IMF says:Australian Housing a SURVIVOR on the World Stage

[FHB]

That's not the point of the discussion. The point is that because most people in Australia are on variable rates, and because the banks are passing on most of the official rate cuts, most Australians see an immediate benefit from rate cuts. Which is not the case in the UK or USA for example, where most borrowers fix, and where the banks are not passing on as much of the official rate cuts. Because the banks over there are screwed basically, unlike Australia's strong and profitable monopolistic banking sector.

We must be having different discussions then. I'm responding to this:

We did some analysis on the housing market. We tried to look at the fundamental drivers of the house price, and one of them is strong immigration flows, and the other is the interest rate."
Unlike the US, where most mortgages are fixed, three-quarters of Australian mortgages are variable, which means home owners are benefiting as interest rates fall.

This doesn't make sense, homeowners aren't setting prices, sellers and buyers are. Buyers have access to lower interest rates via fixed and variable loans. Both are lower than they were a year ago.

The ability of banks to pass on rate cuts isn't what I was commenting on, neither was the original article.

 

[Aaron Sice]

whether i agree with the article or not, the IMF still have very large inconsistencies and are preaching old news, therefore - once again - they show they are a back foot force, not a front foot force.

aussie home prices ARE inflated, however, the sentiment on the ground is NOT one of "lets just hand back the keys and rent next door" - people will sell the car to fund a mortgage in australia.

i see no reason for house prices to continue to fall at a dramatic pace. unfortunately for some (sparky ) the damage is done by blind, back foot monetary policy.

 

[Shadow]

This doesn't make sense, homeowners aren't setting prices, sellers and buyers are. Buyers have access to lower interest rates via fixed and variable loans. Both are lower than they were a year ago.

Makes sense to me. Interest rates influence homeowners decisions to become buyers or seller.

I am a homeowner. Rates are low. I don't need to sell. I can buy more.

If rates were high, perhaps I couldn't buy more. I might need to sell.

If my existing loans were fixed, then perhaps I don't need to sell, but I would not be benefiting from increased cashflow via lower variable rates, so perhaps I can't buy any more.

The ability of banks to pass on rate cuts isn't what I was commenting on, neither was the original article.

It is still important though.

 

[GoAnna!]

Makes sense to me. Interest rates influence homeowners decisions to become buyers or seller.

I am a homeowner. Rates are low. I don't need to sell. I can buy more.

If rates were high, perhaps I couldn't buy more. I might need to sell.

If my existing loans were fixed, then perhaps I don't need to sell, but I would not be benefiting from increased cashflow via lower variable rates, so perhaps I can't buy any more.



It is still important though.

Clearly stated. I agree. Lower variable rates have a huge impact on homeowners to hold (and even improve) their properties. With less pressure to sell and more interested in buying there is more chance that prices will hold rather than fall. In Australia the impact is greater than the US as more have loans on variable.

Kudos if the system allowed


To see those on fixed rate as being immune form pressure is untrue. Fixing can be a defence from even higher rates rather than comfort with existing rates.

 

[FHB]

Yep, I agree that high fixed rates, if you lose income are going to hurt more than being on high variable rates that are falling and you lose income. But I didn't see where the article made that distinction.

The claim I responded to is that fixed rates are worse for house prices than variable rates, this doesn't resemble reality over a period of very low fixed rates that we saw in the US. Low fixed rates saw prices boom, I suspect it would have been the same result if they were variable. If there are other factors that are affecting prices, Mr Brooks is failing to acknowledge them, he says its immigration and the popularity of Fixed over Variable interest rates that are the main drivers. I don't agree, and none of the arguments put forward in this thread support him.

 

[Shadow]

Alright, who killed somersoft? I'm having another pointless discussion with Shadow about the effect of fixed rates, as opposed to variable rates, on house prices, and I want to continue banging my head against the brick wall:

Hmmm... if you feel that way about it, you could always just accept that I'm right.

 

[FHB]

Makes sense to me. Interest rates influence homeowners decisions to become buyers or seller.

I am a homeowner. Rates are low. I don't need to sell. I can buy more.

