Interest Rates - Sash's Crystal Ball 2010

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

Inflation is the key. If it stays in check then we may see lower rates.

Another factor now is that banks have taken over a lot of the second tier financial institutions which leaves very little competition for the big banks. This means that they will slowly increase margins which will lead to higher effective rates.

Rent increases is going to be a key factor that will keep rental properties viable. It will also be a motivator for renters to get into home ownership.
 
inflation IS in check though. it's WELL inside tolerances.

higher effective rates will only be tolerated for so long. WA might not give a rat's bum what they charge, but the pressure from Syd/Melb/Adel/Bris - then Canberra - will be too much to bear for the banks. the last things banks want is regulation - and if they stay the course, then guess where it's headed....?

if renters want to buy - then increase in prices.

if renters don't - then increase in rents.

win-win.
 
rents are rather inelastic and at best very delayed. It is good (well more so than usual) to be a renter in this environment
 
I think that it's hard to call. The RBA has made noises about wanting to head off a housing bubble.

I've just read this article at Domain saying that the size of the average mortgage rose by 6.4% between May and November (10.7% in Victoria and 12.1% in NSW). So I'd expect them to push rates hard in the next couple of months to try and cool the market.

However, the spread between base rates and mortgage rates is widening, so the banks might be doing the RBA's work for them. And once the quantitative easing programme winds down, it's possible that borrowing costs will rise further. That's the prediction for the UK.

The last factor is the direction that the global economy takes. A double dip recession might lead to emergency rate cuts again. But a period of high inflation would lead to rises. Since we live in interesting times, it's difficult to make any sort of prediction.
 
Borrow extra if you can however, leave the funds parked in your loan account for a rainy day.

Your a bit too late for that in most locations as banks have tightened and valuations are catching up.
Rates rise, inflation keeps rising, expenses rise.
The fact that so many people are crying at the first sign of rises in expenses seem to point at many more repos soon to be on the market.
 
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