IMF - Interest Rates Must Be Kept Low

[grand dad]

The RBA usually takes heed of whatever the IMF says. And in the link below, the IMF has reportedly said that interest rates should be kept low. The implications for the property market are obvious. The tide of rising prices still has some way to go; the next 12 months should be very good ones.

http://www.news.com.au/finance/econ...terest-rates-low/story-e6frfmn0-1226825846866

 

[Peter_Tersteeg]

This isn't exactly a revelation. I'm no economist, but from a practical point of view it's pretty obvious the country can't afford high interest rates at the moment.

People who remember the 80s and 90s often ask, "What if rates go to 18% again?" Realistically this isn't going to happen.

In 2007-2008 rates were on the increase and peaked somewhere between 9%-10%. At that time most of the people I was talking to simply couldn't qualify for a loan. Businesses were having trouble meeting their commitments and were laying off employees. Quite a few lenders were going under. Internationally there was the wider GFC which caused a lot of this, but simply put, people who had otherwise good income security couldn't afford to borrow money at 10% and the economy ground to a halt.

Recognizing this, the government/RBA dropped rates dramatically. Official rates dropped 4% in 4 months. In my opinion they overcompensated and money became too accessible which caused it's own problems, one of which was a property boom which ended in a correction in 2010. The country has now recovered from that and prices are higher than ever. I believe there's scope for further increases.

My point to all this is that the country cannot afford for rates to increase significantly. 5 years ago we couldn't afford 10%. Now I think we'd see the same result if rates increase to 7%-8%. By the same token I don't want to see rates dropping further as this will have a short term gain but a medium term loss. My feeling based on the micro view from the office window is that rates will stay where they are for a reasonable amount of time.

 

[Aaron_C]

With the latest job losses everywhere how can rates go up?

 

[spludgey]

And for some reason people also think that rates are going up, decreasing customer confidence, ensuring rates stay low.

 

[willair]

The RBA usually takes heed of whatever the IMF says. And in the link below, the IMF has reportedly said that interest rates should be kept low. The implications for the property market are obvious. The tide of rising prices still has some way to go; the next 12 months should be very good ones.

http://www.news.com.au/finance/econ...terest-rates-low/story-e6frfmn0-1226825846866

When one looks back into the pre-computer days 30 years ago the rates were very high and "IF" you had a good understanding with the bank manager 50-50 you could get a loan,now you have a simple spreadsheet and anyone that is computer-literate can have a projection very quickly
the next 6-12 months may be ok,but after that in open waters various new trade agreements is anyones guess,at some stage like before and before that the rates will go back,or read the history within this site and the mild panic when rates were just below 8%..

 

[TMNT]

are the rates the same in frankston?

 

[underdev]

IMO banks want you to think rates are going up... Why?? So the can lock you in as their customer for 5 years at a rate above current levels.

Rising interest rates come at the end of a boom cycle, it is used to slow things down.

Are we in a boom? Rising real estate and rising stocks, the media would have you think so. IMO its all artificial, look at valuations coming in. Is it a real boom? today tonight say so, its about perception rather than reality.

How many of your friends and family are out of work?

 

[alexlee]

IMO banks want you to think rates are going up... Why?? So the can lock you in as their customer for 5 years at a rate above current levels.

Banks hedge interest rate risk. They don't really care whether you take out fixed or variable rates: their profit is built in. To put it another way, they don't lose money on variable rates if rates fall, nor do they make more money when variables rates rise.

However, rate changes affect loan volumes. If anything, banks want lower rates because they can likely write more loans. And lower rates likely results in fewer defaults.

 

[underdev]

Banks hedge interest rate risk. They don't really care whether you take out fixed or variable rates: their profit is built in. To put it another way, they don't lose money on variable rates if rates fall, nor do they make more money when variables rates rise.

However, rate changes affect loan volumes. If anything, banks want lower rates because they can likely write more loans. And lower rates likely results in fewer defaults.

The point was that a client on fixed rates is locked in with that bank. I wouldn't mind guaranteed income for 5 years

 

[alexlee]

The point was that a client on fixed rates is locked in with that bank. I wouldn't mind guaranteed income for 5 years

Even if it's matched with guaranteed expenses for 5 years?

 

[underdev]

Even if it's matched with guaranteed expenses for 5 years?

Yes. I would have thought so.

I also would have thought brokers appreciate the ability to deter clients from churning.

Just my thoguhts