Where's The Pain?

[Andrew_A]

Today's 0.25% RBA cash rate rise with the threat of another to come has got me thinking. Has anybody noticed any pain yet?

We've seen Centro, MFS, RAMs with their fingers caught in the cookie jar but has that translated into lost jobs? foreclosures? Or people putting off spending and investing?

I'm not seeing any pain yet in QLD, apart from a few anecdotal reports trickle through about a slackening in demand for high end property.

I'm thinking about how I could be wrong with my view on interest rates, if we have already seen the worst, or close to it then I think I need to be concerned about IR's and look into fixing some of my debt. As I understand it IR's have to be pushed until we are all in some sort of pain, recession or the like and it appears a long way off at the moment still.

Thoughts?

 

[Aaron Sice]

while i personally haven't really noticed the difference, i don;t have any debt other than a car loan (fixed) and a mortgage.

that said, i think the only people struggling are FHO's who have borrowed to the max or single income families. unfortunately, that really points at a significant majority of the current market.

i think the biggest problem is that people have gotten used to a certain standard of living and it's going to be VERY hard to get people to change that. i see people all the time using their line-of-credit mortgage credit cards to buy furniture for their houses, plasmas, coffee machines etc all justified with that "....ahahaha....yeah i know, i shouldn't, but it's not my money so who cares!...."

with that kind of mentality it;'s no wonder we have rising interest rates. spending per household is almost up there with the US - and three quarters of their massive economy is consumer based.

 

[Ausprop]

do you really see people doing that? i think that the stereotypical debt holder is seriously misplaced, in that most debt held in this country is wannabe upper middle class reachign for the new boat, the new merc, the hosue by the sea. bashing harvey norman is a great past time but from my on the ground experience, finding holders of bad debt is actually harder than you would imagine

 

[jaycee]

I'm amazed by the number of people I see wearing Prada & Gucci $400 sunglasses... much more so than I used to see, and people of different ages that I didn't see doing this before (maybe I was naiive?!). I even bought my first pair of designer sunnies last year, on sale at least (yeah that was a good buy, lost the damn things).... Foxtel / internet & mobile phone spending which yeaers ago weren't an option

Bought my first car that wasn;t over 10 years sold - 3 years old, and keep noticing every time I see a similar one, it's younger than mine (not that jealous, I really oculnd't afford the enwr one, and this is pretty damn good for me, but is EVERYONE who has these newer ones on a better wicket than me ? people tell me I've got a "good job".

The 3 year(+!) interest free deals - started off as 90 days if i remember rightly...

I think i do see a fair bit of overspending in things like this.

there's a lot of people in different situations, but outside of my circle, so sometimes I don;t consider how large it actually is / isn't

 

[artemis]

most of those affected by these interest rate hikes aren't prada wearing wannabees, but instead live on the fringe suburbs of melbourne, where the previous two interest rate hikes have sent their worlds spiralling.

i work out in these suburbs and have witnessed much family grief and suffering due to these hikes. family breakdowns, youth depression and unemployment are just the beginnings.

the rba is way off target believing that this may help curb inflation. these people stopped spending a long time ago.

 

[evand]

Andrew, just because you cant see it doesnt mean it doesnt exist. I have no debt (apart from IP loans which the rent covers) so i dont feel any pain.

But i know that people want a certain standard of living these days - keeping up with the Joneses - and that standard of living is mostly sustained with debt.

The big house, the pool, the plasma, the flash car on and on....all on debt.

I read somewhere last week that 5 houses in one street in Kellyville Sydney were foreclosed/repossesed. The article also said that assistance centres are being over run,one guy says the worse he's seen in 20 years. And not by battlers, by pseudo middle class with too much debt.

These are exactly the type of areas in Sydney & Melbourse etc that are feeling the pain. Newish outer suburbs, aspirational, Mcmansions etc

These are the 'aspirational voters' (as he called them) that voted John Howard in for his last term in office. These are the suckers that bought his seriously flawed dream.

