The RBA, Interest rates and house prices

[dunno]

Ive been reading a lot how people seem to think the RBA will keep pushing up interest rates to 'pop' the property bubble. This confuses me-isnt their sole responsibility to control inflation and inturn the health of the economy? Why/how could they keep pushing up rates to slow down property whilst seemingly being ignorant of the subsequent effect on inflation and the economy?

The only thing I can see that will pop this 'bubble' is a increase in unemployment. Double income households are the norm now, and people certainly have the capacity to absorb additional costs. IMHO interest rate rises may flatten out the groth rate, but cant see it popping the bubble as the bears would so dearly love to see.

Thoughts?

 

[The Fence]

The only thing I can see that will pop this 'bubble' is a increase in unemployment. Double income households are the norm now, and people certainly have the capacity to absorb additional costs. IMHO interest rate rises may flatten out the groth rate, but cant see it popping the bubble as the bears would so dearly love to see.

Thoughts?

Agree fully.....RBA is entering unknown territory in attempting to control housing pricing....and it's not what people think is gonna happen, the man himself, Stevens, said it all on TV yesterday for all to hear...!!!

We'll see what eventuates as you say there are other considerations regarding the use of interest rates.

I still can't get over how this "affordability" thing is gaining more and more focus....I couldn't afford my first purchase but I found a way of doing it nonetheless...and went on to "afford" more by getting off my butt and having a go...
If it's unaffordable then why are prices going up still in the face of rising interest rates and the threat of more to come...?

Supply & Demand....

Make more supply will make more affordable....

 

[Ms Jade]

Wouldn't be the first time GS has tried to unsettle market confidence by rattling his rate rise chains. The problem is that every time he does it it gets more transparent. FHB are the segment most likely to be scared but it looks like they are no longer the ones driving the market.

 

[RocketMan]

Ive been reading a lot how people seem to think the RBA will keep pushing up interest rates to 'pop' the property bubble. This confuses me-isnt their sole responsibility to control inflation and inturn the health of the economy? Why/how could they keep pushing up rates to slow down property whilst seemingly being ignorant of the subsequent effect on inflation and the economy?

The only thing I can see that will pop this 'bubble' is a increase in unemployment. Double income households are the norm now, and people certainly have the capacity to absorb additional costs. IMHO interest rate rises may flatten out the groth rate, but cant see it popping the bubble as the bears would so dearly love to see.

Thoughts?

While I agree that double incomes are the norm now, that does not mean that they have a greater capacity to absorb additional costs. It means that double income families have stretched themselves even on a double income due to higher house prices - which means that they actually have no room to move if rates go up more.

 

[dunno]

While I agree that double incomes are the norm now, that does not mean that they have a greater capacity to absorb additional costs. It means that double income families have stretched themselves even on a double income due to higher house prices - which means that they actually have no room to move if rates go up more.

Cant say I agree. People certainly 'seem' to have plenty of disposable income. Plenty of people down the shops buying designer clothes, new cars, electrical and white goods etc. Go to Bunnings, Chady etc-the places are PUMPING!! So I think people still have a way to go before they are on the breadline HOWEVER once people start to loose a job or two thats when we will see blood on the streets.

Would not be many people who could afford these properties on a sole income wage-hence my belief unemployment is the critical factor, not interest rates...?

Thus..will unemployment follow high interest rates as people curtail their spending hmmmmmm

 

[RocketMan]

Let's not forget about the existence of credit cards, interest free purchases et al. Harvey Norman and other retailers rely on these type of deals to get their sales - and people like to consume using this type of idiotic finance and simply wipe off those debts by refinancing their home loan in a few years' time. I see people do that all the time.

 

[neK]

Credit is the reason.

People who happily pay another loan on top of their existing home loan is astounding!

Rather than looking at it as Ive already got a mortgage of $500k, i should pay this down quicker, they look at it as

THEM: Ive got a mortgage, I dont really have the funds to buy this, so ill put it on credit. I can afford paying the extra $100 per month, its no biggie.

ME: But you're paying interest of $10,000 at 12%!!!

THEM: But its only $100 per month, its fine.

Or, its 48 months INTEREST FREE!!! I'll pay it off in time.

I've got several friends on decent income all with Economics and Accounting degrees who say this. It annoys the absolute crap out of me.

Simple budgeting exercises and how to apply common sense when spending money is not something that is taught in schools, rather they would spend time teach calculus (which to this day i still havent used.... least i have used algebra)

 

[Sunfish]

Double income households are the norm now, and people certainly have the capacity to absorb additional costs. IMHO interest rate rises may flatten out the groth rate, but cant see it popping the bubble

Have you considered that it just may have been the emergence of the "double income household" that has fueled this double decadal price rise? If it was, what will fuel the next one? Have you stress tested your investments against ten years of low growth and do they still work?

as the bears would so dearly love to see.

Why the bear baiting? I own my house and a couple of i/ps so why do you think I'd love to see it? I don't really see a collapse happening but borrowing to the max won't work in low growth eras and the US market (there are very many dissimilarities) shows what can happen when confidence is lost. Prices there are still falling and have drawn the US into depression. For this reason alone I don't wish for a collapse. Edit: And nor would GS.

