Sour grapes or just allergy to profits?
Last nail in the coffin of property doom and gloom
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Sour grapes or just allergy to profits?
Mate,
You don't know how invaluable that little insight is!
I was lying in bed the other day thinking about property (as I do...) and I was considering how its a logical store of wealth and subject to bubbles. Derr! I was also considering the government response to drop rates to stop bubbles deflating and stop the corresponding drop in consumer spending from the wealth destruction effect. Stay with me... But every time this ends up reflating the bubble and they hold rates down too long so the economy can get a little kick along. Then when they do kick them back up they max out their rates at a new lower high before they have to start dropping them again. Eventually, like in the US, they end up dropping them to zero to try and protect the bubble. When even this fails, your in for massive deleveraging and wealth destruction. i.e. The blunt instrument that is monetary policy has lost all effectiveness.
I extended this logic to the Aussie RE market and figured that the RBA's room to move means they have the means to protect our RE bubble this time and allow it to reflate to new highs. Next cycle the cash rate might top out at 5% instead of 7.25% or whatever before they drop to protect it again. But at least that means Aussie RE at least has one more cycle left in this bubble. I think even Peter Spann called this one last super boom or some such.
The reason the 8% rang a chord with me is because I was wondering what would happen if the RBA just stopped moving the cash rate around to protect the economy and bubbles bursting and just let the market find its own equilibrium. And if they were to fix it at 6% for example, that would just force property growth back to inflation rate growth and yields to stabilise at an economic break even for investors once all cash flow impacts were accounted for.
Just thinking out loud. But the fundamental insight I gleaned was that we've got at least one more reflate left in the old Aussie rock solid bricks and mortar before we follow the US example. Probably more than one cycle, given I think the RBA will move early to hike if they see another bubble forming. That is likely to be the major change to come out of the current financial crisis. A recognition of the impact of asset bubbles on monetary settings. Need to rethink Kynesian monetary theory to add asset bubbles...
Sorry if that's all just theory babble for most...
Cheers,
Michael
Just wanted to second the motion re insurance with AAMI, my properties are now all with AAMI aswell as car insurance. The property ones are all between $300,000 and $350,000 including tenant insurance. They have now moved into WA aswell so its goodbye to all those $500 - $700 annual policies!
Not just 'dodgy' lower priced suburbs though this is a bit of a generalisation regarding cheaper properties where no doubt you wouldn't live yourself.
Remember that more expensive suburbs normally attract a higher rent. On the estate I am working at rents are $440 per week and the houses could be bought with the FHOG included at $360 per week using the best of the current rates leaving $80 per week towards the other expenses that you think we all forget about. As mentioned before there is such a thing as fixed that can be utilised when things change.
Doesn't need to be a boom just nice and steady over the long term will do just fine.A boom is a bonus but I think most people enter with a view to the longer term.
The reason I have stayed with AAMI is that we once had a car stolen, it took a week for the police to find it burned out in the bush and about another week after that we had the cheque through from AAMI. No problems at all, so far no claims required thank goodness for the IPs. I also love that you can control how much excess you want to pay with the on-line calculator.
Yes, definitely a possibility. rents go up - prices go up - maintaining about 5% rental return equilibrium. But I would not give it more than 10% probability to happen.
After $550K range has been swept (and this is perhaps the limit FHB will not go over because of stamp duty) - there will be a great lure to upgrade for those who sold. This would create the second wave - albeit boom.
Another thing - do not discount those dodgy suburbs too easily. They are just 45 mins commute from City. And if current stupid stamp duty treshold of $500K for FHB is in place , there is a threat in property shortage environment that these suburbs very soon will be testing $500K, while more expensive ones remain stagnant.
following the off-topic regarding insurance.
I personally loathe AAMI for car insurance. No choice of repairer, and very pushy/inflexible in their claims methods. Will never deal with.
Shannons for my cars. Cheaper that AAMI, and they are awesome.
I'll do some shopping around on the building insurance tho.
I personally loathe AAMI for car insurance. No choice of repairer, and very pushy/inflexible in their claims methods. Will never deal with.
Shannons for my cars. Cheaper that AAMI, and they are awesome.
I'll do some shopping around on the building insurance tho.
You're too kind
I had to make the point because it scares the living hsit out of me that there are investors and (particularly) FHBs making decisions on the economics of a purchase based on today's interest rates.
