The RBA, Interest rates and house prices

[Deltaberry]

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??

That's because they're living on the edge after they take on more credit (at low interest rates) to fuel the property. And the other half fueling the market are probably speculators with cash.

Finally I'm a believer in time in the market, but that doesn't mean you go out chasing extremely pricey properties when the risk in the market is peaking. Besides I positive gear enormously and will do so even at very high interest rates, so no need to sell considering all the transaction costs, the difficulty of sourcing more highly yielding properties etc. I know a lot of people get upset when people tell them the market is getting riskier.

 

[RocketMan]

Why would you sell? If you can hold and you have good rental coming in why would you sell unless YOU were the one in trouble?

The same people we are talking about (credit card bingers) are the ones who complain that housing is unaffordable. You can't have it both ways

 

[Andrew L]

The same people we are talking about (credit card bingers) are the ones who complain that housing is unaffordable. You can't have it both ways

Spot on..... all the wingers are the ones with the plasma on finance + the house with 27 rooms and 2 cars ????

If people held a little more restraint there would be alot less problems at this point.

As is said CASH IS KING

 

[Deltaberry]

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.

Hmmm it's because in the long-run real assets tend to go up. But even Japan has proven this wrong - of course I don't see us heading down Japan's path. Our economy overall is not that heated, we still have population growth etc ec.

But that doesn't mean the market won't adjust in the short-term.

It's like the stock market. There are big ups and downs (eg ANZ crashed to $12 from $31 just last year). But over the long-term (10 yrs, 20 yrs, 30 yrs), the S&P / ASX 200 trends up. And I'm sure I'll live to see the day ANZ is $500 unless they do a share split.

 

[Sunfish]

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.

I'd rather have teeth pulled than subject myself to the banks' arrogance and incompetence unnecessarily. All that for a mere 30k? YUK

My son wanted a sum around that size and the banks gave him a royal run around and tried to rip him off. So I gave it to him and said if he doesn't pay it back it comes out of his inheritance.

 

[craigb]

I don't understand why the reserve would hike up these interest rates in an attempt to slow the bubble , I would have thought that the bubble is growing due to the shortage of these new home releases , this is the problem , pushing up interest rates is only going to stop the building processes, due to the servicability issues that arise for builders and new home buyers, and the end result is people get squeezes out of there homes . and they have to rent somthing any way, so this would just increase the need for IP's , hence the bubble will continue again as investers race for the next property , and why not the rent return is going to be so good because glen stevens has pushed many out of their homes . because of the attemted rate hikes , seems crazy to me .
Its as stupid as the US banks rushing every ones forclosure , the banks lost out and the market was flooded , this knee jerk reaction then started the GFC .
Cant they see the big picture , or should i tell them.

 

[RocketMan]

Let me get one thing straight: THERE IS NO HOUSING SHORTAGE IN AUSTRALIA

People can go and buy a big house and fit 20 people on the property if they wanted to for an affordable price, it would just have to be in Ballarat, Bendigo etc. It's because people all want to live in South Yarra etc. which is why there's a housing shortage ONLY within 5-10kms of the CBD. So stop saying that 'housing shortage' crap. It's a load of BS that idiotic morons like Glenn Stevens come up with.

 

[ADN]

Let me get one thing straight: THERE IS NO HOUSING SHORTAGE IN AUSTRALIA

It's a load of BS that idiotic morons like Glenn Stevens come up with.

He he.

Climate change and Global Warming is SOOO last decade.


2010- It's all about the Great Housing Shortage.

I wonder what next year's fear spruiking shall be....

 

[sash]

Well....my thoughts:

I feel that market will cool on the next coming months....not drop but stabilise as there is still plenty of pent up demand. In my view it is rents that will push up.

Why will the market cool?

1. Because one....most of the big four will only lend with a minimum of 10% but there will be more smaller players who will lend at 5% but they will have a tighter qualifying criteria.

2. The RBA will push rates to 5% (std variable will be close to 8%) by the end of the year....this in conjunction with tighter finance will limit the number of people who can borrow as higher.

On the positive side...the rents will move up in large increases.....but the danger the RBA faces is the pent up demand for housing has not been addressed. So when it does put the rates down then there is a high risk of a major bubble forming quickly.

Unfortunatelty.....due to the lack foresight of past and current governments on this issue....Australian housing will remain one of the most unaffordable in the world.

Good for people like me.....but bad for 97% of the population who are just juggin along.

 

[The Fence]

Let me get one thing straight: THERE IS NO HOUSING SHORTAGE IN AUSTRALIA

It's because people all want to live in South Yarra etc. which is why there's a housing shortage ONLY within 5-10kms of the CBD. So stop saying that 'housing shortage' crap. It's a load of BS that idiotic morons like Glenn Stevens come up with.

Isn't this a little contradictive Rocket..?

That's just it...as you have said there is a housing shortage in Australia...in the places where most folks want to live...that my friend is a housing shortage...you said it...!

Of course...I do agree with you on a national front...there would seem to be plenty of houses to house the population....sure...but not where they all want to be....

Settle....

