Watch for dropping interest rates

Hmm-m.

Unemployment remains steady. Consumer confidence remains steady. The economy grew 0.6% in the last quarter.....

I think Interest Rates remain steady for now. Why would our profitable banks cut interest rates? The dollar is high and it is a great time to invest in AUS.:)

Regards JO
 
Hmm-m.

Unemployment remains steady. Consumer confidence remains steady. The economy grew 0.6% in the last quarter.....

I think Interest Rates remain steady for now. Why would our profitable banks cut interest rates? The dollar is high and it is a great time to invest in AUS.:)

Regards JO

Hmmm..

In terms of employment, hours worked are down 21% on previous month. 30,000 full time jobs lost, and manipulation with the "participation rate" and definition of what "employed person" is are pretty much meaningless.

GDP "growth" of 0.6%? What is the error margin on those figures? 2% I guess. Sober interpretation of the last GDP figure is "GDP growth is stalled" (in the best case).

High dollar is just another case for interest rate cut. High dollar encourages deinvestment from commodity dependant AUD and converting back to USD. It increases the price of AU investments and disourages further investments.

Having said all of that - RBA has a long history of not having concept of economic responsibility and doing the opposite to what economy really needs. But this is not a bad thing. The longer they resist doing the right thing, the deeper cuts they need to perform later.

If they have not hiked rates back in 2008 when they should have reduced them, we perhaps would not have lowest in 50 years rates now. Anyway, it is now proven - they did not cut far enough.
 
Not everybody seems to know this, but "new housing starts" is a precursor for GDP figures. In fact, GDP follows "new housing starts" with a lag of 3 months.

Hot from the breaking news:
http://www.news.com.au/business/story/0,27753,26076044-31037,00.html FHOG boost and handouts failed to lift new housing starts, which fell 3.7%.

In other words, more interest cuts needed - and urgently.

It is a bit of lagging indicator and building approval is better indicator and it is released monthly (also the new home sales data). I think you are right and we will get there, it takes time, we have to wait what happen to the eceonomy if the FHGrant and stimulus is taken out, then, to get lower rates we have to wait the amount of debit (loans) people are taking out from banks stop increasing (probably would happen together with home prices), then we can have lower interest rates to try prop up the amount of debit more. Still you can't have both:higher home build number and rising prices, the amount of debt needed to get this wold be beyond RBA debit/inflation targets.
anyhow here is the point we are with interest rates expectation:
Traders have a 100 percent expectation that Stevens will raise the benchmark rate by a quarter percentage point in December, according to interbank futures on the Sydney Futures Exchange. They also tipped a 60 percent chance of an increase in November and a 16 percent chance of a move next month, according to the futures late yesterday in Sydney.
link
 
More signs of a "L" recovery?

  • Consumer confidence survey means nothing. Spending means everything.
  • Building starts? FHO are only one part of the market and a very narrow focus part.
  • Unempolyment may not be going up but niether is wages and hours are being reduced
.

Peter
 
And this raised the question why media indulged in interest rates scaremongering at all:

http://www.smh.com.au/business/minutes-reveal-rba-in-no-hurry-to-raise-rates-20090915-fooj.html

From the linked article...

the RBA is expecting to raise interest rates at some point, but with many doubts about the sustainability of the global and domestic recovery, and easing pressure on inflation, it has the luxury of taking its time to ensure it doesn't jump the gun and kill the recovery before it has had a chance to take root.

Very similar to the situation faced in the USA just prior to their recent construction-led property boom. As I've said before, the forthcoming Australian property boom is simply an unavoidable side-effect of the RBA and government desire to avoid a severe slowdown in the wider economy. They need to maintain low interest rates, and stimulus, in order to avoid recession. Strong residential construction activity is a very desirable outcome, boosting GDP.

House prices will boom (are already booming) as a result.
 
Rates need to rise soon, otherwise we'll be well and truley on our way to another property bubble by Q1 2010.

Prices have been climbing steadily for the last few months and will continue to do so until rates get back to normal levels (~7%).

Based on my own observations, everything in the 600 - 700k bracket has risen dramatically in the last 3 months alone..
 
Rates need to rise soon, otherwise we'll be well and truley on our way to another property bubble by Q1 2010.

Prices have been climbing steadily for the last few months and will continue to do so until rates get back to normal levels (~7%).

