Upcomming interest rate rises... a great buying opportunity?

[Thesnowyforest]

Hey there,

Was hoping to get your wise insights based on past experience and a bit of crystal ball gazing.

Im referring to the Sydney market but this could also apply elsewhere.

Sydney has just had a nice rise in prices over the past 12 - 18 months which has been great.
Now moving forward for future purchases, im thinking rising interest rates will squeeze a number of people, more property will come onto the market, prices could decrease a little or more 'distressed sellers' will be around, with more property on the market negotiating good prices will be easier AND.. Rents are going to go up as landlords try to avoid being out of pocket as much as possible.

Or will none of the above happen as our economy seems to be firing up and population growth isn't slowing down any time soon?


Look forward to hearing your insights.

 

[BV]

interest rates IMO aren't going as high as they did last time. I also don't think there will be many bargains around.

It will take some time before any pain is felt due to higher interest rates. Give it another 12 months perhaps?
In the mean time wages and rents will probably go up by 5% and will cushion the pain.

 

[Propertunity]

Sydney has just had a nice rise in prices over the past 12 - 18 months which has been great.

Yes, 17% in the last 12 months according to Residex. Not too shabby.

Now moving forward for future purchases, im thinking rising interest rates will squeeze a number of people, more property will come onto the market, prices could decrease a little or more 'distressed sellers' will be around, with more property on the market negotiating good prices will be easier AND.. Rents are going to go up as landlords try to avoid being out of pocket as much as possible.

Don't hold your breath waiting anytime soon.
Rents are going up, costs are being covered, IRs are still nowhere near pre-GFC levels, good stock is in short supply, quality listings are still being sold within hours or days at the most.

Or will none of the above happen as our economy seems to be firing up and population growth isn't slowing down any time soon?

This is the likely outcome I think.

At a guess I think we've in for another 10% increase in the next 12 months just from what I am observing at the coal-face.

 

[bene313]

Yes, 17% in the last 12 months according to Residex. Not too shabby.

Alan any ripples to regionals?

 

[Reality Cheque]

Alan any ripples to regionals?

Regional has not long finished riding the ripple from the Sydney boom in 2003. Sydney needs to go up a hell of a lot before regional gets another ripple. Most regional has outperformed sydney over the last 10 years. That can't last.



RC

 

[Propertunity]

Alan any ripples to regionals?

I said on an earlier post, that once Sydney booms, within 1 hour's drive, the ripple normally hits 6 - 9 months later. At the time I suggested W'gong in the south, Blue Mtns in the west and NSW Central Coast to the north.

I can only comment on NSW Central Coast, but if you pick any run-of-the-mill suburb, say like Springfield just out of Gosford, you can see the uplift in CG - see chart.

Cheers, Alan

 

[hobo-jo]

Now moving forward for future purchases, im thinking rising interest rates will squeeze a number of people, more property will come onto the market, prices could decrease a little or more 'distressed sellers' will be around, with more property on the market negotiating good prices will be easier

I do not think this is an unreasonable expectation...what we have to remember is that interest rates are coming off a lower base than they did in the last spike...for example when rates peaked at around 9.45% in mid 2008 the lowest they had been in the 2 years prior is 7.3%. 7.3 to 9.45 is a 30% rise in the interest rate. In April 2009 rates bottomed around 5.55% and now sit around 7.4%, this is already a 33% rise...so you see rates don't have to get as high as they did in 2008 for those who have bought recently to be put into mortgage stress.

Rates from here:
http://www.loansense.com.au/historical-rates.html

Consider that FHBs were making a large % of the buying in early 2009 when we had these low rates....and many went for honeymoon rates which means they've likely had an even bigger interest rate shock.

Listings are on the increase
Further interest rate rises possibly on the cards

I think a softening in many markets is very likely (and possibly already occurring).

 

[oracle]

I do not think this is an unreasonable expectation...what we have to remember is that interest rates are coming off a lower base than they did in the last spike...for example when rates peaked at around 9.45% in mid 2008 the lowest they had been in the 2 years prior is 7.3%. 7.3 to 9.45 is a 30% rise in the interest rate. In April 2009 rates bottomed around 5.55% and now sit around 7.4%, this is already a 33% rise...so you see rates don't have to get as high as they did in 2008 for those who have bought recently to be put into mortgage stress.

