Ho Hum - Interest Rate Rises
- Thread starter Bill.L
- Start date
Hi all,
I guess my complacency argument is based on the threads that an interest rate rise would have caused a couple of years ago. During the early rises, there were all sorts of threads about what it would mean, especially around the announcement date.
The effect of the rises in the '80's on property were negative for the following 6-8 years depending on the area. Yet with the same percentage rises (as in 33% more expense from the base), people here seem to be saying property will continue to do what it has done.
Another question. At what interest rate will the property market come under pressure?? (given continued low inflation of 3-4%) If the standard variable rate of 8.5%, the new level, is not high enough to curb property price rises, what level is??
bye
I guess my complacency argument is based on the threads that an interest rate rise would have caused a couple of years ago. During the early rises, there were all sorts of threads about what it would mean, especially around the announcement date.
The effect of the rises in the '80's on property were negative for the following 6-8 years depending on the area. Yet with the same percentage rises (as in 33% more expense from the base), people here seem to be saying property will continue to do what it has done.
Another question. At what interest rate will the property market come under pressure?? (given continued low inflation of 3-4%) If the standard variable rate of 8.5%, the new level, is not high enough to curb property price rises, what level is??
bye
I'm not an economist, but it seems to me that if the economy gets worse and interest rates drop, support for house price growth may not be great. People losing their jobs would likely hit demand, but as many say it depends which market you buy into.
As Alex pointed out rents are increasing too so higher interest rates dont "hurt" so much (as long as you are taking the time to adjust rents to market). The income/expenses equation is a consideration but bothe sides of the equation are moving. Its the mortgage belt who will really feel the squeeze, with high interest rates AND high cost of petrol and other essentials.
Exactly. 0.25% isn't a big deal for me because the rise is more than offset by rental increases. For one thing, 0.25% doesn't add much to my interest bill, and recently all my lease renewals have had $20, $30pw rental increases (my IPs are relatively cheap so the rent is all around the $300pw mark). I don't jump up all excited when I raise the rent by $20 or $30pw, just as I don't jump up screaming when interest rates go up 0.25%.
As for prices falling.... no big deal. My properties have been performing above my expected long term trend anyway, so even if they fall they're still performing according to schedule, so to speak. I won't sell because I don't expect a 20%+ drop, and that's how much it's going to cost me to sell and buy back in (to say nothing of the 'mental' cost to me if I sold and watch the market go further up or fall less than it cost me to sell and buy back in!)
Steady as she goes, I say.
Alex
I disagree. In the same way with property prices themselves, rents can increase faster than wages. Why? The renters themselves change. Your IP might start as an outer suburb house, tenanted by blue collar workers. Then with city growth it 'becomes' a mid-ring suburb and is tenanted by white collar people. Then eventually it becomes an inner city suburb and is tenanted by highly-paid execs. You have 'jumps' in the wages of your tenants as the groups change.
Over, say, 20 years, you won't have the same type of people renting your place. In the same way, you won't have the same types of people BUYING in a suburb over 20 years, either. What was an outer suburb 20 years ago, filled with young families starting out is now an established mid-ring suburb, and anyone who is buying there is more likely to be older and richer. Young families starting out won't be able to afford it, for the simple reason that it has appreciated faster than wages.
Alex
I too am not too concerned with the rate rise - all the rents on our houses have been increasing and we have always calculated for a greater interest rate when doing our figures.
But what did get me wondering with talk of change in tennants and type of area - when was the last time someone reduced their rent ? Not including that time a few years back in Sydney where there were so many units that people were giving away a weeks rent, holidays etc. But seriously reduced the rent for the long term because the market demanded it ?
Just wondering ?
But what did get me wondering with talk of change in tennants and type of area - when was the last time someone reduced their rent ? Not including that time a few years back in Sydney where there were so many units that people were giving away a weeks rent, holidays etc. But seriously reduced the rent for the long term because the market demanded it ?
