Rates down 0.25% again

[Les]

Rates down 5% !!!!!!

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.2.1.1.1
From: Les .



G'day all,

Noted the following from one of the links provided above. Do take note of the content, won't you (newbies especially).
This Sheehan bloke makes sense - do the numbers, see for yourself.

>> "The NSW president of the Australian Property Institute, Mr John Sheehan, warned buyers against getting in over their heads. A 1% rates rise could result in a jump in loan repayments of up to 20 per cent: on a $100,000 loan at 5 per cent, the repayments would be $5,000 a year, rising to $6,000 at 6 per cent."

How do we make something BOLD !! Let me extract it .....

"A 1% rates rise could result in a jump in loan repayments of up to 20 per cent !!!!!!"

In fact, let me improve the syntax of that sentence - "A 1% rates rise WOULD result in a jump in loan repayments of 20%" - unless you are a P&I advocate. But for those with IO loans, 20% IS FACT!! And the P&I people won't be too far below that either (15% - 18%, depending on your loan, probably).

IMHO, this is one insidious fact of finance - insidious because it is "touted" as a 1% rise. Because it is mentioned in this way, the facts tend to get lost.

Of course, if the current Interest Rate was 10%, then a 1% increase is REALLY only a 10% increase, not 20%. So a 0.5% lift at a base rate of 5% is twice as effective as a 0.5% lift at a base rate of 10%.


And THIS FACT shows the obvious nervousness of Alan Greenspan when (twice) he dropped rates by 0.5% WITHOUT waiting for the official meeting - with the base rate already down in mid-single figures (6%?) THESE were HUGE cuts. Is it 6 times he's cut them (4 of them at 0.5% if my memory has it right) in a 9 month period???? People, that is bigger than HUGE, it's bloody GARGANTUAN !!!

We've been on the good side of this for the last 9 months - DON'T count on them being cut again - and ready yourselves for the next change. It will probably mean a 5% lift in actual outgoings to you, but it could be 10%. (i.e. 0.25% or 0.5%)

Keep this in mind as you chart your course - it could save a lot of grief.

Regards,

Les

 

[Rolf Latham]

Rates down 5% !!!!!!

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.2.1.1.1.1
From: Rolf Latham


Hi Les

Yep, interest rate risk management is very important if youre in deep. Unfortunately not many people want to pay the insurance premium of fixed rates.

ta

Rolf

 

[WebBoard]

Re: Rates down 5% !!!!!!

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.2.1.1.1.2
From: Terry Avery


Right on Les,

Great to see Les "the Numbers Man" is back with his insightful comments. All
you newbies take note of what he has to say.

Cheers

 

[michaelg]

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.2.1.1.2
From: Michael G


On 9/6/01 6:24:00 PM, Anonymous wrote:
>$14,000 before tax makes up
>for a lack of income growth
>don't you think?

Hmmm, interesting, the $14k may make up for lack of a deposit, but it certainly wont help the 25yrs of repayments that your salary may fall short of.

For example, if you were handed a $1 million deal that was no money down (completely vendor financed or something), but it was negatively geared by 5% (a shortfall of $961) and you didnt have enough cash to support that debt. Having the "reduced deposit", whether it was reduced by $7-14k or down to nothing is of no importance.

Just my view.

Michael G.

 

[WebBoard]

Reply: 1.1.2.1.2.1
From: Rachael Bausor


We're about to buy our first IP, and I'm trying to put all this talk about crashes into perspective.
We're buying for the long term (our time frame is at least 15 years), so is this really a problem? I've done some analysis, and it seems that even a few years of negative capital gain will be offset over time when the market recovers. It just means that our overall equity gain is less - it's still a better bet than putting that money into a term deposit.
And for those who say we should wait a year - well, let's say the market crashes the day after we buy. Realistically, it might crash by say 5%? So we've bought at a slightly higher price than we could have. But, what if it goes up 10% and then "crashes" by 5%? We're still ahead, we still have positive cash flow from the property.... And anyway, this is all averages - what if we manage to get a property at 5% under valuation? Then a crash brings the value back into line with what we paid.
My feeling is that over the long term, it doesn't make too much difference where in the cycle we buy (and that's what Jan Somers says as well). As long as we're careful, do our homework and buy a property that will gain **in the long term**, we can weather a crash.

Rachael.

 

[Anonymous]

Reply: 1.1.2.1.2.1.1
From: Anonymous


I suppose the negative content of the post was to flag issues that are being glossed over in all the seminar hype. The "buy where we tell you and if you hold for the long term, you can't go wrong" type mentality. Trust me said the salesperson ...............

Caveat emptor is not a term recently manufactured by the legal fraternity, it is an expression that was in common use 2,500 years ago. It is equally valid today!

 

[WebBoard]

Reply: 1.1.2.1.2.1.1.1
From: Chris Legg


For what its worth for 19 out of the last 20 years the sharemarket has gone down from July to November. Often there is a sharp drop in October and if that happens there is often a "Flight to Quality" when the shocked sharemarket investors suddenly decide on mass that property is safer than the sharemarket.This then leads to a rise in property prices and another or continuation of the boom.

The time to watch out is the first interest rate rise in these conditions and if you need to sell wait until this years mini sharemarket crash and sell to disillusioned sharemarket investors at the top of this property cycle

Check out property prices after the October 1987 so called sharemarket crash

This is not financial advice but food for thought etc etc usual disclaimers


Lifes a beach

 

[see_change]

Reply: 1.1.2.1.2.1.1.2
From: See Change


Rachel

It isn't an issue if you buy a "good property".

What is happening is that a lot of people who are buying their first IP are buying properties that aren't good , are over priced , are in areas where there are many similar properties and due to the over supply there are increasing vacancy rates. They are also over extending them selves to do this and are relying on their equity in their own house to do this via lines of credit.

If there is a down turn in prices and if the Australian economy turns down some people will start losing their Jobs . If their tenant leaves and they can't get a replacement and they can't make their repayments the Bank WILL sell their IP AND their house in order to get THEIR money back. This happened in the early nineties and it MAY happen again.

It's all about managing risk.

You don't have to take big risks to make money in Property , but you have to be patient. I intend to buy an IP in sydney at some stage in the next few months but I will be very choosey about where it is and what I pay for it . I don't expect to get a bargain in the current market , but like you, it is a property I intend to keep for many years.

safe investing see change

 

[Anonymous]

Rates down 5% !!!!!!

Reply: 1.1.2.1.1.1.1.1.1.1.1.1.1.2.1.1.1.3
From: Anonymous


No argument with your figures Les, only the psychology. People don't think in percentage of outgoings terms, perhaps they should but that's another question.

The average punters with their $200,000 mortgage on an IP are going to say "well interest rates are up/down 0.5%. Can I afford that? Well it means $20 per week in/out of my pocket so it's not that bad".

Those stretched to the max with finance will feel it, but most punters won't miss $20 a week. If they do they shouldn't be in the game.