100 basis points RBA cut

[boomtown]

You will only be able to retire if your debt has retired first Think of the asset bubble in the 1990's in Japan its still ongoing and they had interest rates at the bottom close to 0%

I think that assumes that rents would fall faster than IRs. I have my doubts about that.

 

[Peter 14.7]

Off dear.... Blind Freddie could have seen that last month needed a 0.5% drop and not a piddling 0.25%. Now panic stations at 1%. I have visions off “man the pumps, dam the torpedoes!”

What this says to me is

1. RBA had no idea.
2. RBA use to be savvy
3. Governor changed so…
4. New Governor has no idea.

AND this has clearly leaked with the Aussie $ and honest agents (as much as any are) telling me last week they have been rushed with buyers in the last 5 days.

Not good to have either a dim wit or a timid man at the helm as we approach potentially another 1987 style crash economy.

In 1987 we had huge stock market crash due to savings and loans scandal. That time property boomed 80% in 18 months as cash flooded the market only to be pummeled by the highest rates ever for mortgages at 18%. Enter recession till 1992.

Of well, for me, I am all properties up but I may now be selling in 18 months as the next boom tops out than holding long term. Everyman and his dog will flood the property market. When it is too good and fundamentals out of kilter, like it was in 2003. I sell.

Last word, if you are thinking of getting into property. Get in NOW!. The last of the bargains and distressed sales will be this month IMO. In Nov, if RBA moves again, we will have the start of the next boom confirmed. Then the break of X mas and all hell will break loose in Jan 09.

Peter

 

[WinstonWolfe]

If Dazz can survive with his debt of 20 million he will probably be in the 20% of that 4%

As Dazz alluded before he deleted, he won't rely on banks by then. He'll have so many Somersoft friends and family ready to lend him cash for outperformance, unsecured of course.... cos Dazz has learnt well how not to be lumbered with risk. Always better to pass it on.

And this will probably make your slip of the keyboard correct....that he will be 20% of the 4% (not vice versa)

 

[Doncossack]

I have said previously in my posts that at the bottom of the soft depression 2010-2012 we will see interest rates in Australia at 2%, the Aussie dollar at 38 cents and property values halved from the 2007 peak.

That would be the ultimate for me, as I would sell overseas properties and buy up big in Oz(maybe even a Mc Mansion) and semi-retire.

 

[joeExpat]

Sort of explains the rapid fall in the Australian dollar against $US...fell under 70c at one point in the last 24 hours now around 74c.

No, the drop in the $A had nothing to do with the cut, in Mondays panic everyone was fleeing high yielding currencies. That low happened over 6 hours before the unexpected rate cut size, after which the $A recovered.

 

[HiEquity]

You will only be able to retire if your debt has retired first Think of the asset bubble in the 1990's in Japan its still ongoing and they had interest rates at the bottom close to 0%

He's not thinking of the asset boom - he's thinking of the cash flow! And so am I... Who cares what happens to the asset value?

Yes it is worrying the RBA feels it necessary to go this far but so what? That will make buyers worried and keep the high yield stock out there at good prices when we can lock in good IRs and cashflow.

Just like last time, I reckon there will be a brief time again starting sometime next year where property will be CF +ve through low IRs and high rents. D&G will be everywhere but some will get very wealthy... and most will miss the boat when it leaves.

I know which side I plan to be on!

 

[nonrecourse]

I think that assumes that rents would fall faster than IRs. I have my doubts about that.

No I am assuming that rents will continue to climb even if lots of businesses fail. The pendulum has swung too far and for the next 10 years the banks are going to be risk adverse little new office space will be built because of restrictive lending policies so supply will be tight. Property values will fall because buyers will be unable to get over the finance hurdle. As Winston said the rich will get richer

 

[wally]

So now property is going to boom again?
I cant keep up with you guys
Does 1% drop make much of a difference in the current economic climate?

 

[WinstonWolfe]

So now property is going to boom again?
I cant keep up with you guys
Does 1% drop make much of a difference in the current economic climate?

Mainly to the people that matter Wally....the banks and their net profit.

Of course, the scarey thing about the 1% is that it increases the undisclosed (to us) probability that AUssie major banks, in addition to having high exposure to exy foreign wholesale funding, have higher exposure to toxic US investments (which they need the higher margins to help them write off their balance sheets).

I am eagerly awaiting the next NAB announcement of provisions for conduit cr@p.

 

[nonrecourse]

He's not thinking of the asset boom - he's thinking of the cash flow! And so am I... Who cares what happens to the asset value?