Just wondering ?
Yawn....
Its peanuts and will have no effect at all on property prices. In fact another few rate rises will likely do very little to property prices either.
If anything it might stall the imminent east coast boom for a year or so, but that will just make it that much bigger quicker when the brakes do come off. I still reckon Brisbane and Melbourne will keep doing 10%+ for the next few years and growing from that. Sydney has now turned the corner and is back into positive growth territory. It might slow Sydney's take-off until 2009, but even that's a stretch of the imagination. I see Sydney doing 10%+ in 2008 now too.
Home financing down, but Sydney prices recover - Business - Business
Basically, I don't care about a 25 basis point rate rise because I'm cash flow positive on my investments and this doesn't change that. Also, I reckon property prices are set to move upwards strongly and the extra $4K a year in holding costs that 25 basis points represents is dwarfed by the capital growth potential in the hundreds of thousands.
Cheers,
Michael
Its peanuts and will have no effect at all on property prices. In fact another few rate rises will likely do very little to property prices either.
If anything it might stall the imminent east coast boom for a year or so, but that will just make it that much bigger quicker when the brakes do come off. I still reckon Brisbane and Melbourne will keep doing 10%+ for the next few years and growing from that. Sydney has now turned the corner and is back into positive growth territory. It might slow Sydney's take-off until 2009, but even that's a stretch of the imagination. I see Sydney doing 10%+ in 2008 now too.
Home financing down, but Sydney prices recover - Business - Business
Basically, I don't care about a 25 basis point rate rise because I'm cash flow positive on my investments and this doesn't change that. Also, I reckon property prices are set to move upwards strongly and the extra $4K a year in holding costs that 25 basis points represents is dwarfed by the capital growth potential in the hundreds of thousands.
Cheers,
Michael
Ability to pay and willingness to pay are two different beasts.
How much people are willing to pay sets market rates.
If next year rents have increased by 20%, my IP will only cost $300/wk. I'm sure there are people with the ability to pay.
Rents traditionally rise in line with wages growth.
On the other hand we are in an era of
(a) chronic undersupply of housing
(b) likely further reduction in new housing starts due to increasing prices AND increasing interest rates
(c) less investors entering the market if the common wisdom is that capital gains may not be there in the near term.
My bet is that rents will rise faster than wages. Some individuals may need to lower their expectations on what they can afford to rent / get a flat mate.
I'm not sure how to separate the different quotes so i'll have to answer it in one block.
Rents can only increase faster then wages in the short term. Long term they cant and don't. In fact average yields across the board have been dropping for decades. This is due of course to accelerating property prices as well. I suppose ist the current long term disconnect between property prices and yields. It cant last.
Your analogy of a moving city/demographic is wierd. If it is true, what you're talking about would take a looong time to happen. Much more than 20 years.
Cities take a long time to expand & change in the way of your eg. Usually a couple of generations.
**Not including say the 'sudden' trendiness or gentrification of suburbs like say Leichhardt & Balmain in Sydney. Which completely changed in a matter of 10-15 years**
Not everyone has IPs in these areas. But for the small percentage that do. Your analogy can apply.
Rents can only increase faster then wages in the short term. Long term they cant and don't. In fact average yields across the board have been dropping for decades. This is due of course to accelerating property prices as well. I suppose ist the current long term disconnect between property prices and yields. It cant last.
Your analogy of a moving city/demographic is wierd. If it is true, what you're talking about would take a looong time to happen. Much more than 20 years.
Cities take a long time to expand & change in the way of your eg. Usually a couple of generations.
**Not including say the 'sudden' trendiness or gentrification of suburbs like say Leichhardt & Balmain in Sydney. Which completely changed in a matter of 10-15 years**
Not everyone has IPs in these areas. But for the small percentage that do. Your analogy can apply.
imho
You just have to look at who the rate rise will worry,anyone over 50 and living off passive income would be happy,anyone without a mortage would not care 1%,but it will worry those in struggle street who have only seen their investments go shywards over the past 6 years,it has not worried the ASX,the banks are up,imho the way i see the next year you will want get used to rates rises fo a while..willair..
