Predicting interest rates - disspelling myths.

[essence]

I decided to start new thread because I do not want this to be lost in a murky waters of confusion of a previous one.

Back in 2002 on this very forum I answered the same question and predicted that official rate in no event shall go over 6.5%. Unfortunately RBA board did not listen to me and overshot this target by 0.75%. Now I will try to explain why interest rates in the foreseeable future in no event should go over 4.5%. Webmaster - please make it sticky so people do not wander in the dark.

Explanation is oversimplified so everyone can understand.

While I would agree that it is sometimes hard to redict particular interest rate moves because RBA most of the times acts totally irrationally.

But to get an idea where the CEILING for interest rates would be is REALLY no brainer.

BASICS: Increase in official rate it is just another tax on the economy. RBA raises an official rate to take money out of the economy to cool it down when RBA believes economy is about to overheat.
How much money is taken out of the economy by a particular interest rate move depends on the debt ratio in the country.

HISTORICAL: Back in early 90s RBA hiked up rates to 16.5% and half killed the economy. In 2008 it was just 7.25% that killed the economy COMPLETELY. (I wonder if anybody noticed that our economy got in troubles BEFORE all this US mayhem started - exactly 6 months after Feb/March rate hikes).
Why such a difference? Why RBA did not have scope to go into "double digit" interest rates (as media was scaremongering)?.

Simple. Back in early 90s for every dollar earned there was about 47c worth of debt. in 2008 there was over $1.30 of debt for every dollar earned. In other words, every basis point of interest rate hikes in 2008 removed roughly 3 times more money out of the economy than back in 90s. Hence, to half-kill the economy RBA should not have raised official rates to more than roughly one third of 90s level. I was predicting 6.5% ceiling taking into account difference in inflation.

FUTURE- SHORT TERM: For every basis point that RBA has overshot 6.5% ceiling they would need to lower rates by 3 basis points to correct their blunder. In other words, to get back from complete kill mode at 7.25% to half kill rates shall be 2.25% (0.75% times 3) lower than 6.5% ceiling, i.e 4.25%. To get to the "neutral" level we look at another 2% rediction at the minimum. In other words, today's "neutral" rate is around 2%. Get another 2% off to stimulate the economy. This is 0% rate.

Well, 0% would have stimulated the economy. But there are few added complexities:

1. US turmoil. We would need another 3% off to get insulated from this.
2. Bank's profiteering. Banks developed the nasty habit of not passing rate cuts. We would need another 2% reduction to factor this.
2. RBA's inaction. We still have interest rates at the level that burdens economy. RBA's inaction in August and January "holidays" are nothing short of economic sabotage. We would need another 2% reduction to mitigate this.

In other words, interest rates must be somewhere at minus 7%, and get there fast .

Of course, rates can not go below 0 (and there they would be). Then there will be no other choice for the Government to step in and shovel some serious money into economy.

So, expect Christmas early this year. My wild guess we shal see:
- BIG spending on infrastructure and education
- Relaxation of super laws (we must be allowed to invest super into our own homes)
- Reduction of state taxes (payroll, stamp duty, land tax, etc)
- Relaxation of planning Laws (development approvals will be outsourced to private certifiers)
- Big handouts to first home buyers
- Relaxation of tenancy laws in favour of landlords
- Pressure on banks to lower rates across the whole range of products, inc credit cards, car loans, etc

FUTURE (DISTANT). Low interest rates and vast amounts of printed money could lead to nothing else but further increase of the consumer debt. Expect debt at the levels of debt of over $2 per dollar earned.
(Yes, I know - deleveraging bias. it is a myth. No one in their right mind would deleverage when credit is chaep and money are falling from the sky. Those who would - would be the biggest losers).
4.25% for the ceiling would be really on the wild side of imagination. And this is factoring abnormalities - like a resorce bubble.

 

[Token Funder]

This has happened, is happening or is planned to happen, so I don't think they make the grade of "wild guess".