 

[grossreal]

hi all
where is the pain
interesting question the pain for me is not a cut that you can see at the moment but is a broken leg or arm that is swelling.
the pain is on the bottom line of the banks and lenders or the books that are holding stock.
there are banks out there with property at over 150% lvr.
there are lenders that can't forclose (as you would call it) because it will drive down value of other stock that is not in a problem situation at the moment but if they sold it would be.
there are lenders out there with 300mil of stock on there books that the managers are scratching there proverbial heads trying to see a way out.
without taking that almighty hit.
there are lenders that 750,000 borrowers are well behind on there mortgages and if half go west those same banks just increased the minus book values or bad debt ledger.
the pain is on the face of these guys faces.
wny they have the broken arm or leg but theres not alot they can do.
and just as in sport if a player has a twisted leg or even broken they still want to play on and to do taht if you say is there anything wrong they grin and say no I'm fine I will walk it off and you know they are hurting until some one says enough is enough and drag them off the field.
the same with this problem.
the lenders are putting a I'm alright and everything great in the play pen.
all this bad debt is not a problem.
some are still holding 2003 bad debt.
the trouble is they don't go on today tonight or into the age so its not seen.
you will see the cuts in the skin with the 750,000 going into trouble and say 300,000 been closed by the sheriff if thats what going to happen and today tonights of this world will have where this is happening.
what you need to do is to buy before the sheriff rings that bell as you can do a few deals that way with the bell holder.
the credit card, v8, new boat etc your not going to help hard but true.
and rate rises arn't going to do much either.

 

[Bill.L]

Hi all,

There is about to be some pain felt in the financial markets today.

If you add together the effect of higher interest rate squeeze on peoples spending, especially at the lower end, with the falling values of stocks on retirement incomes and expectations, coupled with a similar effect on middle to high income earners, you do not get a pretty picture.

I have a relative that just lost her low paying job. She bought a property in the outer suburbs (way outer) at the height of the boom in 2003. She has been struggling with mortgage ever since, and has a C-card debt of $14,000 maxed out. She is in trouble. The family will probably do what they can to help bail her out (again). This type of scenario times many does not bode well. It is OK when assets are rising, and it doesn't hurt the family to help, but given current squeeze things become tougher for the wider family.

The corollary to all of this is a tightening of spending, which of course leads to a recession.

In hindsight, in 6 months to a years time, it will look obvious. The probability of the RB dropping interest rates by the end of the year is increasing rapidly.

Then of course, when it looks like the excrement has hit the oscillating vanes of the electrical device, it will be time to invest for the long term.

bye

 

[WillG]

the excrement has hit the oscillating vanes of the electrical device

Bill, you're a wordsmith. lol

 

[grossreal]

hi bill
the people that you are talking about in your example are the exact group that this is going to hit and most have maxed out there card not on v8 cars and prada glasses they have done that on milk and petrol.
and god help the guy comming out of mitz in adelaide.
these are not people that have bought today or even last year.
these are people that have bought in the height of a boom held on thinking that the value will come back and it hasn't
maxed out everything they can to hold on and helped along by the ever so friendly banks with the get another plastic card and trasfer all your debt for 12 months at no interest rate deals.
those guys are in trouble.
and there is no white knight on the horizon.

 

[jaycee]

most of those affected by these interest rate hikes aren't prada wearing wannabees, but instead live on the fringe suburbs of melbourne, where the previous two interest rate hikes have sent their worlds spiralling.

i work out in these suburbs and have witnessed much family grief and suffering due to these hikes. family breakdowns, youth depression and unemployment are just the beginnings.

the rba is way off target believing that this may help curb inflation. these people stopped spending a long time ago.

There is pain & you are right it is those people.. My reply was in answer to Ausrporp's question if we see overspending on consumables or not, as he suggested it was only/nearly only wealthier people buying boats & the likes who cary bad debt...