I think if rates were to peak at the same level like last time around 9.45% you can expect very strong economy accompanied by high inflation and above average wage growth which would help most household to continue making their mortgage re-payments.

(PS: The above is generally speaking, there will always be instances of people not benefiting from the boom or mismanaging their money affairs and are forced to sell their property due to rising interest rates. But it won't be widespread to cause massive house price falls.)

Cheers,
Oracle.

 

[Thesnowyforest]

one thing that comes to mind regarding rates not going as high as pre GFC levels is to keep in mind prices are approx 100k up on pre GFC levels. So if the FHB have paid the new higher prices, they are supporting 100k more in debt than they would have if they'd bought pre GFC. So whilst 7 or 8 ish % isnt as high it could be just as painful due to the higher purchase prices.

???

 

[HappyCamper]

Didn't the ripple actually start in FHB territory in late 2008 before spreading to the blue chip areas?

 

[stumunro]

Didn't the ripple actually start in FHB territory in late 2008 before spreading to the blue chip areas?

yes from the bottom up this time, usually the other way around good ol stimul

 

[Ms Jade]

I think if rates were to peak at the same level like last time around 9.45% you can expect very strong economy accompanied by high inflation and above average wage growth which would help most household to continue making their mortgage re-payments.

(PS: The above is generally speaking, there will always be instances of people not benefiting from the boom or mismanaging their money affairs and are forced to sell their property due to rising interest rates. But it won't be widespread to cause massive house price falls.)

I don't about 'widespread' either, but I wonder what % of forced sales it takes to have a negative impact on an area? 5.55% - 9.45% is a 70% increase in repayments. Unless all those new loans were for <60% of people's serviceability (how likely is that?) I don't see how they won't be in strife. I wish my wages grew enough to keep up with a 70% jump in my repayments!

 

[Property Meister]

http://www.news.com.au/money/intere...ead-of-christmas/story-e6frfmn0-1225933632881

I just read this article

basically the article says , rates will rise tomorrow but won't stop upwards in prices.

in melbourne, I see asking prices on newly listed properties being more reasoanble. I see alot more passed ins.

however, Will prices still continue to rise,

does this mean that say in 2-3 years time when the rates do come down, its the start of another boom????

i find that a bit strange, the article does mention shortages of stock, but is it really that much..........

im confused to be honest

 

[Propertunity]

im confused to be honest

Property Meister here is the CG for the last 20 years for SYD.

Go get the MEL equivalent and have along look at it and ponder the fact that cycles are called cycles, because they keep repeating over and over. Does that help?

 

[Ausprop]

we are at an interesting point whereby the 2 speed economy is about to hit the accelerator. even within the resource states you will see a divide form. IRs will be a useless blunt tool against the tsunami of cash flooding out of these resource projects. There wil be so much leakage from the domestic economy that we will be wondering if the benefits are worth the cost

 

[Property Meister]

Property Meister here is the CG for the last 20 years for SYD.

Go get the MEL equivalent and have along look at it and ponder the fact that cycles are called cycles, because they keep repeating over and over. Does that help?

thanks for that,

what I see in the graph is that median price is basically increasing at all points except a plateau

and the number of sales is going up and down but with an overall downwards trend,

 

[Ausprop]

overlay that graph with the price of eggs for a real insight

 

[Property Meister]

we are at an interesting point whereby the 2 speed economy is about to hit the accelerator. even within the resource states you will see a divide form. IRs will be a useless blunt tool against the tsunami of cash flooding out of these resource projects. There wil be so much leakage from the domestic economy that we will be wondering if the benefits are worth the cost

well this is how i see it, in terms of the cycle

normally, rates rise, it becomes less affordable to buy

easier to rent

at this point rents have also fallen behind to 2.8%-3.5% on average Return

so property prices plateau out

now I am not too sure how USD affects the cycle, nor am I aware what the requirements for a bubble bursting are
so yeah, assuming past history, according to the cycle, we will hit a flat period for about 2 years

that being said, the article says, prices will continue to rise

the article did mentio 25,000 extra demand, Im not too sure how significant that is in the scheme of things

so over all, the typical characterisits of a cycle aren't fitting into my line of thought

I have recently seen more passed ins at auction, vendors asking price being much lower