What IF: Rates up...Boom over....That leaves Rents?

[Angel]

So in a recession many people who rent will move back in with their folks and reduce the demand for rentals. How about all the people who will sell up their homes and instead rent? That should balance things a bit I think.

Sorry about my lack of info from the last two recessions - I really don't remember what happened at which time in the cycles. All I know is that when we first bought our PPORs, the repayments were crippling for a few years, then all of a sudden they seemed much more affordable and our friends who were renting began paying more than we were.

 

[Freckle]

Freckle, sometimes things work, they defy logic, you have to accept that the world is full of mystery.

For example, I've been drinking Red Bulls all day and I've never felt so ALIVE. My brain is on FIRE from all the ideas I've got. That's why I started this thread. I sincerly believe that when the economy goes pear shaped, RENTS will thrive...that's what I believe.

But of course that's my view (and it looks like knightm has the same experience - look ^^^ read his post). Keep the steaks for the BBQ and the corks on the wine bottles but rents will rule!

Dats get some real brain food and you may be able to understand Knightm's post better and then put what he says in context with the economy over the last decade or so. AU markets haven't seen a correction yet (and nothing like overseas markets have post GFC) so assuming rents will increase if it does is a mistake that may come back to bite you on the bum. Like I said, lotsa case studies out there to get a handle on this.

 

[WattleIdo]

Actually, he's right if you're talking about recession. In a recession everything recedes. That's why it's called a recession. There's no profits to be made unless you're in the food and alcohol business.
In the past, its the Deltaberrys who are able to buy up but they have to wait a few years to start gloating.
The Angels who have a job and buy PPOR with partner and stick it out when the going is rough come through laughing at the end.
Nearly everyone else is basically stuck for one reason or another.
When you lose your job and can't get another one, you'll do almost anything you can to get out of paying rent.
After the recession, the rents will go up.

 

[datto]

So what's so different about the next recession? We have survived thus far. To me its all scare tactics with an ulterior motive. Red Bull anyone lol.

 

[kathryn d]

So what's so different about the next recession? We have survived thus far. To me its all scare tactics with an ulterior motive. Red Bull anyone lol.

From what I can gather...USA has never fixed their debt problem...they just keep postponing it.

When the US is in trouble...we are all in trouble.

I'm not ready for a major recession/depression....so I hope it can be delayed for a few more years

 

[HiEquity]

If people sell houses then other people will be living in those houses. Selling houses in order to rent doesn't change anything - there are still the same number of people living in the same number of houses.

People moving in with others in response to losing a job etc will reduce demand for both rentals and purchases. And all price action happens at the margins.

Ergo in a serious recession rents and prices drop. It's a good thing we haven't had one for decades - although perhaps that means we are due for one?

But don't worry - interest rates will drop too!

 

[redwing]

My wife still believes that if you slap a piece of steak on a wart and bury it in the garden the wart will disappear. That's ridiculous and a waste of a steak, everyone knows to get rid of warts someone has to buy it off you

The old man puts corks under the mattress to prevent cramps..swears by it
Not as silly as it sounds, to get corks you need to firstly open a bottle of wine and open wine must be consumed lest it evaporate

ROFL....

What if, some time in the future, rates go up and the boom disappears in a poof of smoke.

What Boom

 

[danwatto]

Not sure why people are talking of a recession in this thread.. rate don't go up in recessions. The thread is about rates going up.

Rates go up because - inflation is up.
Inflation is up because - wages and costs are up.

There is no reason tenants will default more when rates are up unless they own a bunch of investment properties.

Part of the inflation, can be rents going up, when other costs go up often rent does too. If it hasn't, you only need to wait a couple of years: In the medium term, higher rates means less investors buying property, which also leads to less construction.

Over a few years the demand outstrips supply for rentals.

As long as you fix rates for a while, and can hold for at least 3-5 years you can get yourself out the otherside unscathed. Sure property prices might go down for a while, but this is not a short term investment.

Last time rates increase in 2009, you could see from a flat period the 5 year fixed rates start to change. I managed to refinance my then PPOR to St George who was one of the last to increase their 5 year fixed. Keep an eye on the 5 year fixed and when that and the 3y start to increase, fix a portion. If variable rates go up, fix some more. Risk management..

 

[bumskins]

I wouldn't expect rents to increase in the initial phase.

From my point of view, we have finally hit a phase where we are constructing a reasonable amount of new stock, this is being supported by the current growth in prices. Too me this is likely to contain rents.

Where I think you might get a big uptick in rents is if this construction is interrupted by the prevailing economic conditions, leading to less construction for a number of years. I would expect rents to remain constrained/fall during this time due to the poor economic conditions (rising unemployment/fallingwages, etc.) but then upon the economy picking back up again, you may be back in a shortage scenario again.

Currently we have an income recession/rising unemployment. As the dollar continues to go down, I'd expect to see an exodus of Expats/less people moving here for work. Imagine how much better that USD job continues to look every day. So slowing population growth.

Ultimately the longer this bull run go's the more supply we will see, which will be more damaging if the market becomes negative.

You wouldn't want to hold through a downturn if you could help it, but then again it will probably be hard to buy in a downturn without a lot of cash as finance would be difficult.

 

[Angel]

Should we all buy more shares in breweries and hotels?

 

[skater]

I sincerly believe that when the economy goes pear shaped, RENTS will thrive...that's what I believe.

But of course that's my view (and it looks like knightm has the same experience - look ^^^ read his post). Keep the steaks for the BBQ and the corks on the wine bottles but rents will rule!

Of course rents will rule. When market conditions are right, the rents will go up, up, up! And I will be smiling.

