It's interesting; in the USA right now they are experiencing very low rates, and yet people are still not buying houses; but the consumer spending is still up.
It really annoys me that the RBA assume that all the home owners/investors are the spenders, and we get punished.
What really annoys me is that the RBA left rates low for far too long. The RBA is really good at testing the extremes. Borrowers frollicked and danced with the tulips while they were paying 6% interest rates, no one was complaining then. But the wheel has turned now and its time to see how people will deal with higher interest rates - and remember they might again test the extreme the other way.
Its exactly this reason why in my opinion if you have not invested in property and you are borrowing a substantial amount you should keep well away from borrowing in this part of the cycle. I just think there are far to many variables against than for. Especially considering parts of the housing market are already slowing. I think its much more worthwhile now to hold out to see how it pans out - if you have no idea what your doing.
The thing about it is, is that most think that long term rates are high now. Well, over the last 50 years they actually arnt high at all. They are just average. This is exactly why i dont have a positive view on housing (when u exclude immigration and microeconomics). Currently there are australians with so called mortgage stress, yet this is just an ordinary scenario so far. What happens if rates stay (or go up) and costs continue to rise - and remember that we may have already reached peak employment? I will be keeping an eye on NZ, because they are starting to slow and they were also smoking the green stuff while rates were low. I think that will give us a better idea to what might happen here - excluding certain factors.
I think the call by the banks today (anz?) to lower taxes on deposits is the signal that they strongly believe that rates are going higher overseas. They are desperate to entice deposits so they dont have to get funds from offshore. Im a stockmarket player, and im keeping completely away from the financials - i cant see any reason why anyone would be buying them (but you'll get asked a million times). It would be far safer to pay a higher price when all this blows over - which will be in years IMO (cant see anything good before 2010- and thats only 18months away - either we will have higher inflation or a recession).
I would be interested to see where you have heard consumer spending is up in the states? I havnt come across that - been away though - and last i heard it was slowing-and dramatically.
Im keeping my mind on the previous questions i posted before. what will the RBA try to avoid, high Inflation (and risk it spiraling with wage rises) or possiblilty of a recession?
One thing is for sure, im glad im not a central banker during these times because its a tough call
. You cant keep everybody happy.