Yes there are people who are feeling pain when shopping for essentials, and I've seen that they have existed for many years also having grown up just over the line myself & probalby the only reason my parents didn't have that much "pain" is through frugal ways of living & satsifaction, others do not have this choice (and some haven't learned to do that (I couldn't do what my mum did or even still does - they grew up in a different environment, nothing like this, so they had no confidence anythign good would lst, so they made surewe lived frugally, paid off the only debt incured a mortgage in 8 years and were happy to have a non leaking clean roof over their heads & that's it -).

 

[dave99]

Retail sales were up over 8% last year in Melbourne.

People haven't stopped spending yet. Maybe this rate rise will do it.

 

[jaycee]

there you go..

I doubt people buying boats / yachts are the only ones who contributed to this...

If poor struggling to put food on the table pple aren't spending, someone in between them & the multimillionaires with fancy toys is also spending one would think (?)

 

[Bricks & Mortar]

look a little harder and you'll find it.

Just trying to work my head around the stockmarket and come across an interesting graph from
'The Intelligent Investor'
it claims current personal credit card growth is around $13.5bn
and housing credit growth to be around $12bn

These are similar figures to that around 1999 when RBA interest rates were 6.75%-7%
but business credit has jumped from under $10bn in 99 to approx $23bn
(Which is a sharp rise from a near zero base since '02)

The people who will be hit first is those with credit card debt experiencing the higher rates with no option of fixing (unless they take out a personal loan)

When you ask who is hurting, Yes the lower income families are suffering as are the people who have just entered the market, the street level will have more featured articles in the newspapers but what doesn't hit home on a personal level is how much business is starting to feel the squeeze too.
This will only come more into the forefront when jobs are starting to be lost.

Business too have leveraged highly, some too high to the likes of Centro who are experiencing problem refinancing, but some big names even have short term debts exceeding their current assets.
same source:
Aevum $323,606m to assets $38,892m
Tabcorp $390,000m to assets of $282,700m
Tattsersalls $624,694m to assets of $372,932m
Wesfarmers $5,574,799m to assets of $4,023,947m

Volitility seems to be the word for the stockmarket in the near future and looking at the borrowings, together with the global credit squeeze it quite an appropiate word to describe 2008.
Some People are already losing their homes...and I dont want to minimise their grief or impact it makes
but:
What happens when business can't refinance or have to partly sell off.
How many business are left who aren't highly geared, able to pick up @ bargains prices,
to keep the companies going. (not to mention restructuring)
What future expense will the workforce encounter to maintain shareholders profits.
Will current immigration curtail if the job vacanies are reducing.
What are the ramifications of margin lenders in the marketplace should the stockmarket experience a sharp downturn.
At what level will the RBA interest rate be too high.
Should inflation be the real concern for the RBA.
Will USA have the recession it had to have.

Sure the USA is seperate from Australia but how closely does the OZ stockmarket follow when the US has a bad day... No despite living on the other side of the world it will effect us, sure money hasn't been handed over willie nillie like the sub prime in America but the subprime has effected the money market and in turn does effect us in Australia to a degree, and will continue to do so.

So the intensity of the pain and our SNAF should now also rest clearly on the shoulders of the RBA, whether they will act too hastely in the near future.

As far as it effect on housing is another matter as demand is still high, but that too can change.

 

[willair]

Today's 0.25% RBA cash rate rise with the threat of another to come has got me thinking. Has anybody noticed any pain yet?

We've seen Centro, MFS, RAMs with their fingers caught in the cookie jar but has that translated into lost jobs? foreclosures? Or people putting off spending and investing?

I'm not seeing any pain yet in QLD, apart from a few anecdotal reports trickle through about a slackening in demand for high end property.

