Interest Rates - those with short memories

[BV]

Troy, STG decreased rates by .30% because they increased more than the big 4 on the way up. Even with the extra .05% they cut off today, their variable rate is still more than CBA. So they're not exactly playing the role of Santa and being generous.

And not only that but they haven't dropped their rates yet,
they will do it in the end of the month...that's very greedy...

 

[topcropper]

It will take more than investors to move the market, with yield meaning nothing to OO.

.

Do you believe that?

I would have thought yield ment just as much to an OO, as if they can rent for a half or even a third the cost of buying, then they decide to keep renting and not buy.

The start of the last boom, in 1997, saw not much difference in renting and buying, and thus the boom started then. Bit different to today.

See ya's.

 

[MarkandTina]

I think we are in a very interesting situation at the moment with the lowering of interest rates actually helping to lower inflation rather than raise it.

Lower rates at the moment mean:
* Less pressure on to raise rents
* Less pressure on wage increases to match the cost of living

However, if rates went too low we may see housing construction up which would put more pressure on building materials and construction wages (in addition to demands from resources construction).

I think its going to be a slow and easy drop in interest rates as the rba walks the tightrope between inflation adjusting factors on both sides.

 

[coastymike]

People are forgetting that as more and more people are sharing with friends, lovers, etc then it is entirely possible for rentals to increase and the affordability ratio does not increase.

When you are paying $270 per week and sharing with a friend then the true cost of renting is half of that. Unless these same people plan on buying property with a friend then the difference between the rent paid and the mortgage they will pay on their own doesn't decrease enough for them to buy.

 

[weg]

Topcropper,

Even in context with my statement previous to the one on yield, I was not very clear on what I was trying to say.

I do agree OO will eventually jump in and buy but only after time has done it's bit and rents have risen significantly.

They will not be entering the market before that (soon in other words) based on increasing yields, unless the yield increase is due to a big drop in house prices (assuming the economy is still reasonably sound and their jobs secure ).

Investors will be back in early, but I doubt have the ability to move the market, unless OO join in the activity in great numbers.

 

[silversands]

Hi Mark / Tina,

How come you think lower interest rates equal less pressure to raise rent?

Don't most LL's raise rent whenever they are able to and is warranted? Don't be forgetting how low yields have been and for how long. Maybe I speak only for myself but I will recoup my shortfalls whenever I'm able too.

Personally very relieved to be getting .3 off from St George!

Regards Jodie

 

[myoung]

I wouldnt get too excited by the small cut yet. This was delivered to aleviate fears of slowing growth, not any great turn around in inflation, which is not forecast to return to below 3% until 2010.

The reserve bank is in recession avoidance mode. The good news is yields should continue to improve under the inflationary environment and tight vacancy rates.

"Given the opposing forces at work, considerable uncertainty has surrounded the outlook for demand and inflation. On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by the high global oil prices in mid year and other increases in raw materials prices. But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained. "

The abolition of workchoices is going to add some fuel to the fire IMHO over the next few years.

Stagflation anyone

 

[MarkandTina]

Hi Mark / Tina,

How come you think lower interest rates equal less pressure to raise rent?

Don't most LL's raise rent whenever they are able to and is warranted? Don't be forgetting how low yields have been and for how long. Maybe I speak only for myself but I will recoup my shortfalls whenever I'm able too.

Personally very relieved to be getting .3 off from St George!

Regards Jodie

Hi Jodie,

I figure that with high interest rates many investors may be eating into their buffers. In that situation your only choices are to cut costs or increase rents.
By reducing interest rates it would make it less necessary to increase rents to maintain the size of your buffer.

Maybe I'm wrong and this is only the case for a small percentage of investors.

 

[silversands]

Hi, thanks for answering Mark / Tina

Okay sure, perhaps "less neccessary" still, we have a lot of ground to make up. I sure wasn't able to raise my rents by the more than 50plus% extra my loans now cost when compared to a few short years ago. So now I "feel the pressure" to get back to where I want to be, in the rent to mortgage ratio. Anyway, I'm digressing again from the thread. SORRY!

Cheers Jodie

 

[stumunro]

It's a step in the right direction for me. I will still sit and wait patiently, and wait for the moons to line up

[cross] cost of money (low)
[cross] cost of living (normal)
[tick] wages (increases)
[tick] rental market (tight and expensive)
[cross] sentiment (high)

not quite yet

 

[WinstonWolfe]

How long have banks been offering fixed rate home loans for periods greater than 5 years. I note CBA is doing 15 years and WBC 10 years now.

 

[plusnq]

Hi WW

NAB has been doing ten year fixed for at least five years that I know of.

Cheers

Shane

 

[WinstonWolfe]

thx Shane........

 

[Aaron Sice]

sorry - latecomer here - but i don't see ANY boom coming.

i see a floor forming with rates falling and rents rising and investors like us moving back in.

eg a 4.75% yielding property (slightly negative CF) is now close to 6% (very nearly neutral CF). if you have spare cash/equity, why would you NOT take advantages of scenarios like this?