Someone on a fixed rate can enter into a new loan at a lower fixed rate if they want to buy more. In the US you can even pay out early and refinance at a lower rate. Why would you need to sell?

This isn't a function of fixed vs variable. It may be a function of the price or availability of credit. Mr Brooks is off the mark.

 

[Shadow]

The claim I responded to is that fixed rates are worse for house prices than variable rates, this doesn't resemble reality over a period of very low fixed rates that we saw in the US.

Brooks: Unlike the US, where most mortgages are fixed, three-quarters of Australian mortgages are variable, which means home owners are benefiting as interest rates fall.

FHB: Strange that they bring up the fixed rates argument, US interest rates have been far lower than ours over the past few years.

FHB & Shadow: <bang heads for several posts>

FHB: The claim I responded to is that fixed rates are worse for house prices than variable rates, this doesn't resemble reality over a period of very low fixed rates that we saw in the US.


You misunderstood the claim. He didn't say 'fixed rates are worse for house prices than variable rates'. He said that more borrowers in Australia are benefiting as interest rates fall, compared to the USA where most borrowers are fixed.

Someone on a fixed rate can enter into a new loan at a lower fixed rate if they want to buy more. In the US you can even pay out early and refinance at a lower rate. Why would you need to sell?

It's not as easy as that. You've heard of 'break fees' right? This is the trap that people get into, especially when they fix high. The break fees make it very difficult to refinance - often not worth it. The break fee increases as the differential between the previous locked-in rate, and the new market fixed/variable rate increases.

One solution is to fix low!

 

[FHB]

You misunderstood the claim. He didn't say 'fixed rates are worse for house prices than variable rates'. He said that more borrowers in Australia are benefiting as interest rates fall, compared to the USA where most borrowers are fixed.

But new borrowers can benefit aswell, no matter if it is fixed or not. The issue in the US isn't fixed vs variable, it is the cost and availability of credit. Even existing borrowers can break, refinance, etc.

It's not as easy as that. You've heard of 'break fees' right? This is the trap that people get into, especially when they fix high. The break fees make it very difficult to refinance - often not worth it.

In the US it is more common for long term fixed loans to have no prepayment penalties. Do you really expect a person to have the same loan on the same house for 30 years in the land of the free?

 

[Shadow]

But new borrowers can benefit aswell, no matter if it is fixed or not.

He didn't say anything about 'new borrowers'. He said 'Unlike the US, where most mortgages are fixed, three-quarters of Australian mortgages are variable, which means home owners are benefiting as interest rates fall.'

Home owners are not new borrowers. They are existing borrowers. In the USA they are mostly fixed on high rates. In Australia they are mostly on variable rates and gaining an immediate benefit from interest rate cuts.

The issue in the US isn't fixed vs variable, it is the cost and availability of credit.

They are both very relevant issues.

Even existing borrowers can break, refinance, etc.

Very expensive if you're fixed.

In the US it is more common for long term fixed loans to have no prepayment penalties. Do you really expect a person to have the same loan on the same house for 30 years in the land of the free?

We're not talking about prepayment. How can you prepay unless you sell at a price that covers the outstanding loan (not very likely with falling prices)?

 

[FHB]

He didn't say anything about 'new borrowers'. He said 'Unlike the US, where most mortgages are fixed, three-quarters of Australian mortgages are variable, which means home owners are benefiting as interest rates fall.'

Home owners are not new borrowers. They are existing borrowers. In the USA they are mostly fixed on high rates. In Australia they are mostly on variable rates and gaining an immediate benefit from interest rate cuts.

So the biggest influence on house prices are the interest rates that existing home owners are paying on existing loans? Interest rates on new loans mean very little? Is this what he is saying?

We're not talking about prepayment. How can you prepay unless you sell at a price that covers the outstanding loan (not very likely with falling prices)?

So the issue isn't fixed rates, it's negative equity, maybe Mr Brooks should have listed that. Not every person in the US bought their home with 100%LVR at the peak. Many can and have refinanced all or part of their existing mortgage as interest rates fell, if the bank was willing to lend to you. Again this is an issue of cost and availability of finance, not the use of fixed rates. Other countries that use mainly variable rates have also seen prices fall as interest rates have been cut, the common denominator here has been availability of credit.

