okay now i'm worried.

[Aaron Sice]

Alright - i am reasonably bullish for the good part of the last 18 months.

strong fundamentals, low vacany rates, record immigration, diversified trading partners and wider spread of market risk. pretty much sums up Australia at present, which led me to believe (for the short of it) that Australia can hold it's own against the world.

companies who lend to people who shouldn't have loans have closed a few ... uh, "specialist" lenders and major banks have tightened lending criteria themselves which says we may have curtailed the issue of default a fair bit sooner than the "sweep it under the rug" scenario of the "sub prime" issues facing the US.

my biggest concern was interest rates, my income depends on a solid RE market and i have a house to build over the next year.

my "Aaron's Amazing Crystal Ball ©" led me to believe that interest rates would be pretty steady about now, and my crystal ball was as clear as it gets with the RBA holding off rate rises recently.

great - imported inflation is a worry, but it's clear that there needs to be another approach. what other approach do the RBA have other than to raise or lower interest rates?

now it's tipped there's 2 more rates rises coming this year, and a possible 2 more early 09.

we're all paying through the nose to "hold off" a recession in the US - our money is essentially headed there in the form of "free trade" (*cough*bullsh1t*cough*) and the IMF.

i am worried now - my predictions of rates holding and the economy steadying are now looking like a lighthearted hope'n'prayer. i'm not worried about the equity i have in my home, or the value it has increased by since buying it. that will always fluctuate.

i am worried about the short-medium term though, whereas before i was only worried about the short term.

i will be fixing my homeloan in the new year. i can't afford any more rate rises even though CBA have already built another one in.

are there any other similar or not-so-similar views out there? what are your reasons behind them?

 

[buzzlightyear]

now it's tipped there's 2 more rates rises coming this year, and a possible 2 more early 09.

Not sure any of the RBA commentary or the current state of the economy provides any overwhelming evidence for any continued and substantial rate rises. Who's tipping this?

Are the boys from BIS at it again?

 

[Player]

Hi Blue Card,

amongst the more pessimistic of the forecatsers that I've recently read are BIS Shrapnell. They tip another 0.5 % this year and possibly in one hit around Sept or so. Then sideways into 2009 and rate falls thereafter.

To an investor this may present excellent buying opportunities. Indeed I picked up a beauty three weeks ago that will be a development for me in due course.

WRT your home loan, if you can't afford any more rises, then fix. I only have tax deductable debt, yet all my loans are fixed.

It's not that I can't buffer another 1 or 2 % rise, it's all about SANF for me. If I know that I am budgeting (at purchase) for a certain rate, and I'm happy with the certainty of that rate, then I fix interest only for five years. If I paid a bit more over the five years, that's OK by me as I do not gamble and I had budgeted for it. Plus I'm subsidised at 45 % tax rate.

The first of my fixed batch come up Aug 2009, if rates are starting to come down, I'll go variable till they plateau and then fix again.

It comes down to what you can afford to buffer/absorb, how important sleep is for you and how important certainty is to your cashflow.

I'm not overextending though until the first of mine come due next year, due to my feeling that actual qualification for credit may be tighter in the medium term. My LVR's are very conservative at present, so personally keeping an eye on that.

Although having said that, BIS Shrapnell also believed that the banks would have some interesting products for investors in 2009. Hopefully that will be interesting for us and not the banks themselves.

 

[ARF]

Aren't BIS Shrapnell also predicting capital gains of 25% over the next five years? I would've thought the two would be contradictory (rising rates and high CG)?

 

[House_Keeper]

You're wasting your time paying attention to what BIS Shrapnel are forecasting.

The only point of their forecasts is to get their name in the media.

Their forecasts are so often wrong that it is a complete joke.

I haven't noticed that expectations of interest rate rises have changed that much in the last month. It's basically maybe another rate rise this year.

10 year bonds are around 6.5%. That indicates that there is no expectation that high interest rates will last forever, although they could well be high over the next 2 to 3 years.

Cheers,

 

[Aaron Sice]

see i can handle this level ... well, forever. it wouldn't bother me. it cost what it costs up to what i can afford.

my trouble is, i signed for a mortgage and allowed an extra 1% buffer for payments. so i was paying what the rate would be at 1% higher to buffer what was coming.

now i'm in a position where that has eroded and rates have moved 1.25% with an outlook for more...something i certainly didn't budget for.

if 10 year bonds are at 6.5% that's a pretty good indicator that rates are at a near top - but again, we were saying rates were near the top a whole 100 basis points ago.

what to do....what to do....

 

[Player]

Then maybe fix for a shorter term say two to three years rather than five and optimise your position when they're on the way down. If you want the certainty (it's like insurance) fix for longer. Who knows who is right? We may see 10 % or so for the next three years, maybe more, and maybe not.

I've lived through investing in the late 80's and survived. We may not see that again, but.......

Do what eases the emotion that titles this thread (lessens your worry).

 

[Ausprop]

you are not the only one caught out BC, I know Bill Evans was saying only recently that he thought IRs had topped but at the time I thought he was dreaming. I can see nothing to suggest them slowing, tho I read that he is now forecasting a recession thru the rust belt corner of the country. This will become difficult to manage as we will require (impossibly) different monetary policy in different parts of the country.

 

[ffc1883_1996]

High interest rates are here to stay.

There’s only one circumstance that would lead to lower interest rates from the RBA and that’s a major problem with the economy.

Despite my own level of negative gearing, I’d rather have to find ways of coping with high holding costs than have to find ways of coping with a floundering or contracting economy.

 

[BayView]

You're wasting your time paying attention to what BIS Shrapnel are forecasting.

The only point of their forecasts is to get their name in the media.