So, expect Christmas early this year. My wild guess we shal see:
- BIG spending on infrastructure and education
- Big handouts to first home buyers
- Pressure on banks to lower rates across the whole range of products, inc credit cards, car loans, etc

As regards the other predictions, can't see the evidence...

So, expect Christmas early this year. My wild guess we shal see:
- Relaxation of super laws (we must be allowed to invest super into our own homes)
- Reduction of state taxes (payroll, stamp duty, land tax, etc)
- Relaxation of planning Laws (development approvals will be outsourced to private certifiers)
- Relaxation of tenancy laws in favour of landlords

In order:

- Highly unlikely. Has been looked at before, is extremely expensive to regulate and would drive up housing costs if existing super funds were used.
- State governments have seen significant reductions in their non-GST sources of income (land taxes. stamp duties, payroll taxes) so they simply don't have the space to cut taxes in any significant way. This isn't to say you won't see sleight-of-hand, gesture politics. Besides, the Feds have the big tax take, so from a macro perspective, hardly worth their while.
- I suspect the exact opposite!! With unemployment set to rise, governments will come under pressure to protect tenants, not landlords.

Finally,if you genuinely believe that we are not in the midst of a global period of deleveraging at an institutional, corporate and consumer level I am curious to know why.

 

[sphinx]

..

I think your analysis is completely off the mark.

We are not in any recession but a "balance sheet recession" in which monetary policy will not be effective at all. Meaning even "zero" interests will not pump up further borrowing because companies (technically insolvent but still has cash flow and profitable) and individuals (in negative equity but still can service their debt) will be eager to pay down their debt rather than borrowing more no matter what. This is what happened in the great depression and the great recession in Japan. Especially in Japan, banks were very willing to lend and the interest rate was near zero. .. but still no borrowers. Even if people borrow, they don't invest locally but do carry-trade, which is useless to the local economy.

So the bottom line is that, yes, RBA will continue to lower their rates but it will be useless to pump up the economy or help reflate the asset bubble (not because of unwilling lenders but unwilling borrowers). Only a massive, I mean very massive, "fiscal" stimulus plan will be helpful to maintain GDP and living standards/employment rate while waiting for individuals and companies to fix their balance sheet, which will take 4-5 years.up

 

[essence]

sphinx,

So I say that interest rates even at 0% would not reinflate economy and massive stimulus that equates at least 7% of interest rates reduction would be needed.

You say that I am wrong because interest rates even at 0% would not reinflate economy and massive stimulus would be needed.

You really shall not be skipping your medication.

Do you remember what I was talking about? I tell that it is guaranteed that in your (and mine) lifetime there will not be scope for RBA to hike interest rates above 4.25%. If they do, they will pay dearly for that.

Another thing, I doubt validity of your statement that Japanese banks were ever willing to lend. Some time ago on this very forum there was a guy under the nick of Always Learning, who reported immense difficulties to obtain any finance in Japan. There is a huge gap between words and deeds when it comes to Asian banks.

Second, Japanese mentality is so different to Australian - any parallels would be irrelevant. Read newspapers - almost 70% of Australians expect property to grow. Visit propertymonitors. Latest auction clearance rate in Sydney 71%.

You resemble one of RE agents I spoke last Saturday. Complaining there are too many buyers who have already snapped all good properties, complaining there is a shortage of properties to list - still thinking that property will stagnate for 4-5 years.

Please spare me !

 

[Nathan]

Thanks for your thoughts essence.

i tend to somewhat agree about ceilings on interest rates, they could not go to 16% again, as if they did we would be in serious trouble.

the increase in our money supply, and leverage on some high end properties (even family homes) would be catestrophic. (if rates went that high, business would be in serious trouble, and prices would get passed on, but wouldnt be able to due to the fact that there wouldnt be anough currency in play to support this.

based on my own research i cannot see rates etching anywhere over 800bp in any close future, where a new ceiling is i am unsure but one would think 450-500bp would be a fair call.

