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Is property investing getting scary?

Property prices could be about to rise as the major banks cut fixed mortgage rates but should Australian households be gearing up again?

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If you’re feeling uncomfortable about the housing market and soaring property prices – you have good reason to.

Many families are feeling the pain, they don’t have a lot in emergency cash savings and what’s more the Australian property market could be about to get even more expensive as the major banks prepare cut interest rates and people take on more debt.

This means if you’re thinking about buying property or looking to use the equity in your home to renovate, that now could well be the time to do it because money is becoming even cheaper to borrow.

But on the flip side, biting off too much debt is becoming riskier, particularly as the level of household debt is rising and we know rates won’t stay low forever.

Already property prices in the country’s two most populated cities Sydney and Melbourne have risen this year in response to lower interest rates. Construction and renovation activity is also high in both these capital cities.

In other capital cities, house price activity has cooled in Canberra, Perth and Darwin, while Adelaide, Brisbane and Hobart have seen some modest gains, according to the Australian Bureau of Statistics.

Bets are increasing in financial markets that the Reserve Bank of Australia will cut rates tomorrow with futures markets tipping about a 60 per cent chance that the cash rate will go to 1.5 per cent.

This will be the lowest rates have ever been since data started being collected in Australia.

Most economists surveyed by news giant Bloomberg, expect the RBA to cut rates, particularly after the latest inflation data showed that consumer price growth had slowed, despite a pickup in retail sales and housing activity.

Figures also released by interest rate comparison website RateCity show 18 lenders cut three-year fixed rates in July, across 112 loan products, according to Fairfax Media.

In this news reportRateCity said the average three-year fixed rate, at 4.13 per cent, was now 0.36 percentage points cheaper than an average variable loan, the widest gap in more than a year.

The number of Australian’s with uncomfortable levels of household debt is on the rise.

The latest ME’s 10th Biannual Financial Comfort report, which surveyed 1000 households, found while the majority were able to meet their repayments, about one in ten people said they won’t be able to make minimum repayments in their next year. This is the highest ever level in the report’s five-year history, according this report via news.com.au.

Professor Steve Keen, who famously bet on a property market crash after the 200/708 financial crisis, but was wrong, believes that the property market is about to go bust.

He cities rising household debt, weakening terms of trade – thanks to the end of the mining boom, and a lack of government investment, as signs that property prices will fall by 40 to 70 per cent over the next year.

See more on Professor Keen’s predictions here.

Another survey by Melbourne University found home ownership is increasingly out of reach for many Australians, one in eight families don’t have $500 in savings in case of emergency, and that real household disposable incomes peaked in 2009.

You can read more on The Household, Income and Labour Dynamics in Australia (HILDA) Survey here.

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