The world is now paying for the lax credit/lending polices predominantly used in the USA over the last decade and that includes Australia, even though our economic fundamentals are completely different to the USA’s.

We are experiencing a completely different set of economic figures and the paradox is that whilst it’s the USA that caused the credit crunch, their interest rates are falling, whilst in Australia interest rates have hit a 12 year high.

Comparing the sub-prime market in the USA and Australia is like comparing chalk and cheese;  it accounted for 25% of the home loan market in the USA and about 5% in Australia. As a result it has become increasingly difficult for home owners to borrow in the USA as general credit policies have been tightened.  In Australia our credit policies have remained largely intact simply because the sub-prime or low doc market is such a small part of the overall numbers.  To put it simply, in the USA it’s cheaper but harder for the consumer to borrow to buy real estate; whereas in Australia, access to credit hasn’t changed much, it’s just costing a lot more as interest rates increase.

If we look ahead, the concerning issue for Australia is inflation, caused in part by the labour shortage, which is placing pressure on wages.  At the same time housing affordability is dropping and rents are going through the roof – parts of Sydney experienced a 20% increase in rents last year.  It’s no wonder we are seeing an increase in clients contemplating the purchase of an investment property, especially with all the instability in the share market.The good thing for Australia is that our fundamentals remain strong and as long as inflation can be checked, we should be fine.  The same can’t be said about the USA