One prominent property analyst has criticised last week’s rate cut and warned that some buyers will inevitably get burned.
Residex founder John Edwards said Australia is heading into a “significantly over-supplied market” which could lead to “some significant corrections”.
Mr Edwards said the Reserve Bank's 0.25 per cent rate cut would stimulate the market, although lending controls at the big four banks would probably ensure it doesn’t overheat too much.
However, he added that it was likely to have a bad ending, as had other growth periods he has witnessed in his three decades as a property analyst.
“Each period always ends in a certain number of people who buy close to the top of the market with excessive leverage getting burned,” he said.
“I issue a warning to all: we have passed the top of a normal growth period and we are about to have the market stimulated and have further growth.”
Mr Edwards said new investors run the risk of paying a premium, particularly for new units.
He also said this growth period is “taking us into uncharted waters where affordability will be potentially worse than we have previously seen”.
Even with home loans available at 4.5 per cent, the median Sydney family will have only $789 of disposable monthly income after tax and mortgage repayments, Mr Edwards said.