Their forecasts are so often wrong that it is a complete joke.

Cheers,

Maybe they should be called;

"BS Schrapnel".

Whilst I don't want any more rate rises, I could cover them, but I think the recession we had to have is starting to kick in.

Home loan applications are down, buyers have disappeared in a number of areas, house prices are steadying.

The RBA can't be that blind (or can they) to see that one of the main causes of the inflation is the overseas imports such as oil products, and their effect on all other things.

Maybe the rates will head south by the end of the year.

 

[FHB]

High interest rates are here to stay.

There’s only one circumstance that would lead to lower interest rates from the RBA and that’s a major problem with the economy.

I agree, increasing job vacancies and increasing prices for commodities seem to be pushing the RBA towards another rate rise this year at least. Demand isn't slowing fast enough, yet.

The high interest rate scenario is the best for all of us, if rates are dropping we are in trouble.

 

[Stinktier]

The RBA can't be that blind (or can they) to see that one of the main causes of the inflation is the overseas imports such as oil products, and their effect on all other things.

Maybe the rates will head south by the end of the year.

Just because inflation is being imported and not created within (which is rubbish anyway to blame only overseas factors) does not mean rates head down. That would just encourage more borrowing, more money printing and hence more inflation through what we see as rising prices.

The best the RBA can do, when we have rising overseas inflation coming in, is HOLD rates. Thats the best case IMO. But either way, who cares about what the RBA does when our borrowing is coming in from overseas - our banks are accessing funding overseas - meaning they're short and curlys are squeezed by what happens overseas. With the ECB stance on inflation and the US not daring at this stage to take interest rates any lower, from this point its pretty clear that up is more than likely overthere and so more than likely over here - at the very least then lets say no movement. Thats the way im looking at it. A lot of people are talking about falling rates next year but with the current economic climate overseas i think its just way too premature. A lot of wishful thinkers out there. I remember the same May 07 or so, with the so called 'rates have stopped' - rising inflation was already a worry then so i have no idea why any so called 'experts' were calling an end to rising rates. Bit of a feeling of deja-vu me thinks.

Main questions:
1- WHEN will our recession come? (not a yes or no question)
2- And what will it do to housing?

cheers,

 

[Ausprop]

Main questions:
1- WHEN will our recession come? (not a yes or no question),

dunno but here is a decent clue...

http://www.theage.com.au/national/boom-talk-followed-by-gloom-20080624-2w60.html

2- And what will it do to housing?

cheers,

good question. hard to envisage it doing any good at all in a recession. mind you housing in the pilbara will be immune, as will various other micro-markets

 

[Rolf Latham]

Hiya Blue

If you were my client, id say dont agonise and take some fixed rate exposure regardless of the potential longer term cost..

Its difficult on the one hand to try and get the best variable rate AND have that comfort of a fixed rate which historically costs more over the long term.

If you believe rates will rise in the current climate to beyond your affordability level, you have already made the decision.

ta
rolf

 

[WinstonWolfe]

Blue, seems it isn't the right time to go into further debt to build a PPR.

If I was younger and seeking cash, I'd head over to Saudi tomorrow and seek opportunities.

SE Australia has some hard times ahead, and I think the rest of Aus too.

 

[asdf]

You're wasting your time paying attention to what BIS Shrapnel are forecasting.

Was never a big fan of them either. BIS Shrapnel kept saying how interest rates would hit 10% a few years ago when rates were hovering around 6% back then. Who would've thought thats what we're paying now on the no-docs. Harry Hindsight would've locked in 10 year rates at 6.5% and still laugh all the way to his bank.

ALL the economists never saw this long tightening cycle coming and the impact of excess liquidity. The curve has been inverse for over 3 years now so that provides bugger all indication as to where the short end is heading.

 

[aspect]

I was telling everyone in 2004 to fix for a long as they can because when I hear the words "lowest rates in 30 years" alarm bells starting ringing.

If you can't handle the worry of rising rates then fix. At least then you can budget more accurately.

 

[The_Bludger]

If interest rates go up further, doesn't this justify another rental increase to our tenants? So, no real drama's. As for dropping property prices, who cares? Even better for us investors to pick up a bargain or two.... unless you have to sell of course at a loss. But if you can hold on, no issue right?

 

[Aaron Sice]

Blue, seems it isn't the right time to go into further debt to build a PPR.

If I was younger and seeking cash, I'd head over to Saudi tomorrow and seek opportunities.

SE Australia has some hard times ahead, and I think the rest of Aus too.

alrerady further in debt there, winston !

i'm 28, but married with 2 kids under 4, and another due in Aug, which rules out any overseas postings.

i have a open offer to work in Shanghai, but the opportunities - locally - seem to still be flowing.

FY resolution #1 - fix rates for 2 years.

 

[Sunder]

If interest rates go up further, doesn't this justify another rental increase to our tenants? So, no real drama's. As for dropping property prices, who cares? Even better for us investors to pick up a bargain or two.... unless you have to sell of course at a loss. But if you can hold on, no issue right?

Justify - sure.

The question is, why do you have to justify anything? Set your rents at the highest the market can bear, regardless of your costs - hell, if you're negative gearing, you're losing short term money anyway, so why do you have to justify any rises in cost?

The thing is, the market is self correcting. It will find its own level. There might be a point where you can justify your rental increase, and they say "We understand, but we can't afford your place anymore". And on a mass market scale, may result in "less than desireable" living conditions (20s and 30s moving home with mum and dad etc)

As for "No loss if you don't sell", you're right. After the 1987 stock price crash, anyone who held through the storm got their money back... After 9 years. Assuming they had sold and put it in cash, they would have doubled their money in 9 years instead of broken even.