 

[ffc1883_1996]

This has been one to death – but I’m sure you’ve impressed your mates, FHB.

It’s not an issue of cost and availability of finance. The IMF was merely pointing out the fact that unlike the USA, most Australian “home owners are benefiting as interest rates fall”.

 

[Shadow]

The IMF was merely pointing out the fact that unlike the USA, most Australian “home owners are benefiting as interest rates fall”.

Exactly!

(yes, this was all just probably some elaborate time wasting exercise to entertain FHB's D&G underlings)

 

[Witzl]

i'd just like to add.... DENTAL PLAN!!!

 

[FHB]

This has been one to death – but I’m sure you’ve impressed your mates, FHB.

It’s not an issue of cost and availability of finance. The IMF was merely pointing out the fact that unlike the USA, most Australian “home owners are benefiting as interest rates fall”.

I'm not trying to impress anyone, most of the D&Gers argue with me because I don't think prices will fall all that much. I don't think you need to generalise my position in this way.

I agree that Australians benefit from falling interest rates, I just think he has failed to identify the reason households are seeing rates falling here more than over there. Shadow pretty much identified the reason in his second post, this isn't what Mr Brooks was suggesting, and why I commented on it.

That's not the point of the discussion. The point is that because most people in Australia are on variable rates, and because the banks are passing on most of the official rate cuts, most Australians see an immediate benefit from rate cuts. Which is not the case in the UK or USA for example, where most borrowers fix, and where the banks are not passing on as much of the official rate cuts. Because the banks over there are screwed basically, unlike Australia's strong and profitable monopolistic banking sector.

It seems to me we do agree on the reasons prices are falling over there and not here, but people like to argue against my comments because I'm perceived as a D&Ger.

 

[Witzl]

Yay rates are dropping. This is good news, and helps majority of aussies. Reduces mortgage stress.
However, rates dropping in the USA doesnt help so many people over there, as most are on fixed loans. Mortgage stress remains, and compounds with job losses, etc.

You were both saying the same thing, from a different angle.

</end argument>

 

[FHB]

Yay rates are dropping. This is good news, and helps majority of aussies. Reduces mortgage stress.
However, rates dropping in the USA doesnt help so many people over there, as most are on fixed loans. Mortgage stress remains, and compounds with job losses, etc.

You were both saying the same thing, from a different angle.

</end argument>

Well, I was saying something slightly different:

Yay rates are dropping. This is good news, and helps majority of aussies. Reduces mortgage stress.
However, rates dropping in the USA doesnt help so many people over there, as lenders aren't lending and aren't passing on the full cut for various reasons. Mortgage stress remains, and compounds with job losses, etc.

Now the bad news for us is that while Aussie banks are passing on cheaper credit to home buyers/owners, they aren't doing the same to businesses and credit cards.

 

[BoatBoy]

Now the bad news for us is that while Aussie banks are passing on cheaper credit to home buyers/owners, they aren't doing the same to businesses and credit cards.

Members Equity drop Credit Card rates! Thursday, 11 December 2008 Effective Sunday 14th December 2008 - ME MasterCard will change from 11.99% to 10.99%. This is great news and we believe that ME is one of the few to reduce their credit card rates.
http://www.asuqld.asn.au/index.php/...ws/Members-Equity-drop-Credit-Card-rates.html

http://au.todaytonight.yahoo.com/article/5269863/consumer/credit-card-challenge

• Broadcast Date: January 19, 2009
• Aussie has slashed its Aussie Mastercard interest rate from 11.74% to 9.9%.

Well here's 2 credit cards that have right there

Dave

 

[FHB]

This is great news and we believe that ME is one of the few to reduce their credit card rates.

Yep..............

 

[BoatBoy]

Your point?

You say they arent, I show evidence they are, or at least some have started and you seem to discount it.
Do you expect them all to drop at the same time?
Some of the banks havent even made an announcement about the 1% yet, yet I dont see you saying that they arent reducing rates.

Dave