Are we too much in debt?



Reply: 1
From: Mike TheBloodyIdiot

Thanks Lan.

Main conclusion from this article is that to kick economy in the genitals in the late 80's (45% of household income debt level) Reserve had to rise rates to 18%.

Now at 110% debt level to reach the same effect the most they have to do (and can do) is to rise rates to 7.36%.

Anyone here afraid of 7.36% ? Would this kind of rate prevent you from buying property?

In fact, rates will never reach even this high. Remember we have gross oversupply of new properties from pre-GST and FHBG. When FHBG runs out in July, building industry will be on its death bed, hence in three months after that the whole economy will be on the brink of collapse.

So it simply means that we can virtually forget about terms like "bust", "property cycle", etc alltogether.

Property booms from now on will be interrupted by periods of steady growth.

In turn this only means that very soon property will be out of reach for ordinary mortals. Where would they live?

In our rental properties. Congratulations to all of you.

Mike - TBI.
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Reply: 1.1
From: Marina .

On 4/10/02 4:26:00 PM, Mike TheBloodyIdiot wrote:
>Main conclusion from this
>article is that to kick
>economy in the genitals in the
>late 80's (45% of household
>income debt level) Reserve had
>to rise rates to 18%.
>Now at 110% debt level to
>reach the same effect the most
>they have to do (and can do)
>is to rise rates to 7.36%.
>Anyone here afraid of 7.36% ?
>Would this kind of rate
>prevent you from buying
>In fact, rates will never
>reach even this high.

I read in an article that BIS SCHRAPNEL forecast interest rates for 2002-2004 to be within the 6.1-6.8% range for variable housing rates, but suggest this could rise to around 9% or even higher by late 2005 when they anticipate stronger economic activity.

So it looks like we should be prepared for interest rates to hit 9%.
What do others think?

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Reply: 1.1.1
From: Mike TheBloodyIdiot


Remember like in the second half of 2000 same BIS stated that property boom has come to an end and advised either to pull out of property investment or wait till 2005 when market starts to pick up again?

How does this prediction look now?

I did not believe them back then, I do not see even smallest shred of reason to believe them today.

Why should we believe that interest rates should go up at all? Because December data showed great consumer confidence?

Pigs can fly. December "consumer confidence" was fueled by two things:

1. Pre-FHBG-end rush. People who managed to complete their new houses before $14,000 grant ran out on 31 December started to get their money. In "before tax" terms FHBG sum amounted up to $28,000 - close to average Australian wages, but they were completely unearned. In other words - pure inflation money.

2. Tidal wave of retrenchments and corporate collapses just before Christmas has thrown on the market enormous amounts of redundancy money. People thrown away were mostly professionals.

But now we are back to normal.

Look at our beloved Treasurer. Since 1996 his job was mainly yelling about how great our economy is and what a good economic managers they are. Now it is completely different story: "we are not doing as great as media thinks".

Translated from Liberal to English it means: "We are in really-really deep doodoo. Guys, I do appreciate your burning desire for high interest rates so we can smoke people out of the property investment into share market, but... "

Retail sales growth is down for February. Job ads are down 13% for March. For every professional vacancy there are HUNDREDS of candidates.

Approx May-June they are going to run out of their redundancy packages and will be joining dole queue, so we wil have a chance to learn real unemployment rate.

Even those who manage to find job are forced to accept 30-40% reductions in salary. Does it do any good to consumer confidence.

By this time some of them are going to loose their homes, and we know that most of those homes will be flashy brand new ones.

This will drive demand for new properties down, and combined with the death of FHBG (end of June) building industry will rest in peace.

I believe you read API magazine, so you can find this marvellous article about how "new house commencements" relate to GDP.

What happens when GDP goes down? Well, surprise-surprise : interest rates go south. Get yourself ready for Christmas present.


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