A good friend in the Melbourne restaurant trade informs me that business is booming. How can that be when so many people refuse to work, even when employers are offering cash inducements and almost begging?
It needs to be remembered that those who are still working and who own their own homes are feeling extraordinarily wealthy. The dollar value of their houses has soared. The fact that house prices peaked in December of 2004 in real money terms, is of no interest to them. The tumble in the value of the Au$ has made it appear that house prices are rising because it takes more dollars to buy them – i.e. it is the value of the dollar dropping, not the value of the house rising. Be that as it may, home owners are flush with dollars.
If the R.B.A. lifts interest rates another half a percent then the mortgage payment increase will become noticeable. Another one percent and it will start to become painful.
At some point, mortgage payments will become excruciating and the boom in my friend’s restaurants will cease.
Feeling rich is a good feeling. Enjoy it while it last guys. Better still, sell your house because the top is now in and the direction for at least a generation, is down.