Based on my own observations, everything in the 600 - 700k bracket has risen dramatically in the last 3 months alone..

And your point is?

No offense but anything bought now will be a "bargain" in 2015. Prices always go up. Always has been, always will be.

Example: Surry Hills terrace i owned as PPOR.

Sold 1976 for $10k
Sold 1987 for $65k
Sold 1995 for $235k (to me)
Sold 2005 by me for $521k

Each sale set new high price for the street until the next sale.

Present value in 2009 probably $600k plus.

Lesson: dont confuse pricing with interest rates. The best description of IR policy is it is a "very blunt tool". I hammered house prices down and up when it's intent is to manage the economy.

Peter
 
Rates need to rise soon, otherwise we'll be well and truley on our way to another property bubble by Q1 2010.

Prices have been climbing steadily for the last few months and will continue to do so until rates get back to normal levels (~7%).

Based on my own observations, everything in the 600 - 700k bracket has risen dramatically in the last 3 months alone..

Tatoo this on your forehead if you do not want to reggret your investment decisions : "PROPERTY" and "BUBBLE" shall never be used on the same line in this country.

"Bubble" is a temporary price hike that is "burst" by subsequent oversupply.


Overwhelming majority of people in this country live in state capitals, and state capitals HAVE RUN OUT OF LAND.
Nobody makes new land for the last 4.5 billion years. To create US or UK style oversupply you need geological scale shift in planning laws allowing for easy subdivision of land and easy rezoning. Can't see it hapening in your lifetime.

Strictly speaking, you can (theoretically) create property bubble in Australia - namely in the areas of limitless land supply - like in the middle of the desert. Question is - who is going to buy there.
 
Hi, good analysis, ToDo, very very good common sense.

No need for complicated numbers or explanations, just common sensical stuff like each sale HAS to be higher because of the tacked on transaction costs & they don't make land so to build high rise housing well, the costs go up too.

Well done, ToDo.

KY
 
Hi, good analysis, ToDo, very very good common sense.

No need for complicated numbers or explanations, just common sensical stuff like each sale HAS to be higher because of the tacked on transaction costs & they don't make land so to build high rise housing well, the costs go up too.

Well done, ToDo.

KY

Thanks,

But there is an imprtant conclusion from all of this. Governments of all levels (whether they want or not) will be forced to approve new housing.

In the absence of land the only way is to increase density, i.e. to rezone current low density into medium/high. One does not need to be a rocket scientist to figure out target areas for such resoning. They are obviously are going to be in the areas of existing infrastructure so it gets utilised to its full potential and beyond.

Which simply translates to the fact that now is the wrongest time of all to waste money on units, villas or townhouses (unless you buy the whole block). Land is a king.

Personally I currently buy anything of good value that is within 1 km from train stations and near major runways as it is obvious that this land will be rezoned earlier of everything else.

Can't help to point out that in some areas (like Sydney's North Shore) there is some kind of absurd is happening. Some crazy people sell land in a region of $300 - $400K, other smart people spend about $150K building 4 bed house on it, and sell it in excess of $700K (well, this bit is not so smart at the start of the property boom).
 
Agree with your observations.

I have a crystal ball, however it is cloudy as I have been saying to people.

I dont think we are going to see an 03 boom here at present, nor do I see prices falling in half. I belive Interest rates would be silly to rise very quickly, as the gov has spent billions in keeping economy afloat with stimulus, etc... If rates move up, this will have a negative impact on the economy.

Rates will rise from where they are now, but doubt they will be in any sharp turn. The futures show that they will rise sure, however the futures also showed 12 months ago rates wouldnt be 3%.

Interesting times ahead, Thanks for this discussion.
 
Indeed this is an interesting discussion. I have no idea what is going to happen, however i certainly agree with ToDo's post that there is a complete lack of land to be released in our capital cities (where 90% of the population lives, and wants to live).... and that interest rates are going to stay lowish for a little while.... and that we are not going to see a "bubble" due to the resounding lack of land in the capital cities

Whether we see some kind of govt intervention that improves or speeds up the urban "in-fill" (increasing housing density)... well that is yet to be seen.
They can re-zone to their hearts content - but (as grossreal has pointed out in other threads) unless developers can get their hands on cheap enough credit, or ANY credit, then there just isnt any ability for developers to develop.