Lots of talk about long investment horizons but doing the maths on 5.5%.
It's suicide.
Hell, I'm looking at the postcodes where FHOG is being utilised the most and seriously considering limiting my exposure or LVR in those areas for fear of what will hit the fan in 2-3 years time when rates are closer to the long-term average.
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You're too kind
I had to make the point because it scares the living hsit out of me that there are investors and (particularly) FHBs making decisions on the economics of a purchase based on today's interest rates.
Lots of talk about long investment horizons but doing the maths on 5.5%.
It's suicide.
Hell, I'm looking at the postcodes where FHOG is being utilised the most and seriously considering limiting my exposure or LVR in those areas for fear of what will hit the fan in 2-3 years time when rates are closer to the long-term average.
So you are not aware of fixed rates.
I am trying very very hard to convince my FHOG buyers that they should budget on mid 6s, rather than the 5s they are able to work with at the moment.
The logic of that is simple..................while assessment rates tumble, fixed rates have been lagging for obvious reasons.
When rates increase again, they may not be able to fix at the 4s or 5s and will become an avoidable statistic
ta
rolf
The logic of that is simple..................while assessment rates tumble, fixed rates have been lagging for obvious reasons.
When rates increase again, they may not be able to fix at the 4s or 5s and will become an avoidable statistic
ta
rolf
So now there is a limited supply of property in this range is there? geez i better be quick before they all sell never to be on the market again
hi all
to get people to understand a true rate that you need to look at
is relatively simple.
1.4 times the current rate so if todays rate is 5% they calc on 7%
now why is this so simple to explain
because thats what the banks work on anyway
they have a complicated way of doing it and even now have calculators designed for it
but its 1.4 times the repayment and if you can work it on 1.5 or 1.6 its better
now this is not fool proof nor is it a formular to say rates won't change
but at todays rate do a 1.4 times and thats what you have to have in disposable income
and thats across resi and comm
and thats why I use it all the time
if today rate is 5% I work out my figures on 7%
and that covers me and the banks
simple really
to get people to understand a true rate that you need to look at
is relatively simple.
1.4 times the current rate so if todays rate is 5% they calc on 7%
now why is this so simple to explain
because thats what the banks work on anyway
they have a complicated way of doing it and even now have calculators designed for it
but its 1.4 times the repayment and if you can work it on 1.5 or 1.6 its better
now this is not fool proof nor is it a formular to say rates won't change
but at todays rate do a 1.4 times and thats what you have to have in disposable income
and thats across resi and comm
and thats why I use it all the time
if today rate is 5% I work out my figures on 7%
and that covers me and the banks
simple really
Rolf,
It is quiet difficult to see who is right - them or yourself.
You are perhaps one of a few who might remember that back in 2002(ish) I predicted that rates in Australia must never exceed 6.5%.
Interest rates are not going up any time soon. And if they will be - highly unlikely cash rate in your lifetime will ever go over 5%. I explained before - 7.25% in 2008 was much higher than 16.5% back in 90s, because for every dollar earned in 2008 there was 3 times more debt than back in 90's, therefore every bp of rate hikes in 2008 removed 3 times more money out of economy.
After rates hitting 0% rate of debt is only going to increase. But - again - for years to come forget about rate hikes.
Anyway -forget FHB - for me main thing that fixed rates stay under rental return. And they will be - even blind Freddy can see it now.
You're too kind
I had to make the point because it scares the living hsit out of me that there are investors and (particularly) FHBs making decisions on the economics of a purchase based on today's interest rates.
Lots of talk about long investment horizons but doing the maths on 5.5%.
It's suicide.
Hell, I'm looking at the postcodes where FHOG is being utilised the most and seriously considering limiting my exposure or LVR in those areas for fear of what will hit the fan in 2-3 years time when rates are closer to the long-term average.
Not much of reserch needed. Just stay away from everything under $600K - this is where FHB action is. And over $600K. And state the obvious - you have neither "exposure" nor "LVR". You are typical "not have" who seeks company in your misery.
Can someone translate for me?
Why not to take English classes if you have difficulty reading? Bizzaro World - is it Zimbabwe?
Ha ha funny
I did a search for you
http://uncyclopedia.wikia.com/wiki/Bizarro_World
and here is a good 1
http://flickr.com/photos/54971932@N00/298982588/
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