So in a recession many people who rent will move back in with their folks and reduce the demand for rentals. How about all the people who will sell up their homes and instead rent? That should balance things a bit I think.

Lets go back and take a look at the last cycle.

Property prices increasing steadily. New housing being built. Rents stagnating and falling (there's plenty of property to rent). Slowly, as the market corrected, there's less new housing getting built.

All the while, this country is increasing it's population through immigration and young people are leaving home to start their lives independently. All these people need somewhere to live. Most of them will rent, at least when they start out, so now we have a situation where there's less rental property available, and more people looking to rent.

This, then puts pressure on rents. Up, up, up they go. Which then, in turn makes some of the renters look at what they are paying in rent, and think about buying somewhere to live. Property is more affordable, as wages have gone up during this period, and the next cycle begins.

Of course, that's the short version. This takes years to actually happen. Just like there is a property cycle, there is also a rental cycle.

In many of my IP's the rent doubled in the space of a couple of years, just like Knightm said here:

Then rents went up. 20pw, 30pw, 50pw each review. And interest rates came down

 

[Lord Shanghai]

As others have pointed out, rates do not go up during recessions, they fall.

And in modern Australian economic history, each time interest rates fall, property prices generally rise. The low priced end usually does the best. The top-end less so.

 

[topcropper]

And in modern Australian economic history, each time interest rates fall, property prices generally rise. The low priced end usually does the best. The top-end less so.

Property prices didn't rise in the last recession, [90 to 92], they fell a little during the start of the recession, and then were flat for a good few years. And this happened with interest rates in free fall.


Property prices,





Standard variable mortgage interest rates fell from roughly 17% to 9% during the recession.





Unemployment rates went through the roof, from 6% to over 10%.




I clearly remember the last recession starting in 1990. I was too young to remember previous recessions and I couldn't be bothered going back further to find the info but I reckon those recession would have also seen falling interest rates and falling or flat property prices.


See ya's.

 

[topcropper]

For me, the recession was a relief. Dad had bought another farm in 1984 to expand and interest rates had just kept rising. 22% at the high point. I seem to remember that resi interest rates were capped. Dad reckoned we were subsidising resi, but probably not? We owed half a million and nearly lost everything. The recession and falling interest rates saved the day for us, as with plenty of other business's and farmers who owed big money.


See ya's.

 

[datto]

I think that alot of farmers in the 1980s got burned by banks that organised foreign loans. With currency fluctuations borrowers got into strife. They ended up suing the banks and won!

 

[topcropper]

I think that alot of farmers in the 1980s got burned by banks that organised foreign loans. With currency fluctuations borrowers got into strife. They ended up suing the banks and won!

Well that wasn't us. But do remember what you are talking about. Our loan was a normal one through NAB.


See ya's.

 

[Lord Shanghai]

I was too young to remember previous recessions and I couldn't be bothered going back further to find the info .

You were in high school during the slump of 82. Surely you remember? In any case, if your dad bought another farm in '84, he must have had confidence in the economy. I am glad it turned out right for you.

Property prices didn't rise in the last recession
See ya's.

You are looking at real ie. inflation-adjusted house price numbers. Given that most of us borrow money from banks, you really need to look at nominal numbers to get a more balanced picture.

 

[topcropper]

You were in high school during the slump of 82. Surely you remember? In any case, if your dad bought another farm in '84, he must have had confidence in the economy. I am glad it turned out right for you. .

I was at High school in 82. I already said I didn't remember recessions earlier than the 1990 one, so what is your point? I suppose my dad did have confidence, he must have to have borrowed half a million, but so what? He was wrong. It was a terrible time in my family history. We held this farm for a decade before it showed any capital gain and it nearly broke us. Tried to sell it but no buyers. Now it's increased in value by 5 times, but in hindsite dad could have bought it 10 years later for the same price.

You are looking at real ie. inflation-adjusted house price numbers. Given that most of us borrow money from banks, you really need to look at nominal numbers to get a more balanced picture.

House prices really dropped in the 90-92 recession, and then were flat for a number of years. I do remember this. While interest rates were still relatively high, inflation wasn't. This is the worst outcome you can get.

Look, I don't mean to seem like I'm a smarty, but when I see info that's not correct on here, and when I know it's not correct, I can't just sit back and do nothing about it. I like to show why the info is wrong. Just doing my bit for the benefit of all members here.

Property prices didn't rise in the 90 to 92 recession.


See ya's,

 

[HomePage]

Property prices didn't rise in the 90 to 92 recession.

Your data and source look pretty solid to me. In relation to the OP's original postulation, do you have anything similar to show what happened to rents during/after that recession?

 

[knightm]

Look, I don't mean to seem like I'm a smarty, but when I see info that's not correct on here, and when I know it's not correct, I can't just sit back and do nothing about it. I like to show why the info is wrong. Just doing my bit for the benefit of all members here.


See ya's,

This is good info TC no attitude problem detected. I think you are right that was a nasty couple of years in the early 90's. Certainly the aussie psyche was a bit scarred/scared from the high interest rates and the massive stock market volatility at the time.

My original point wasn't that things don't ever get bad. It was just that (in my short experience plus the stories of my parents experiences with cycles since the 70's) generally the cycle includes periods of rising rates, falling rates, rising rents, stagnating rents, rising prices, falling/stagnating prices. Its the ability to see the good times coming that got me through one tough time, and I think most of the time when rates rise they are followed by rising rents. Of course there are exceptions to every pattern and the lags can be longer than we would like. I think its just a reminder for me that its a long term game.