4 more rate rises to come...

[MichaelW]

Hi guys,

I've just spoken to my accountant and got him to organise a Section 221D form to improve my monthly cash flow. I should have done this earlier given the impact is about $1800 per month. That should keep my head comfortably above water. Even without that incremental cash flow I could meet my mortgage repayments and afford my cost of living without chewing into my cash reserves, but it was line ball. This way I'll be able to put $1800 per month off my debts and reduce that interest obligation every month.

sash, thanks for the myRate heads up on the 8.15% fixed rate. My current WBC variable is at 8.02% so even one more rate rise makes that fixed rate more appealing. Maybe fix the lot for another 2 years to just see off all the uncertainty. At 8.15% I'll comfortably meet repayments with cash left over...

Cheers,
Michael.

 

[Judice]

Another 4 interest rate rises would surely force many families (who were silly enough to borrow too much in the first place) to sell.

Perhaps instead of blaming the Reserve Bank, these people should look at their own spending habits, and realise that this is what's pushing up inflation.

I've been through interest rates DOUBLE what they are now, and I survived (quite happily actually). Anyone with any brains will this as an opportunity to purchase more property from people who are forced to sell.

 

[pricey]

I've been through interest rates DOUBLE what they are now, and I survived (quite happily actually). QUOTE]

A lot of us on here went through "double" but "double" on loans that were nothing compared to the magnitude of size of the loans now.

This is a different ball game...if the rates increase by another one percent it will have huge effects on consumer spending.

 

[sash]

Judice

I doubt there will be 4 more increases.....maybe 1-2 two...and then it is game over! Alot of people are in debt now so very little will tip them over the edge.

You are right some bargains will present themselves...but I do not think these will be there for long.

Another 4 interest rate rises would surely force many families (who were silly enough to borrow too much in the first place) to sell.

Perhaps instead of blaming the Reserve Bank, these people should look at their own spending habits, and realise that this is what's pushing up inflation.

I've been through interest rates DOUBLE what they are now, and I survived (quite happily actually). Anyone with any brains will this as an opportunity to purchase more property from people who are forced to sell.

 

[The_Bludger]

I doubt there will be 4 more increases.....

Why do you doubt that Sash? Aren't all the signs there already to indicate this? And with Tax cuts coming in June, what makes you think that people will save this money as opposed to spending it on a larger LCD putting more pressure on inflation? If the RBA is talking about another rate rise next month already, I think it's very likely that we could be in for another 3 after that. Remember, inflation is strong and it needs to be tamed and the best way to do this is raising IR's.

 

[sash]

I don't have a crystal ball....but this labour government is conditioning us for a very tought budget in May. I think there will be some surprises including watering down of tax cuts via swings and round abouts...i.e. increasing super.

So if you are hanging out for a new LCD via tax cuts...you maybe disappointed.

The other thing is....watch the media....the doom and gloom is pervasive ATM...once this actually bites hard and people reign in their spending the economic impact will be quick. As I said before we will be merrily traveling the yellow brick road by the end of the year with inflation in check though not controlled....and with interest rates sub 9.5%. Remember we are only talking about inflation sub 4%....high by RBA target range (2-3%) but still low overall. The RBA wants to scare us into action not send us into the next recession or depression.

Also have a look over the ditch in NZ....they have slowed their economy with 9.75% interest rates....bearing in mind their rates have always been between 0.5 - 0.75% higher than ours.

Only time will tell.....but this is what I am modelling my stuff on.

Why do you doubt that Sash? Aren't all the signs there already to indicate this? And with Tax cuts coming in June, what makes you think that people will save this money as opposed to spending it on a larger LCD putting more pressure on inflation? If the RBA is talking about another rate rise next month, I think it's very likely that we could be in for another 3 after that. Remember, inflation is strong and it needs to be tamed and the best way to do this is raising IR's.

 

[The_Bludger]

Also have a look over the ditch in NZ....they have slowed their economy with 9.75% interest rates....bearing in mind their rates have always been between 0.5 - 0.75% higher than ours.

What did this do to the housing market?

BTW - Did you know there is no Land Tax applicable in NZ? Found this out last time I was there.

 

[alexlee]

What did this do to the housing market?

BTW - Did you know there is no Land Tax applicable in NZ? Found this out last time I was there.

There's no CGT, either.
Alex

 

[chilliaa]

Another 4 interest rate rises would surely force many families (who were silly enough to borrow too much in the first place) to sell.

Perhaps instead of blaming the Reserve Bank, these people should look at their own spending habits, and realise that this is what's pushing up inflation.

I've been through interest rates DOUBLE what they are now, and I survived (quite happily actually). Anyone with any brains will this as an opportunity to purchase more property from people who are forced to sell.

The sad thing is that monetary policy is such a blunt instrument. I think yu will find that allot of recent home owners especially in the mortgage belts are controlling their spending habits out of necessity.
However interest rates wont be having the same impact on renters or on those that stay at home (gen Y), if this section continues to spend merrily it will juust make things worse for home owners.

