Read a very interesting article today about Interest Rates - thought I'd share it

In Melbourne, there is a massive property bubble right now. Things are crazy down here right now. These are the last tops before the property crash (by mid 2008) is what I think. Still I wouldn't sell my IP's. If you can hang on and come out the other side, do it but be prepared to wait 5 years for stability and recovery.

Be prepared to absorb interest rates of 10%+ in the next 2-3 years. I would fix the rates for 3-5 years, and also go interest only if possible.

If the RBA were serious about killing the bubble, why don't they just increase interest rates by 0.5-0.75% in 1 hit and get it over and done with. It would be better than this water torture they subject people too. I suppose they ain't got the balls for it.
 
If the RBA were serious about killing the bubble, why don't they just increase interest rates by 0.5-0.75% in 1 hit and get it over and done with. It would be better than this water torture they subject people too. I suppose they ain't got the balls for it.

IMHO,It doesn't work that way. Economies need time to evolve no matter whether the trend is strong or week.
Simon
 
If the RBA were serious about killing the bubble, why don't they just increase interest rates by 0.5-0.75% in 1 hit and get it over and done with. It would be better than this water torture they subject people too. I suppose they ain't got the balls for it.
MPmelb
They could do this after the elections but then if we have a change of government we could see some new board members coming onboard and with different people on the board we could have a different plan of attack.
Call me old fashioned but I still have my doubts that the RBA is 100%independent...:)
Cheers
 
Perhaps it is high house prices that cause high interest rates, not the other way around, and the fact asset prices are rising is an indicator of excess money in the economy?

My view is along similar lines. IMO, we are faced with higher interest rates because credit is too readily available to ensure that IR movements have the correct dampening effect.

IMO, this consumerism is being supported by equity withdrawal and cheap credit card debt (I've received four offers in the mail this week for unsolicited credit cards offering interest free balance transfers for up to 18 months - who cares what official interest rates do when the cost of credit is effectively free!?!) <end sarcasm>

Without wanting to sound callous, if interest rates aren't seriously hurting those who are overly leveraged, and that includes some investors here on Somersoft, then they are going to continue to rise. At the moment I don't see too much pain being registered on this forum.

FWIW, I've paid down my LVR to very reasonable levels over the past year and a bit and am short-to medium- term bearish on property. Like Alex though, I see a lot of opportunities emerging on the other side of this cycle that I plan to well and truly exploit.
 
In Melbourne, there is a massive property bubble right now. Things are crazy down here right now. These are the last tops before the property crash (by mid 2008) is what I think.


By "bubble", I think you are saying that the strong economy is driving price increases to unsustainable levels. By "crash", you're saying that higher interest rates will force the market down sharply. I'm a little more optimistic because there are some other factors at play as well...

Supply and demand are fundamental contributors to the price rises. Lack of land release, and more importantly lack of infrastructure in the outer regions of Melbourne make it a less than attractive prospect to sprawl further away from the CBD.

Don't forget that we have a "rent crisis" as well as an "affordability crisis". When Brumby became Premier a few months ago, he said that 1000 people per day move to Melbourne. If interest rates climb, the population will still need housing. Lending limits may compress but strong housing demand may still exist.

But... what would I know? I can't remember the last crash.
 
FWIW, I've paid down my LVR to very reasonable levels over the past year and a bit and am short-to medium- term bearish on property.
Hi Gremlin,

Interesting front page article in the AFR Yesterday...

AFR said:
St George Bank has predicted that even two more interest rate rises won't derail a recovery in the sluggish NSW economy, declaring the state is now over the worst...
I'm not so bearish in property and certainly not bearish on the economy. I think rates will have to keep rising though to control the rate of economic expansion. Unlike little Johnnie, I am a little scared of rampant China-escque growth rates. I still believe in the business cycle and rapid growth only makes for a nastier mess on the other side.

Cheers,
Michael.
 
I agree with the email. It's the domino effect...basic economics.

I think a well balanced portfolio or a good high paying reliable job or a good buffer in place is essential to survive that 5 to 7 years that Alex is talking about.

You'd be kididng yourself if you don't think the property market will be affected by a 10% interest and even if it isn't greatly affected....your ROI will be better in a high interest account.

That's why I'm selling this new build. I do believe there's a lil more room for growth, however, there's also a chance that profit will be slashed within the next 2 years. So the scenario is that if I was forced to sell in 2yrs, I'd probably make the same amt as I would if I sold today.

But keep the IP's that was bought prior to the boom because I believe rent will increase due to more renters because they can't afford to buy.

I think if you have a well balanced portfolio, you could actually take advantage of the 10%+ interest rate with higher rents, cash at bank, stocks etc

and we have been affected by the effects on bank tightening liquidity.

But seems people/buyers still have a lot of money to spend. I received a cash unconditional offer on our property...the buyer just sold her property for over $750k unencumbered.

Even at 10% + I can still continue building one house a year but it's hard to see prices going down in Bris Market. Prices are still rising, builders have a price rise almost mthly...it's ridiculous.
 
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