 

[rugrat]

I don't understand why the reserve would hike up these interest rates in an attempt to slow the bubble , I would have thought that the bubble is growing due to the shortage of these new home releases , this is the problem , pushing up interest rates is only going to stop the building processes, due to the servicability issues that arise for builders and new home buyers, and the end result is people get squeezes out of there homes . and they have to rent somthing any way, so this would just increase the need for IP's , hence the bubble will continue again as investers race for the next property , and why not the rent return is going to be so good because glen stevens has pushed many out of their homes . because of the attemted rate hikes , seems crazy to me .
Its as stupid as the US banks rushing every ones forclosure , the banks lost out and the market was flooded , this knee jerk reaction then started the GFC .
Cant they see the big picture , or should i tell them.

But that would be expecting people to think.

 

[dunno]

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.

One freind does not maketh thy economy...

 

[dunno]

Why would you sell? If you can hold and you have good rental coming in why would you sell unless YOU were the one in trouble?

Well it all depends on how much you think all these people in debt to their eyeballs are going to be forced to sell eh? If its all as bad as some of you make out then property is goiong to ah ehm...crash, so why WOULDNT you sell now at what seems to be a 'crazy irrational (insert more serperlatives here..) top of the market???

Sure I wouldnt necessarily be buying now, but if I was as sure as yo useem to be that things are going to turn to poop I would be cashing in my chips so to speak.

BTW how old are you?

 

[Sheryn]

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?

Sunfish
In answer to your question - What will fuel the next one?

My answer is that I reckon savvy IP investors who inherit property may fuel the next boom, especially if they have listened to their 'Investor Parents, Mentors and or learnt by their experiences'.

Current boom is it due to our strong financial weathering of GFC (Global Financial Crisis) and relaxation of overseas investors + immigration?

http://www.theage.com.au/business/p...itance-to-top-400b-by-2025-20100330-r9kq.html

Now how do we 'control & deflate the property bubble' - IMHO councils have to have a culture change and work with Builders & Developers and process applications faster and with more help (directions).

Stop throwing up 'road blocks' explain in plain English how to 'comply'.

FYI
I am an assessor in another area (nothing to do with Building) and I am very proactive in saying - you need to do this........, have you done this etc.

BIL brought an industrial block of land, hired a private Town Planner to get his DA done right etc.

50K later DA not approved and he has given up. Block of land up for sale 50K down the drain...

Friend's son has brought next door block of land and found out Engineer did not under DA requirements BUT friends Father was more 'building savvy' as a draftsman.

Outcome
Friends son's Da approved - no private Town Planner needed


Regards
Sheryn

 

[Sheryn]

It is NOT a bubble.

Propertunity
If it is not a bubble then is it a lack of supply of housing?

+

People willing to pay 'more' to live where they want to live = lifestyle.


Regards
Sheryn

 

[The Fence]

Sunfish
In answer to your question - What will fuel the next one?

My answer is that I reckon savvy IP investors who inherit property may fuel the next boom, especially if they have listened to their 'Investor Parents, Mentors and or learnt by their experiences'.

Current boom is it due to our strong financial weathering of GFC (Global Financial Crisis) and relaxation of overseas investors + immigration?

http://www.theage.com.au/business/p...itance-to-top-400b-by-2025-20100330-r9kq.html

Now there's your solution to supply constraints...will they sell and take the cash...?.....or will the lucky ones who inherit simply stick with the asset and take the income from renting it out....?

I'm sure there are number of folks here can extrapolate this into interesting outcomes....

 

[Ridin-High]

Well im high LVR so gg me =(

 

[Piston Broke]

As soon as the RBA thinks people can pay more money, they'll start lifting the rates that were kept artificially low and start squeezing.
And more than likely they will make up for the low rates, as they always do.
It's a good ponzi scheme the 4 pillar thingy.

"financial stability" means the solvency of the 4 pillar banking system.
The reason rates have been low is to keep the banks solvent.
Once the banks have their A$$ covered rates will go up.

The RBA, through shills like Glenn Stevens, will come out with whatever excuse as a reason for doing whatever they want to do.

Rates have been kept low by the RBA, sooner or later they will come back up and higher than they should be.

 

[BV]

As soon as the RBA thinks people can pay more money, they'll start lifting the rates that were kept artificially low and start squeezing.

Piston

The RBA threatens to lift rates but I doubt that they'll lift them by more than another 25-50bps because the GFC is perhaps forgotten but world economies are still struggling to stay afloat and this at a time when trillions of $ have been put into these ecomomies to stop them from coming to a complete stop.

America, Europe, Japan etc will take years to get back on their feet and even if their ecomonies start growing again, their debt levels are huge and a large chunk of their revenue will go towards paying interest. We should not forget that countries in those continents are big consumers of Chinese goods so as soon as the stimulus money runs out, our exports of raw materials to China will come down and this will hurt our bottom line.

High unemployment is probably not a huge threat but budget deficit is and if our gov don't find other sources of income then raising taxes is their only other option.

However, people can't afford higher taxes as well as higher interest rates and ofcourse with either of the above 2 scenarios consumers will have less money to spend and therefore there will be less GST collected so we'll enter into another 1 of those vicious circles Labor governments are famous for.
High taxes and/or high interest rates plus high government debt...

 

[craigb]

But that would be expecting people to think.

thanks RR you see, i am not always full of senseless crap, its seems pretty simple to me , surly somone can point this out to mr stevens.