Who to blame -- ONLY US
Everyone talks about rate rise. Nobody asks why?
I have tried my best not to spend any money to keep the inflation down, but your guys keep spend on the money from your equity. Why Woolworth keeps making record profit? why Harvey Norman keep making record profit? Because we keep spending.
Bucks stop US--- not buying, othewise we may suffer.
Everyone talks about rate rise. Nobody asks why?
I have tried my best not to spend any money to keep the inflation down, but your guys keep spend on the money from your equity. Why Woolworth keeps making record profit? why Harvey Norman keep making record profit? Because we keep spending.
Bucks stop US--- not buying, othewise we may suffer.
what's the big deal with today's rate rise?
investors are meeting an undersupplied market with rental property.
they therefore are in a position to do what any logical business person would do, and pass on the cost to the customer.
investors are meeting an undersupplied market with rental property.
they therefore are in a position to do what any logical business person would do, and pass on the cost to the customer.
Get real re: tenants
(/QUOTE)
How much people are willing to pay sets market rates.
My bet is that rents will rise faster than wages. Some individuals may need to lower their expectations on what they can afford to rent / get a flat mate.[/QUOTE]
I recently had to rent out a room within my house. I had a fixed amount p/w in my head, however, after seeing what was on offer, (local competition) I upped the amount. With the number of respondants, it could have easily gone up more too.
I fully agree that tenants/renters have to change their views on the rental "crisis". I have lived in many large cities, within many types of accomodation and believe strongly that we have it good in our big cities here in Australia. When you can live in a house only 2 kms from a city center like Brisbane and have a back yard to cook a barbie - still only paying $100 pw - people are selfish to complain.
People just have to high of expectations. Times change.
(/QUOTE)
How much people are willing to pay sets market rates.
My bet is that rents will rise faster than wages. Some individuals may need to lower their expectations on what they can afford to rent / get a flat mate.[/QUOTE]
I recently had to rent out a room within my house. I had a fixed amount p/w in my head, however, after seeing what was on offer, (local competition) I upped the amount. With the number of respondants, it could have easily gone up more too.
I fully agree that tenants/renters have to change their views on the rental "crisis". I have lived in many large cities, within many types of accomodation and believe strongly that we have it good in our big cities here in Australia. When you can live in a house only 2 kms from a city center like Brisbane and have a back yard to cook a barbie - still only paying $100 pw - people are selfish to complain.
People just have to high of expectations. Times change.
many on this forums are not worried..
but this forum has some bright investors... unfortunately the larger demographic isnt like this.. Many will feel the pinch ... just read the online comments to newspaper articles..
Higher mortgage/ir payments, higher food costs, higher transport costs, higher water bills, higher energy bills and wages not keeping pace... it all adds up .. plus various banks/lenders have said on top of IR rise they will add additional rates to cover for increasing credit..
as an investor the opportunities are starting to emerge .. but one must exercise patience...
but this forum has some bright investors... unfortunately the larger demographic isnt like this.. Many will feel the pinch ... just read the online comments to newspaper articles..
Higher mortgage/ir payments, higher food costs, higher transport costs, higher water bills, higher energy bills and wages not keeping pace... it all adds up .. plus various banks/lenders have said on top of IR rise they will add additional rates to cover for increasing credit..
as an investor the opportunities are starting to emerge .. but one must exercise patience...
Of course, the other point the media blatantly ignore, is that everyone with a mortgage is free to fix the rate anytime they want.
So when the ABC and the papers go searching for the battlers, i wonder why the bright spark journos don't ask them why they didn't fix their interest rate prior to the rise.
So when the ABC and the papers go searching for the battlers, i wonder why the bright spark journos don't ask them why they didn't fix their interest rate prior to the rise.