Yes it is worrying the RBA feels it necessary to go this far but so what? That will make buyers worried and keep the high yield stock out there at good prices when we can lock in good IRs and cashflow.

Just like last time, I reckon there will be a brief time again starting sometime next year where property will be CF +ve through low IRs and high rents. D&G will be everywhere but some will get very wealthy... and most will miss the boat when it leaves.

I know which side I plan to be on!

If you can fund your new acquisitions with your cash flow without borrowings then yes you will be on the right side of the ledger. But most SS investors have a string of properties that are -ve geared. Trying to get funds out of a bank with that sort of balance sheet will be like getting blood out of a stone. The banks won't lend no matter what your cash flow is I know I've been there in the good times. They just look at our property portfolio discount the income and say nope you got too much property. That was in the good times.

Most business bank managers are glorified tellers they have done Profit and Loss statements and balance sheet statements 101 but have no insight into what they are reading.

 

[Rob Williams]

Does 1% drop make much of a difference in the current economic climate?

No, but it makes a HUGE difference to peoples perception. Perception is a big chunk of reality.

 

[Player]

No, but it makes a HUGE difference to peoples perception. Perception is a big chunk of reality.

Rob is right,

perception is projection.....although with bigger numbers involved, property is in a way like the stock market (a voting machine) supply v's demand. I only hope the sentiment is not too bouyant that the two hundred bucks off the average monthly mortgage is not used as seed capital to fund four year interest free plasma's.......and the mess starts again.

I expect a bull run for property to the end of the year, however the wash-up of our local bank(s) exposures to the smoke and mirrors financial leveraging and engineering products of the US is still not known.

 

[Pushka]

No, but it makes a HUGE difference to peoples perception. Perception is a big chunk of reality.

Yep to that; the gyrations of the share market are hugely driven by perception and rumour and often very few facts.

 

[keithj]

That's my bet. Inflation to come post the crisis.

Hmmm...... high inflation, low IRs... the real cost of borrowing is falling, might even go negative ?. That's going to lead to an invisible transfer of wealth from lenders to borrowers.

The credit crisis may slow down further borrowing, but existing borrowers will benefit from the current environment. The equity fairy may not be visiting us for a while, but the value of our borrowings is being eroded by inflation.

 

[Peter 14.7]

No, but it makes a HUGE difference to peoples perception. Perception is a big chunk of reality.

Absolutely, Peter

 

[WinstonWolfe]

Off dear.... Blind Freddie
Peter

Agree about the RBA not managing with foresight Pete.

Don't agree property permabulls have found their b@lls again. Though will phone the least dishonest REA I know tomorrow and confirm.

 

[BoatBoy]

Well thats a pleasant enough bit of news for today, at least the existing PPOR loan will enjoy it.

Bit of a bummer the AUD coming down, still need about $30k worth of bits to finish the boat.

I could get them now but a bit pointless as they will be out of warranty before she goes in.

GRRrrr



Dave

 

[WinstonWolfe]

Hmmm...... high inflation, low IRs... the real cost of borrowing is falling, might even go negative ?. That's going to lead to an invisible transfer of wealth from lenders to borrowers.

One could make a good case real cost of credit is already negative, for IPs at least...and soon to be PPRs.

Forget the CPI fabricated by the ABS and the silly buggers played with substitution, hedonics, seasonal adjustments, geometric weighting....and bananas.

Just look at finance, rents, transport, and other 'common' household expenditure.....I put real cpi around 9%.

 

[Rockstar]

I have said previously in my posts that at the bottom of the soft depression 2010-2012 we will see interest rates in Australia at 2%, the Aussie dollar at 38 cents and property values halved from the 2007 peak.

Where do you see rents going NR?

The .8% cut just put over 11k/yr back in my pocket. If rates continue decreasing and IF values also decrease what is the strategy for someone like myself with 5 properties (one to be developed into a duplex) currently -vely geared.

Isn't our debt now more of an asset as the seviceability decreases and we would hold on to all of our property even if it is decreasing in value??

Of course this would cancel out somewhat if rents decreased. But is that going to happen considering that there is a housing shortage and we are not producing enough new dwellings - so we hear from the analysts?

Just trying to get my head around the scenarios if what you predict does eventuate.

 

[triton07]

Wooohooo

Westpac to cut .8% & just announced on News that CBA will follow Westpac.

So what does everyone think about the property market? Is it happening to quick or are we still heading for a recession?


George