 

[FHB]

The RBA has been pretty candid on this, unless the US slowdown hits us, interest rates are going up for the next few years. This isn't really about spending too much, its about an economy stretched by a long expansionary period. Scaring us won't fix this situation, its the natural business cycle. It's actually business borrowing that is accelerating, not consumer credit.

So either we maintain our strong economy despite global issues (ala 2001) and mortgage interest rates keep increasing into double digits, or we feel the effects of the slowdown, unemployment rises and the RBA takes its foot off the brake. Neither are great situations for holding debt, IMO.

The problem with the 'RBA will let inflation creep up to 4%' assumption, is the bigger issue of a tight labor market, and the impacts of inflationary expectations on wages. If inflation creeps up to a level where workers demand bigger wage increases, the RBA has failed. They will not want to let that happen.

 

[sash]

Bludger

The housing market is cooling very quicky....have today's Fin Review in front of me (pg 63), so to summarise:

1. NZ RBA increased prime rates from 7.25% to 8.25 as opposed to OZ's 7%.

2. House sales in Dec. plummeted by 32%, lowest in 7 years

3. Two year fixed rate up from 8.18% to 9.38%...I think variable is around 9.75%

4. Houses prices are expected to fall over the year.

5. Current nationally median is NZ$390,636 (A$ 344,300)

Yes, I know about no Land Tax, Stamp Duty, or CGT in NZ.

Cheers,
Sash

What did this do to the housing market?

BTW - Did you know there is no Land Tax applicable in NZ? Found this out last time I was there.

 

[trendsta]

Hi Sash,

you have mentioned that u think we "maybe on the cusp of the greatest boom in history"..

can you please elaborate .. im intrigued.

 

[sash]

Trendsta



I feel that the current increase in rates will be short lived. I feel by the end of this year, early next we will be on a downward interest rate cycle. This is because the rates are already biting hard.

The reason I say that we could be on the cusp of a big boom is because Australian housing is under supplied by approximately 30,000 units per annum. By 2011 this translates to about 170,000 houses/units short nationally if current immigration levels continue.

This shortage is driven by skills shortages in the building sector as well as lack of affordable developable land which builders can sell to the public. This sets us up for the next boom, particularly in Sydney and Melbourne. Already, I am raising my rents in Sydney by `10-15% per annum.....that does not come with strong underlying demand. When rates go up...we will see further escalation of this.

Hi Sash,

you have mentioned that u think we "maybe on the cusp of the greatest boom in history"..

can you please elaborate .. im intrigued.

 

[markp]

Trendsta

The reason I say that we could be on the cusp of a big boom is because Australian housing is under supplied by approximately 30,000 units per annum. By 2011 this translates to about 170,000 houses/units short nationally if current immigration levels continue.

By those stats people should be living on the street, but I dont see anyone.....hmmm

 

[Tim]

There's no CGT, either.
Alex

And no stamp duty for that matter either....

Tim

 

[Dis]

http://www.news.com.au/heraldsun/story/0,21985,23204635-664,00.html

I'm less than optimistic but it supports the view of some people on this forum.

 

[sash]

Dis,

Thanks for this...

This is line with what I have been saying for sometime. At most the RBA can do another 1-2 rates rises before the OZ economy comes to a halt. Remember the interest rates take about 6 months to flow through...last years hikes are REALLY biting now.......people are starting to hurt in middle Australia now...not just the working poor!

Already there is strong evidence that the Australian economy is cooling, namely:

1. The Fin Review reported that small business is now feeling the pinch.

2. Consumers are cutting back on Credit cards and personal loans

3. CEOs are not as optimistic

I see the RBA cutting late this year....to revive a cooled economy. Additionally with the drought easing will offer some relief in food prices. The government will then start focus on other inflation drivers like the lack of housing supply which is being outstripped by rental demand in our majotr cities. If there is tough budget in May and Oil prices stabilise....we have the trifecta...which will set the scene for rapid rate lowering.

http://www.news.com.au/heraldsun/story/0,21985,23204635-664,00.html

I'm less than optimistic but it supports the view of some people on this forum.

 

[alexlee]

A recession will cause even more lowering of interest rates. Interest rate cuts in response to a slowing economy doesn't immediately translate to higher property prices. Both booms and busts overshoot, so we may well see a period when rates are coming down but the property market doesn't boom (yet).
Alex

 

[sash]

Gee Alex.......you sound like Dr. Doom.....lol..lol...just kidding.

Personally, I do not see a recession....why:

1. The USA has cut rates by 1.25%...more to come...plus an injection of a USD170 billion stimilus. So the current doom is going to boom within 12 months

2. India and China are stilll going very strong......these economies seem to have strategies to control inflation

3. Southeast Asia is growing well and the EU seems to be treading water.

Out of curiosity....how many recessions have you seen and been through? I am in my early 40s....and have been through one very severe on in 1989-1990....learnt alot during that time....lessons which will last me a lifetime.

A recession will cause even more lowering of interest rates.
Alex

 

[Sunfish]

This is linked from the same page and it's something we'd forgotten:

http://www.news.com.au/heraldsun/story/0,21985,23204466-664,00.html

http://www.news.com.au/heraldsun/story/0,21985,23204635-664,00.html

I'm less than optimistic but it supports the view of some people on this forum.