DYOR.

Nath.

 

[Aaron Sice]

I decided to start new thread because I do not want this to be lost in a murky waters of confusion of a previous one.

Back in 2002 on this very forum I answered the same question and predicted that official rate in no event shall go over 6.5%. Unfortunately RBA board did not listen to me ba5tard5!!! and overshot this target by 0.75%. Now I will try to explain why interest rates in the foreseeable future in no event should go over 4.5%. Webmaster - please make it sticky so people do not wander in the dark.
can we expect then 5.25% if they overshoot another 0.75%?


Explanation is oversimplified so everyone can understand.

While I would agree that it is sometimes hard to redict particular interest rate moves because RBA most of the times acts totally irrationally.

But to get an idea where the CEILING for interest rates would be is REALLY no brainer.

BASICS: Increase in official rate it is just another tax on the economy. RBA raises an official rate to take money out of the economy to cool it down when RBA believes economy is about to overheat.
How much money is taken out of the economy by a particular interest rate move depends on the debt ratio in the country.

HISTORICAL: Back in early 90s RBA hiked up rates to 16.5% and half killed the economy. In 2008 it was just 7.25% that killed the economy COMPLETELY. (I wonder if anybody noticed that our economy got in troubles BEFORE all this US mayhem started - exactly 6 months after Feb/March rate hikes).
Why such a difference? Why RBA did not have scope to go into "double digit" interest rates (as media was scaremongering)?.

Simple. Back in early 90s for every dollar earned there was about 47c worth of debt. in 2008 there was over $1.30 of debt for every dollar earned. In other words, every basis point of interest rate hikes in 2008 removed roughly 3 times more money out of the economy than back in 90s. Hence, to half-kill the economy RBA should not have raised official rates to more than roughly one third of 90s level. I was predicting 6.5% ceiling taking into account difference in inflation.

FUTURE- SHORT TERM: For every basis point that RBA has overshot 6.5% ceiling they would need to lower rates by 3 basis points to correct their blunder. In other words, to get back from complete kill mode at 7.25% to half kill rates shall be 2.25% (0.75% times 3) lower than 6.5% ceiling, i.e 4.25%. To get to the "neutral" level we look at another 2% rediction at the minimum. In other words, today's "neutral" rate is around 2%. Get another 2% off to stimulate the economy. This is 0% rate.

Well, 0% would have stimulated the economy. But there are few added complexities:

1. US turmoil. We would need another 3% off to get insulated from this.
2. Bank's profiteering. Banks developed the nasty habit of not passing rate cuts. We would need another 2% reduction to factor this.
2. RBA's inaction. We still have interest rates at the level that burdens economy. RBA's inaction in August and January "holidays" are nothing short of economic sabotage. We would need another 2% reduction to mitigate this.
agreed - they were driving with the blinkers on at the roundabout in time where all the economies met.
In other words, interest rates must be somewhere at minus 7%, and get there fast .

Of course, rates can not go below 0 (and there they would be). Then there will be no other choice for the Government to step in and shovel some serious money into economy.

So, expect Christmas early this year. My wild guess we shal see:
- BIG spending on infrastructure and education huge talk already. it's almost like the undercurrents of disaster capitalism - except there's no disaster and capitalism is dead...LOL
- Relaxation of super laws (we must be allowed to invest super into our own homes) i would be wary of that - that's like allowing super funds to trade CFDs - people are gonna get burned BAD.
- Reduction of state taxes (payroll, stamp duty, land tax, etc) tax cuts are so 1933...
- Relaxation of planning Laws (development approvals will be outsourced to private certifiers) while this is a great idea in theory (i could undercut EVERYONE for the tender and my business would quadruple) - in WA it just won't happen. we have about 4x the number of councils we actually need, all trying to justify their existence by stamping their authority and implementing their own rules for their little 20sq km of constituents.
- Big handouts to first home buyers got it now anyway and is helping
- Relaxation of tenancy laws in favour of landlords try getting this one thru the ethics committee - i'm all for it but if the balance falls in favour of the evil and greedy landlords then the next TT special will be "mah rent wen'up fittyfi' dollaz"
- Pressure on banks to lower rates across the whole range of products, inc credit cards, car loans, etc up to banks i guess - they've now proven they answer to no-one but themselves.

