in the near future is looking unlikely.

Even at the current interest rates the amounts banks are willing to lend is only going to lead to large problems in the future.

After recently hearing how much some friends had been offered for a home loan I had a look at the loan calculators on some of the bank websites.

Out of interest I calculated how much a bank would lend a couple with one earning $60,000 and the partner earning $20,000 per year. Both the ANZ & Westpac come up with a borrowing amount of around $500,000 on repayments of $3,200 a month. Increase the interest rate to 8.5% which is not unrealistic and the repayments go to $3,900 per month which would leave a couple on the above incomes about $1200 a month to live on.

Add to this low yield on investment properties, over supply especialy in the inner city appartment market, over inflated prices and it is not hard to see that there will be some real pain in the future. The longer the current situation continues the greater the pain will be.