At the end of this week the governor of the Reserve Bank, Glenn Stevens will hand over the reins to his current deputy, Philip Lowe. The challenges for Dr Lowe are much different to those which Stevens faced. Where Stevens faced an economy running hot, but where a major economic quake was about to hit the entire world, Lowe inherits the aftershocks of that quake and – unlike Stevens – there may be little he can do about it.

It’s a mark of both the massive change in the economy over the past decade and the limits of monetary policy power that when Glenn Stevens took over the governorship of the RBA, the cash rate was at 6% and nominal GDP was growing by just under 8%; now the cash rate is at 1.5% and nominal GDP growth is just under 3%:

Ten years ago the overriding problem for the head of the RBA was to keep inflation in check. The economy was running so hot, with nominal GDP growth about to go over 9% – something that hadn’t happened for 17 years – that even despite the government having a budget surplus, the RBA had to keep raising the cash rate to try its best to apply the economic brakes.

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When the RBA raised the cash rate to 7.25% in 2008, the average mortgage rate reached 9.6%. It meant that the average monthly mortgage repayments for a new 25 year home loan had gone from $1,682 when Stevens took over to $2,217 in September 2008.

And while the interest rate rises and the GFC did put a brake on the growth of the housing market, the average mortgage size – as with prices in general – kept going up.

In September 2006, the average new mortgage for an established dwelling was $220,400. At the average standard variable rate of 7.8% that meant a monthly repayment of $1,682.

In July the average new mortgage was $370,500 and at an average mortgage rate of 5.4% the repayment for such a loan is $2,263 a month:

The increase in repayments are not so dramatic when you take into account inflation. In 2016 dollars, the 2006 mortgage repayments are $2,106 a month – still $157 a month less than they are now.

It all serves to reinforce not just the massive increase in the cost of housing over the past 10 years, but also just how changed the economy has become.

Those average mortgage rates of 9.6% would now absolutely kill the economy. At that rate, the average mortgage repayments for a $370,500 loan would be (hold your breath) $3,273 a month.

What does this mean? Well firstly, forget having to pay interest rates like we did prior to the GFC. It would be almost impossible to imagine such rates occurring again in the next 20 years.

To have the conditions where the economy required rate to be raised by 4% or more, would mean GDP growing well above average for a good five or six years straight. It took six years of our biggest investment boom in history for the average mortgage rate to go from 6.05% in 2002 to 9.6% in 2008.

It means should the economy require a bit of a slowing (I know, hard to remember such a need) the RBA would only need to slightly touch the brakes, in order to put significant hurt on Australian mortgage holders.

To get to the same real mortgage repayments as occurred at the peak in 2008 when the rate was 9.6%, rates now would only need to be raised to 6.85% - which would only need the cash rate to be raised to around 3%.

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Things have changed so greatly that for the RBA to get mortgage repayments up to where they were raised to prior the GFC, the RBA would now need only to raise them to the level they were cut to during the GFC.

But the level of mortgage repayments also highlights the difficulties for the RBA when it comes to stimulating the economy.

In the midst of the GFC, the lowest the average mortgage repayment in 2016 dollar terms was $1,992 a month. To reduce repayments to that (assuming no increase in the average mortgage size), would mean the mortgage rate would need to be dropped to around 4.15%.

That would require the RBA cutting the cash rate to 0.25% - and that is assuming the banks pass on the full rate cut.

This doesn’t really give you much room to move.

In such a context it is thus not surprising that despite cuts to interest rates in the past six months, the latest housing finance figures show a significant cooling:

Cutting rates at this point is a bit like pushing a piece of string.

From last May when the RBA began to once again cut interest rates, the average new mortgage has increased by 10% and the average repayments for those mortgages has risen by 9%.

Now the growing size of new mortgages doesn’t affect those already with a loan. Such people just get the benefit of the rate cut. As a result, while overall housing debt to disposable income ratio is at a record high, our debt interest payments have stayed relatively stable:

But even here we can see we are paying a lot more of our income in interest repayments than we were in the 1990s and early 2000s, and roughly the same as we were during her GFC.

It means even with further rate cuts, new home buyers will be taking on historically high levels of debt.

Thus when Philip Lowe takes over as governor of the RBA next week, he is faced with a much different economy and monetary situation that Glenn Stevens.

He undoubtedly has much more powerful brakes than Stevens had at his disposal; but his accelerator power is much diminished.