Since the deregulation of Australian Housing Finance interest rates in early 1986 the market has determined the rate prospective home buyers must meet for their loans. Deregulation has brought higher interest rates and considerable public discussion concerning the plight of home buyers and these interest rate rises. The paper analyses post-1985 interest rate, house price and incomes data from six capital cities, and computes movements in the deposit gap (the difference between borrowing capacity and house prices). The empirical work demonstrates that, by the fourth quarter of 1988, house price inflation was the major factor contributing to a widening of the deposit gap.
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