Interest Rates - Sash's Crystal Ball 2010

As I ponder purchasing more property in 2010....one issue which comes to mind is what will happen to interest rates. I was fortunate enough as previously mentioned to fix my rates in April/Aug. I did this based on my previous crystal gazing and research which showed that IR rates would go up around late 2009.

Now looking into the future...I am of the opinion that interest rates will not reach the highs previously in 2008 when they hit about 9%. Why?

1. The level of indebtedness in OZ is quite high

2. Banks are pricing in more agressive rises based on so called funding costs :rolleyes:which hits consumers harder much more quicker.

3. Neither the RBA or the Feds want to unfairly taint the current labout government prior to the next election - expected in late 2010/ early 2011

4. Global growth will not be your standard V recovery globally ..it will be more gradual and will slower over time.

On this basis...I have factored in a top rate of about 7.65%...or 6.95% for basic variable rates.

Look forward to hearing from people of their thoughts.
 
I think you're right on the money, Sash.
There's going to be a lot of competition in the global markeplace for funding and that will drive rates up sooner rather than later.
 
Judging by the auction clearances in Sydney and Melbourne....the RBA was spot on in terms of raising interest rates. The market is getting even hotter...a worry..

Westpac putting up by another 20 basis points was probably a god send by the government. I have a sneaking suspicion (consipiracy theory of mine ;) that behind closed door swanny and the banks are chummy.

I foresee another rate rise in February, another in March, another April...because by then employers should be hiring again.

I think you're right on the money, Sash.
There's going to be a lot of competition in the global markeplace for funding and that will drive rates up sooner rather than later.
 
I think you're right on the money, Sash.
There's going to be a lot of competition in the global markeplace for funding and that will drive rates up sooner rather than later.

Good point Rob and nice thread Sash.

That competition is likely to get worse as more mortgage re-sets ensue from the US. They are not the high propertion of toxic NINJA loans with the sub-prime fiasco, however there are already defaults in this softer ARM sector.

This will likely affect the supply of credit and hence the cost of this credit as Australia's borrowing costs from overseas sources has risen:

http://www.businessspectator.com.au...y-hous-pd20091204-YDSDX?OpenDocument&src=srch


Another interesting article from Business Spectator discussing longer period term deposits:

http://www.businessspectator.com.au...Westpac-pd20091207-YGRTV?OpenDocument&src=kgb

Perhaps a clue to where we are heading with the cost of funds for us investors. We may get to circa 8 % give or take. Less for those of us who have some lender discounting buffering our interest costs.

Ostensibly in Australia, the supply of housing will still be on the short side, so whilst I don't see further corrections in an overall market sense, perhaps some sideways holding patterns for some sectors (median priced property and below median), IMO the fierce competition of the past six months may start to wane.

I feel as interest rates rise, the frenzy shall cool and one can be more choosy and take one's time with further IP purchases moving forward. I'm guesstimating this to be around March or there abouts in 2010.
 
So when would you all call the 'sweet spot' where the housing market bangs into an ardour quelching interest rate? Is that March, April, or even in 2010 at all?

Or put another way - what is the prediction for the best month to sell in anticipation of lowering prices after the highpoint?
(ie when is the next 'mid 2007')
 
Sash, i too don't think the basic SVR will get above 7.5%.

it would cripple a lot of people over east.
Good thread Sash!

I hope you're right BC. I've been thinking the same sort of thing for a lot of the same reasons Sash mentioned. I've calculated my gross yield on costs for my Mona Vale development to be 7%. I also get 85bp discount off the SVR with my Pro Pack, so there's a good chance I'll be neutral or better at completion. If they max out at 7.5% SVR then I'll be CF+ on my gross costs. I use simple numbers and know I have to factor vacancy, land tax, insurance, maintenance etc in as well, but that's what my surplus personal income is for if required...

A portfolio yielding 7% on costs today sounds like a pretty safe one from a cash flow perspective. Rents set to rise as the shortage in supply plays out.

Cheers,
Michael
 
It is mostly likey late 2011/early 2012.

Why? .....we first need to go through a tightening cycle....the last one started in late 2007 and took a year for it to peak in Aug/Sept. 2007. The it took another year for the market to really take off Aug/Sept 2007.

So based on this tightening the next peak of the market based on my crystal ball gazing is around late 2012.

So when would you all call the 'sweet spot' where the housing market bangs into an ardour quelching interest rate? Is that March, April, or even in 2010 at all?