I was listening to ABC 702 this morning, and there was a developer they were talking to who had an interesting idea. He suggested that instead of govts just permitting the re-zoning of land, allowing the individual holder of the land to profit from that re-zoning..... that govts should BUY OUT that land at current value, then re-zone it, and then make it available to developers.... so that the profits of the re-zoning are taken by the govt which can then be put into improving/building the supporting infrastructure.
This means that developers would potentially not have to fork out for such massive contributions/costs/taxes on their developments, and would be able to develop at a much more affordable level with a more affordable end product.

It sounds like a good idea in theory...... but as Homer Simpson so succinctly put it; "in theory, communism works".
 
so - all in all we have people arguing for a boom and people arguing for a bust.

to me - i reckon lets meet in the middle and call slow, incremental growth underpinned by a stock shortage - new and old - and a bubble kept in check by tight credit.

sounds like a good reason to buy now.

actually, so did yesterday - and tomorrow's looking good too....
 
This reminds me of when i was paying 17.5% int rate and it dropped to 13%, some were saying that rates will go back up so don't borrow too much.

Back then int rate rises and falls were at least 1% , now their .25% and have the same impact.

So what if int rates come down to 3% and we get .1% int rate changes.

There doesn't appear to be much difference between.....
100k at 17.5%=17k
300k at 6% =18k
500k at 3% =15k
Maybe this is where we are heading?

Cheers
 
Indeed this is an interesting discussion. I have no idea what is going to happen, however i certainly agree with ToDo's post that there is a complete lack of land to be released in our capital cities (where 90% of the population lives, and wants to live).... and that interest rates are going to stay lowish for a little while.... and that we are not going to see a "bubble" due to the resounding lack of land in the capital cities

Whether we see some kind of govt intervention that improves or speeds up the urban "in-fill" (increasing housing density)... well that is yet to be seen.
They can re-zone to their hearts content - but (as grossreal has pointed out in other threads) unless developers can get their hands on cheap enough credit, or ANY credit, then there just isnt any ability for developers to develop.

I was listening to ABC 702 this morning, and there was a developer they were talking to who had an interesting idea. He suggested that instead of govts just permitting the re-zoning of land, allowing the individual holder of the land to profit from that re-zoning..... that govts should BUY OUT that land at current value, then re-zone it, and then make it available to developers.... so that the profits of the re-zoning are taken by the govt which can then be put into improving/building the supporting infrastructure.
This means that developers would potentially not have to fork out for such massive contributions/costs/taxes on their developments, and would be able to develop at a much more affordable level with a more affordable end product.

It sounds like a good idea in theory...... but as Homer Simpson so succinctly put it; "in theory, communism works".

it could very well work though - i guess the biggest issues are

1) govt exit strategy - if no one buys said land, the taxpayer is left holding the bag. the only way to cure this would be an EOI and tendering/ballot system - which takes FOREVER, another nail in the coffin for planning timeframes.

2) it's socialist.

3) govt role is primarily set to make a profit and then spend said profit to equalise books and become a not-for-profit set up. govts have no idea how to create wealth, only how to tax harder and spend harder. i would be gravely concerned for any potential developer's profitability if land was sold to the govt 2 years ago cheap cheap, revalued 1 year ago at cheap, and now a developer buys it at market looking to sell in another year for profit.

4) making bureaucratic boffins see the light - getting a bill ike this through the lower house, upper house and senate in one foul swoop.
 
This reminds me of when i was paying 17.5% int rate and it dropped to 13%, some were saying that rates will go back up so don't borrow too much.

Back then int rate rises and falls were at least 1% , now their .25% and have the same impact.

So what if int rates come down to 3% and we get .1% int rate changes.

There doesn't appear to be much difference between.....
100k at 17.5%=17k
300k at 6% =18k
500k at 3% =15k
Maybe this is where we are heading?

Cheers

kudos for that, good point,
I think we are going that way indeed.
But you can see how tricky things can get when the monetary policy has got only 0.someting to move big money in and out the market.
The RBA for sure will have less control on money and external movement will play a much bigger role. Something like other major countries will move rate back up and australia can't match it without sending home owners and economy down with it. there would be serious problem to keep overseas funds to keep flowing into australia
 
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