FUTURE (DISTANT). Low interest rates and vast amounts of printed money could lead to nothing else but further increase of the consumer debt. Expect debt at the levels of debt of over $2 per dollar earned.
(Yes, I know - deleveraging bias. it is a myth. No one in their right mind would deleverage when credit is chaep and money are falling from the sky. Those who would - would be the biggest losers).
4.25% for the ceiling would be really on the wild side of imagination. And this is factoring abnormalities - like a resorce bubble.

this is my reasoning for the next bubble - the 15 year up and coming credit bubble. you've worded it well - i can't seem to word it properly as to why i think it will happen but there you go, right there in front of me. my concern is not this small correction, but the MUCH MUCH MUCH larger one in about 2020-2025 or whatever. i'm planning on using this time to buy up big, let the next bubble occur and then sell in about 10-12 years time to completely de-leverage and build my back shed with gold bricks.

there will only be band-aid solutions for this GFC. we just seem to be arguing about what the best bandaid is - the cheapo nasties that last a few hours (Rudd) or those strong, elastoplast type thingos. either way, the bandaids will fall away after a few protracted years and show we prob shoulda had stitches.

...kudos...

 

[want2bewealthy]

These days we have many smaller lenders who are helping keep a cap for borrowers and the big 4 must compete if they want to sustain buisness, in the days of old (not so long ago) the big 4 were keeping rates around 2% higher than they do now just because they could.

Just another factor in changing times, a very good book I read called 'the smart borrowers handbook' thinks that the smaller lenders will continue to hold rates low even more so into the future as they become bigger players in the finance game.

 

[sphinx]

Essence, I don't think I misunderstood you.

1. Your whole argument is about what monetary policy (IR)"should" be and I said monetary policy is mostly irrelevant during a balance sheet recession.

2. And we will definitely see IR going back to above 5% in 5-6 years after the balance sheet has been repaired. Otherwise we will be risking a "hyperinflation" with low IR, high bank reserves, recovering companies/individuals (willing borrowers after balance sheet repair) and even the scary legacy of "quantitative easing". The worry is about the timing - being too early will undo the recovery, being too late will risk high inflation.

3. About lender's willingness, US was the same during the great depression. It was a mistake to think that they were not willing to lend. And in Japan, the "borrower" survey in their "Short-term Economic Survey of Corporations" shows that borrowers consistently felt very high willingness of lending from the banks during those recession years. Will you borrow more even if you in negative equity or technical insolvency? If you have money, you will pay the the debt first before being "discovered" or loan being called.

 

[essence]

Sphinx,

Please get over US, UK and Japan.

US - 18 million vacant houses
UK - most of guest workers has packed up to Turkey, Eastern Europe, Australia
Japan - Could really 2x2 m urban grave can be anybody's dream?

Australia - severe housing shortage, rents in some places are dearer than mortgages (and with falling interest rates it is going to become more and more wide spread). Cashed up greedy ex-pats are fleing recession-stricken US and UK by thousands. And today is supposedly the last day of the sucker's rally on the sharemarket. Where do you think all the money deinvested from there will go? Cash? (yeah, interest is so great). Gold? (Yeah, where US Gov is going to get money for their bailouts if not selling their gold reserves).
Sure investors will stay shy from property when usual returns in the moment are between 5 and 8%, and mortgage rates are sure to go under 5%.