Or put another way - what is the prediction for the best month to sell in anticipation of lowering prices after the highpoint?
(ie when is the next 'mid 2007')
 
with Gorgon and now Wheatstone, the future direction of IRs in this country for the foreseeable future has been set. The impact on housing will be very beneficial - rents can only rise in response. Expect some govt interfernece in the rent market... it will become a political issue as renters in this country have had it very good for a very long time and every renter is a voter
 
Thanks to the stimulus package and increasing demand fro property I see interest rates hit double digit within three years.

This will be followed by a recession!!

The ride up and down will be quick so it is best not to over extend. Borrow extra if you can however, leave the funds parked in your loan account for a rainy day.
 
Sorry Sash, lost track of your dates here:

Why? .....we first need to go through a tightening cycle....the last one started in late 2007 and took a year for it to peak in Aug/Sept. 2007. The it took another year for the market to really take off Aug/Sept 2007.

Also, what sort of indicators should one look for to indicate top of the market in suburban Melbourne?
 
....This will be followed by a recession!!

We just came out of a recession (or technically did not even enter one:p). Economic cycles do not move so quickly as 3 years from recession to recession. :confused:

I hope you are like some economists who have correctly predicted 15 of the last 3 recessions we actually had. :D
 
If we wind the clock back a bit to most peoples recent memory we will all remember the 1991 recession where we had double digit unemployment, etc. This was quickly followed by the Paul Keating recession (the one we had to have) in around 1993 (if memory serves me right)

This was followed the Liberal governance and good economic times. We dodged the recession (technical) in 1998 when the Asian crisis hit and we also dodged the technical recession this year.

We all agree that the share market has crashed (technically a drop of greater than 25% signifies a crash).

Therefore from here on we will usually see rising real estate and interest rates as the economy starts to heat up again. Remember prior to entering the GFC the govt was trying its best to slow the economy down, then overnight they changed rhetoric and pumped Billions into the economy. The effect of these dollars will begin to show over the coming months.

Anyway this my big picture way of thinking and planning. A lot can change in between to effect the time lines.
 
Thanks to the stimulus package and increasing demand fro property I see interest rates hit double digit within three years.

This will be followed by a recession!!

The ride up and down will be quick so it is best not to over extend. Borrow extra if you can however, leave the funds parked in your loan account for a rainy day.

this is not Keating's 1991 - the whole point of avoiding high IRs was to keep people in a job, not cut slack businesses loose and "clear out the dead wood".

IRs at 10% is the equivelant of 25% in 91.

move with the times.
 
The effect of these dollars will begin to show over the coming months.

Anyway this my big picture way of thinking and planning. A lot can change in between to effect the time lines.

the "effect" has been in play - avoiding a recession.

the "effect" is now over. no lesson learned, no policy change, no mandate, no regulation.

same game as before.
 
Bring on the rent rises

As Jupiter, Saturn, Mercury and Venus enter my House of Wealth, my crystal ball is prognositcating that rents shal rise concomitantly with interest rates :p :D
 
As Jupiter, Saturn, Mercury and Venus enter my House of Wealth, my crystal ball is prognositcating that rents shal rise concomitantly with interest rates :p :D

LOL! Mine have been going up continually too and I don't see an end to it for the moment either.

Now, all we need is for the rent assistance to go up too. I just love government intervention.:D
 
the "effect" has been in play - avoiding a recession.

the "effect" is now over. no lesson learned, no policy change, no mandate, no regulation.

same game as before.

True, however, a lot of the infrastructure projects that formed part of the stimulus package are still being rolled out. Next year we will start to see skills shortage again, increased consumer spending and a rising property market.

This will mean the govt will have to resort to interest rate increases to slow things down. An interest rate of 10 to 12% would have to be the peak.
 
Sailesh...can't see double digit interest rates given the level of household indebtness.

I think 8% is where the margin is and it won't stay there very long.

At 10% it is a doubling of rates from the low point. Typically you see a 40-50% increase in rates to cool demand. So given we were at 5% variable you would expect rates to peak at 7-7.5%....my 2 cents worth anyway.:p

I have fixed most of my rates for 2-3 years....so I am not so concerned yet. Even if I come off at 8% ...the postive CF and rent increases in the next 2-3 years should offer a reasonable cushion for myself.:D

Thanks to the stimulus package and increasing demand fro property I see interest rates hit double digit within three years.

This will be followed by a recession!!

The ride up and down will be quick so it is best not to over extend. Borrow extra if you can however, leave the funds parked in your loan account for a rainy day.
 
Top