It’s interest rates, not regulators, that will burst our housing bubble

Timing is everything. Had Australia’s prudential banking regulator announced plans to curb riskier lending on Monday, it might have caused pause for thought among the wave of investors standing on suburban lawns bidding up house prices on Saturday mornings.

But on Wednesday afternoon the Australian Bureau of Statistics released a larger than expected inflation number. The consequence of this to aspiring borrowers will be far more meaningful.

With those inflation figures, the chance of another interest rate cut this year was obliterated and the odds of an interest rate cut next year moved to slim. Indeed, the odds of rates moving up next year are firming.

And nothing dampens the desire to take out loans, particularly riskier loans, like a higher interest rate or the prospect of one. Rate rises are kryptonite for investors who rely on making a profit from rising house prices.