 

[yorke]

We are not in any recession but a "balance sheet recession" in which monetary policy will not be effective at all. Meaning even "zero" interests will not pump up further borrowing because companies (technically insolvent but still has cash flow and profitable) and individuals (in negative equity but still can service their debt) will be eager to pay down their debt rather than borrowing more no matter what. This is what happened in the great depression and the great recession in Japan. Especially in Japan, banks were very willing to lend and the interest rate was near zero. .. but still no borrowers. Even if people borrow, they don't invest locally but do carry-trade, which is useless to the local economy.

So the bottom line is that, yes, RBA will continue to lower their rates but it will be useless to pump up the economy or help reflate the asset bubble (not because of unwilling lenders but unwilling borrowers). Only a massive, I mean very massive, "fiscal" stimulus plan will be helpful to maintain GDP and living standards/employment rate while waiting for individuals and companies to fix their balance sheet, which will take 4-5 years.up

In that case the unwilling borrowers can continue to rent or move back with mum while the investors "struggle" to pay "zero" interest rates.
I think I can live with that and I'm sure most of the investors here can as well.

Btw, what's this obsession you guys have with Japan ? Do you have to bring it up every time you want to make a point about life in your alternate universe ?

 

[nonrecourse]

This has happened, is happening or is planned to happen, so I don't think they make the grade of "wild guess".



As regards the other predictions, can't see the evidence...



In order:

- Highly unlikely. Has been looked at before, is extremely expensive to regulate and would drive up housing costs if existing super funds were used.
- State governments have seen significant reductions in their non-GST sources of income (land taxes. stamp duties, payroll taxes) so they simply don't have the space to cut taxes in any significant way. This isn't to say you won't see sleight-of-hand, gesture politics. Besides, the Feds have the big tax take, so from a macro perspective, hardly worth their while.
- I suspect the exact opposite!! With unemployment set to rise, governments will come under pressure to protect tenants, not landlords.

Finally,if you genuinely believe that we are not in the midst of a global period of deleveraging at an institutional, corporate and consumer level I am curious to know why.

Hi Toke; Its been nice being away on the beach at Lorne this past week.

Looking at this site do you not get the distinct impression from the comments that the lights are on but nobody is home?

I think you need to spell out what deleveraging is as it has more than one syllabel

 

[fald1]

In that case the unwilling borrowers can continue to
Btw, what's this obsession you guys have with Japan ? Do you have to bring it up every time you want to make a point about life in your alternate universe ?

Japan situation: http://mises.org/story/1099

Reading that, it's really easy to insert the word 'Australia' where it says Japan, and alter the figures to suit 1999-2009 (edit* i just mean the first few paragraphs!)

Once applied, the paragraphs read like a recent history in australia, or near future where relevant.

I don't fully agree with Sphinx, nor do I want to
I need my IPs to perform well.. and hope we have a soft landing.

In that case the unwilling borrowers can continue to rent or move back with mum while the investors "struggle" to pay "zero" interest rates. I think I can live with that and I'm sure most of the investors here can as well.

Japan has had near zero % interest rates since around the early 90s.. house prices have declined there pretty much for 15 years straight.. so if we go into a deflation like they have seen.. will you buy a property at say (0% + Bank 2% + Principal Payoff + costs) if the property is expected to constantly lose value?

I still don't know if we'll getr deflation or inflation.. or steady.. I'm just throwin this out there.

 

[Token Funder]

Hi Toke; Its been nice being away on the beach at Lorne this past week.

Looking at this site do you not get the distinct impression from the comments that the lights are on but nobody is home?

I think you need to spell out what deleveraging is as it has more than one syllabel

Ah, Lorne *thinks envious thoughts*

A bit unkind perhaps....there's a significant and vociferous minority that are the equivalent of religious fundamentalists trying to prevent the teaching of evolution inschools...it really doesn't matter what the evidence says if it causes them to doubt the way they've defined the world.

In those instances, yes, camelum saltare doces. There are, however, a fair spattering of actual investors on the site for whom property is just an asset class that they assess in a pretty objective way.