I'm thinking about how I could be wrong with my view on interest rates, if we have already seen the worst, or close to it then I think I need to be concerned about IR's and look into fixing some of my debt. As I understand it IR's have to be pushed until we are all in some sort of pain, recession or the like and it appears a long way off at the moment still.

Thoughts?

The only people that i know that have had any problems are the ones that got hit with margin calls a short time ago,apart from that i don't see any problems out there we still have in this country a strong economy,a stable new government,increasing pouplation in SEQ each day..

We go to the movies each thursday night a Southbank ,have dinner then try and see 2 movies if we can ,very few people were eating out last night very low numbers in all the eat-out places maybe 30% full, the same as the past 3 weeks, also in the cinemas very low numbers again,the same as on the way home past midnight very few cars on the road,so i guess people will be more carefull what they spend their money on,it may be hard for anyone in the food business over the short term..

Some analysts say property is collapsing in several area's while others say it's booming no-one is sure till the rates hit 10%..willair..IMHO..

 

[tubs]

Apparently only abut 30% of the population have mortgages.

This means the burden for curbing inflation actually falls on these people. And since fixing loans is more common, its those on variable loans who will carry an increased burden.

People with high credit card debts arent affected as badly unless they have over, say $100k on them.

The people driving inflation are the people who have no mortgage, hence lots of disposable income. What about people on super who made a fortune out of the stock market lately. They'll keep spending up big too.

Interest rates are a poor way of curbing inflation. The burden falls to too few people, and on those who can least afford it.

 

[jaycee]

I think it comes down to proportions…

Some pple do not have the income to support $100k on their credit cards (me being one of them!),

However, they do & can get credit cards at the higher end of their affordability scale…. And these if these are at the high end/over the credit limit, people struggle to pay them off (regardless of whether the bill is $1000, $5000, $10,000, or $100,000)

Let's not pretend all people use credit wisely - they simply don't….. Then when the proverbial hits the fan, they have to tighten up, in order to meet overdue bills, no longer excess lifestyle spending.. They have to choose between the c/c or bills, or paying the c/c & using that to pay bills etc… and the interest rate, remember these people are stretched, is another burden… It compounds the effect.

For some pple, and extra $1k on interest pa may be nothing, but to many it is a lot, and (it may come as a surprise to some people), but extra $500 / pa on overdue interest is enough to cause some people pain… What do these people do ? They cut down on spending in one way or another as they literally have no cash or credit to spend with.

Self Responsibility is another issue altogether (as to why pple get to that stage in the first place)

Interest rates are a poor way of curbing inflation. The burden falls to too few people, and on those who can least afford it.
Starting to agree, although I disagree th only people affected are those with variable interest rates &/or credit cards over say $100k

 

[jrc]

In the regional city I follow where gross yields seemed to be 5-5.2%, more gross yields are in the 6% range. Houses that have been on the market for a while are dropping in asking price by 5%. New house/land spec homes also seem to have dropped in asking price.

 

[daniellee]

Hi

I agree with the last few replies about interest rates affecting only those with loans; so that mean owner-occupiers and property investors with mortgages will be affected by the rates increases.

Then again, even if interest rates were to go down, it would pretty much only benefit the same group that it hurts when rates go up.

Is there another way of curbing inflation? Perhaps a major recession by a major importing country will lead to a slow down in growth for a major exporting country?

All the best.
Daniel Lee

 

[alexlee]

I agree with the last few replies about interest rates affecting only those with loans; so that mean owner-occupiers and property investors with mortgages will be affected by the rates increases.

Loans aren't limited to mortgages. It also affects credit cards, personal loans, consumer loans, business loans, corporate debt, etc.

Is there another way of curbing inflation? Perhaps a major recession by a major importing country will lead to a slow down in growth for a major exporting country?

It's a VERY delicate balance to say 'let's slow down growth to the point where we're not overheated, without consumer confidence pushing us into recession'. In the western countries, most of the economy is consumption. Consumers tend to be manic depressive.
Alex