 

[Luv2Travel]

and people like to consume using this type of idiotic finance

Not sure what's idiotic about that type of finance... it's the people who have no control or buy beyond their means and don't pay it out that are the problem. For me personally, I've used interest free finance a few times. If someone wants to give me money for free, then I'm all for it. The key is, don't spend more than you otherwise would, and to make sure you pay it out before the interest free terms end.

But yes, I agree with the other comments, the majority are not like most on this forum, and do spend beyond their means, or buy things they don't really need and have massive credit card debts.

 

[Propertunity]

Ive been reading a lot how people seem to think the RBA will keep pushing up interest rates to 'pop' the property bubble.

It is NOT a bubble.

 

[Neophyte]

Back to the main topic.

Glenn Stevens has publicly said on several occasions in the last 3 or so months that he thinks it is the job of central banks to lean against asset bubbles. This steps beyond the historic position that the RBA only focus on inflation.

Most of this is in response to what the Fed did since 2002 in the US. Alan Greenspan has admitted he was wrong to ignore the housing bubble there.

Key thing to remember with inflation is that it is currently kept low due to very cheap imports of lots of products.

Based on the property bubbles in the US and Europe and the fall out, ensuring the "overall health of the economy" part of the RBA mandate now includes discouraging bubbles both by rhetoric and then raising rates.

 

[Deltaberry]

Cant say I agree. People certainly 'seem' to have plenty of disposable income. Plenty of people down the shops buying designer clothes, new cars, electrical and white goods etc. Go to Bunnings, Chady etc-the places are PUMPING!! So I think people still have a way to go before they are on the breadline HOWEVER once people start to loose a job or two thats when we will see blood on the streets.

Would not be many people who could afford these properties on a sole income wage-hence my belief unemployment is the critical factor, not interest rates...?

Thus..will unemployment follow high interest rates as people curtail their spending hmmmmmm

Credit cards and here's a new term for you: financially irresponsible. Have a look at the number of people paying cash vs credit cards at the cash register next time you queue up at Bunnings, Chady etc. Also who's buying cars on loans?

 

[keithj]

Credit cards and here's a new term for you: financially irresponsible. Have a look at the number of people paying cash vs credit cards at the cash register next time you queue up at Bunnings, Chady etc.

According to the Retailers Assoc...

When they do reach into their wallets, the survey showed 63 per cent paid cash or used debit cards and gift vouchers.

Only 37 per cent took out their credit card, which Ms Osmond said was further confirmation of the cautious consumer.

 

[rugrat]

Deltaberry - This is what I beleive too. Mortgages aren't the problem. Lord knows you have to jump throught enough hoops to get them. But personal, often unsecured credit on the otherhand, they dish out like it is going out of fashion, and people use it thinking it is 'free' money without considering the deeper implications.

 

[Sunfish]

I always use a CC but deny I'm "financially irresponsible".

It's the convenience, and the Qantas points are a bonus.

 

[Luv2Travel]

I always use a CC but deny I'm "financially irresponsible".

It's the convenience, and the Qantas points are a bonus.

I agree, I still budget as though I'm paying with cash, but always use a credit card and just pay it out at the end of the month. It's convenient, I earn rewards points and I'd rather the money sit in my bank account for a month than the banks. I don't think I've paid interest on any debt (besides mortgages) for about 10 years or more.

 

[dunno]

Some interesting replys here...

Interesting that a few of you seem to think so many people are living on the edge, living purely on credit-been hearing this story for a while. Yet these seem people seem to be able to get even more credit in order to fuel the property boom of late...something doesnt add up?

Anyway, if you hold this view then you must be confident the pending rate increases will tip them over the edge? So Im presuming you have put your money where your mouth is and have sold all your properties??

 

[Deltaberry]

According to the Retailers Assoc...

I couldn't see the article. Besides the Retailers Association said that? That's like REIV telling you how great the property market is and housing shortage is only ever going to make Melbourne house prices go up and based on some selective data, you could double your money every 3 years!!

 

[Andrew L]

I don't understand this opinion. While I agree 20%+ returns year on year is unrealistic the drivers of these price increases will continue for decades to come.

How can you say a "bubble" when land release, rental needs and national immigration are all going to continue to effect prices. None of these key drivers have been solved and the only real issue for the nation is China's impending purchases of Africa and the need for Oz resources to decline. If that happens well the wind will definitely be out of the sails and a long depression would prevail. We have little sustainable internal markets to drive our nation internationally.

The old story prevails, When I left school in the mid 90's I choose to buy a car and not a house - 5 years later I had to be a 2bed unit as the house prices had doubled? This has been going on since WW1 - If you are looking to compare year on year thats a fine argument about the bubble. But the truth is decade after decade prices have risen and with the demands placed on property they will continue to rise for decades to come.

 

[Deltaberry]

I always use a CC but deny I'm "financially irresponsible".

It's the convenience, and the Qantas points are a bonus.

I didn't say the two are the same. But there's probably some correlation to some extent.

Anyway I always go back to my story of my friend who refinanced his house 2 months ago for 30k and he's spent it all already. 90% LVR too.