The funny thing is that I really have a vested interest in everything most of the more shrill devotees of this site would like to believe coming to pass. Stable or increasing houses prices, a strong economy and the GFC going away quick smart would make my world *so* much better and I'd be getting a lot more sleep

Unfortunately, I am obliged to deal with the world as I see it, rather than I would prefer it to be and I would much prefer to be right and sad than wrong and fired.

In my world: the GFC appears to have hit it's peak but isn't getting much better, all the financial mumbo jumbo of the last 18 months is now hitting the real economies in first and second world economies hard and what follows from there is people losing jobs.

In the real economy, the worst is yet to come and though Australia is better placed than most it is not so well-placed as to avoid (at best, in my view) a soft recession. In recessionary environments, the heavily leveraged are like those crab boats you see on Deadliest Catch as ice builds up....when you're seriously top heavy it doesn't take much of a wave for things to turn turtle.

 

[yorke]

Japan situation: http://mises.org/story/1099

Reading that, it's really easy to insert the word 'Australia' where it says Japan, and alter the figures to suit 1999-2009

First is first...Welcome to the forum.

If we're going to alter figures to suit ourselves and replace words because its really easy to do so then the whole story becomes a work of fiction. May as well grab a copy of Harry Potter and use that, at least it wouldn't be as boring.
The article was written in 2002 with over 15 years of hindsight since the start of the recession yet there is still no agreement amongst the economists regarding the reason for it or what started it. The best that Keynes could come up with was ,

Keynes did not precisely explain why investment collapsed; instead he attributed it to "animal spirits" in the business community.

Japan has had near zero % interest rates since around the early 90s.. house prices have declined there pretty much for 15 years straight.. so if we go into a deflation like they have seen.. will you buy a property at say (0% + Bank 2% + Principal Payoff + costs) if the property is expected to constantly lose value?

Let me see,
it costs me 2% + costs to buy a place and I deduct that from say 10% rental return I could make which leaves me with a 8%+ return
OR
I keep the money in the bank and I get 0% return ?

..was that the choice I have to make ?

I did left out the part about "expected to constantly lose value" because even IF it did lose value it could only go down so far before the tipping point occurred when buying would be much cheaper then renting and prices would stop falling. On second thoughts at 0%+2% that would already be the case.
Besides, despite 15 years of constant loses prices have still not reached $0 and in fact are probably still more expensive then ours even if ignoring the smaller size and type of building materials they use.
Or we could insert a positive number in the value box instead of constant loses and then the results could be totally different again.

Another point to consider is that if house prices are staying flat or falling in value then investing in building a new more expensive house makes no sense and that alone will keep a lid on the available rental properties and stop any falls in rental income for investors.

 

[fald1]

damn, wrote huge response.. seems firefox hung.. crappo..

basically, i said thanks to yorke for the welcome.
i have been lurking for quite a while.

I went onto to say, I hope you're right.. and I don't know a lot.

you're right, it would be a crap read.. I meant to put "the first few paragraphs before it get's boring" by boring I mean I don't understand keynes etc.

ahh crap, it was such a well worded response, too impatient to retype.. now it seems I've effectively gone from grace that would suit obama to the communication skills of bush.

I ended by saying I'll try get some Q&As that would suit the thread, and return.

 

[boz]

sphinx,

So I say that interest rates even at 0% would not reinflate economy and massive stimulus that equates at least 7% of interest rates reduction would be needed.

You say that I am wrong because interest rates even at 0% would not reinflate economy and massive stimulus would be needed.

You really shall not be skipping your medication.

Do you remember what I was talking about? I tell that it is guaranteed that in your (and mine) lifetime there will not be scope for RBA to hike interest rates above 4.25%. If they do, they will pay dearly for that.

Another thing, I doubt validity of your statement that Japanese banks were ever willing to lend. Some time ago on this very forum there was a guy under the nick of Always Learning, who reported immense difficulties to obtain any finance in Japan. There is a huge gap between words and deeds when it comes to Asian banks.

Second, Japanese mentality is so different to Australian - any parallels would be irrelevant. Read newspapers - almost 70% of Australians expect property to grow. Visit propertymonitors. Latest auction clearance rate in Sydney 71%.

You resemble one of RE agents I spoke last Saturday. Complaining there are too many buyers who have already snapped all good properties, complaining there is a shortage of properties to list - still thinking that property will stagnate for 4-5 years.

Please spare me !

Essence,
even if you seems quite smart your posts are very missleading (with lots of crap in it), investor on this forum without good knowledge of the economy should pay attention on what you write.You say the high rates of the early 90's killed the economy, I say the high inflation killed the economy and after the rate Hike of the early 90's economy has been great for long time (was a good cure).
Pointing at RBA interest rates as a tax on the economy is pure crap. With low interests bubbles are popping up everywere and the world is where it is now because of low interest rates for long time and the growthh was unsustainable (by productivity, by infrastructure, etc.).
Now unemployment is still very low and below 5% and we are at 10 months after the last rate hike, so I don't see how can you say economy have been bad already. For sure without those hikes in rates home prices now would be in a quite steep fall as home prices would have gone up further.
Also I want to point out that money are not just falling from the sky, and if they do fall from the sky that is not real wealth (or at least wouldn't last long). This mean that when you want lo rates like 4.5% and to borrow at similar rate you need the equivalent creditor that gives you the money happy to get that intererst back. Even the government need to get the money on the market to spend them. It is not granted that the wealth or money will stay within Australia (or just come in Australia as overseas investment). Lots of investor like me rather get money out of the AU$ and Australia then get 4.5% return on that (and if you are lucky to see your capital preserved with the AU$).
Do you have some figure about the shortage of home for sale? The data I am aware of is for a much higher number of homes listed then in previous years. For sure buyers are not many as property transaction dropped big time this year together with loans approval.
Finally, about those money supposed to flog into Australia: are you aware that a huge amount of money has been burned in the last year (through share market falling, company going bankrupt, property in most western country falling, commodity falling, interest rate you get from bonds falling. For sure there is less moeny around and this money is moving at a speed much lower then use to be. It is way off any reason to expect more money flogging into Australia (if that will happen you will see that from the AU$ going up)

 

[boomtown]

It is way off any reason to expect more money flogging into Australia (if that will happen you will see that from the AU$ going up)

You obviously havent noticed but the AUD has been having a very strong last 2 weeks - the carry trade is back on.

 

[Ausprop]

there are some very large funds moving money into Australia on the expectation of currency appreciation and for the high interest rate. Aussie banks have virtually closed their doors for large development funding and the overseas institutions are having a field day. When easier times return my hope is that the aussie banks find themselves locked out of the market due to their own stupidity.

 

[yorke]

damn, wrote huge response.. seems firefox hung.. crappo..

Yes, the 3.0.5 seems to have a bug or three. Try uninstalling the flash player, it seemed to have done the trick for me.

 

[evand]

Looks like you and i agree the FHO assistance is the biggest band aid solution of all and will do more damage than good if people want (or expecting) a property price boom.

The recent buying activity and small increase in price at the bottom end of the market and in outer suburbs wont last long and isn't a true reflection of what should be happening in the market.

It brings FHB's into the market artificially at the lowest interest rates for a long time. When interest rates inevitably increase, a lot of the the FHB's will have to sell and further depress the market.

I expect the property market to be stagnant for a long, long time. And falling relative to forward inflation if not outright. All this regardless of a ceiling on interest rates.

Blue Card wrote:

"we just seem to be arguing about what the best bandaid is - the cheapo nasties that last a few hours (Rudd) or those strong, elastoplast type thingos. either way, the bandaids will fall away after a few protracted years and show we prob shoulda had stitches."