What do you think will happen to property prices in general if interest rates drop 1% next month and most of it is passed back onto consumers from the banks?
Will the next IR drop force property prices up?
- Thread starter The_Bludger
- Start date
Hiya
rates per se wont cause a price movement up.
If there is a move in sentiment and people want to go into debt to buy a new PPOR (soon to be cheaper than renting in mnay areas) then we will likley see some price pressure as demand increases.
ta
rolf
rates per se wont cause a price movement up.
If there is a move in sentiment and people want to go into debt to buy a new PPOR (soon to be cheaper than renting in mnay areas) then we will likley see some price pressure as demand increases.
ta
rolf
Not too much really. I think they'll firm slightly in some areas and continue to trend down in others. I think too many people have concerns about their jobs and the economy to start playing monoply again.
Yes and no...LOL!
I see that the first home buyers will push prices of anything under 350k up in the major cities. There are still alot of people in very safe jobs....i.e. Community Service, Government, Defence, Police, Emergency Service, and Medical areas...they will buy as it will be cheaper to buy than rent!
The high end executive properties and any IPs with rents over 400pw are going to take a battering!!
I see that the first home buyers will push prices of anything under 350k up in the major cities. There are still alot of people in very safe jobs....i.e. Community Service, Government, Defence, Police, Emergency Service, and Medical areas...they will buy as it will be cheaper to buy than rent!
The high end executive properties and any IPs with rents over 400pw are going to take a battering!!
Prices wont rise as property is already highly overpriced. At the bottom end prices will (and are) increase slightly with government assistance. When that stops, you want to be sure you have a chair.
By the way, i was talking to a relative yesterday who works in a payroll company in Sydney. The type that does electronic payroll for hundreds/thousands of companies who outsource it.
Anyway, she was telling me a lot of companies have cut staff numbers and the payroll $ amounts are reducing big time with loss of over time/bonuses/move to part time places in place of full time positions etc.
She said it was easy to monitor as all records are kept on computer.
I had never thought what a great indicator of the economy this is and as a leading indicator things are not looking good for 09.
By the way, i was talking to a relative yesterday who works in a payroll company in Sydney. The type that does electronic payroll for hundreds/thousands of companies who outsource it.
Anyway, she was telling me a lot of companies have cut staff numbers and the payroll $ amounts are reducing big time with loss of over time/bonuses/move to part time places in place of full time positions etc.
She said it was easy to monitor as all records are kept on computer.
I had never thought what a great indicator of the economy this is and as a leading indicator things are not looking good for 09.
That's a very broad statement, could you be a little more specific?
Cheaper to buy?
Hi Rolf, even with interest rates as low as they are, I can't see how mortgage repayments for FHO's on non-tax deductible loan can be lower than rental anywhere. e.g. $350/week rental somewhere in Bris on 3BR house costing $350k. Loan say for $310000 at 6.04% is approx $430/week. Perhaps I am missing something here or am I just not looking in the right places? Col
Hi Rolf, even with interest rates as low as they are, I can't see how mortgage repayments for FHO's on non-tax deductible loan can be lower than rental anywhere. e.g. $350/week rental somewhere in Bris on 3BR house costing $350k. Loan say for $310000 at 6.04% is approx $430/week. Perhaps I am missing something here or am I just not looking in the right places? Col
Loan say for $310000 at 6.04% is approx $360/week on IO. As Rolf says very close to rent.
.... and then when you factor in just one more i.r drop.... voila! cheaper!
I have observed that interest rate decreases coupled with first home owners grant changes have increased the demand for cheap high rental yield units in Auburn, Sydney.
It is now much harder to find a 2 bedroom unit for sale under $200k.
Assuming my unit is worth $210,000. It is currently let at $280/week. Assuming the current discounted interest rate of about 6.2% this equates to interest of $13,000 per annum (if the entire purchase price is borrowed). This is just under $250/week.
If bank interest rates drop by another 1% after RBA 3 February meeting this equates to annual interest on purchase price of $10,920 or weekly interest of less than $210/week. With body corporate levies of $2800 and council rates of $700 ($3500 total or $67/week) it would still be cheaper to buy rather than rent.
If I also factor in a $14,000 First Home owners grant such that the purchaser only needs to borrow $196,000 annual interest at 5.2% would be $10,192 and weekly interest $195/week.
Adding in rates and body corporate levies (at $67/week) results in $262/week which is $18/week less than current rent payments.
Net result...further significant interest rate cuts when coupled with first home owners grant should increase the price of cheap high yielding rental properties (such as the one in the example valued $210,000 with a current rental yields of close to 7%).
It is now much harder to find a 2 bedroom unit for sale under $200k.
Assuming my unit is worth $210,000. It is currently let at $280/week. Assuming the current discounted interest rate of about 6.2% this equates to interest of $13,000 per annum (if the entire purchase price is borrowed). This is just under $250/week.
If bank interest rates drop by another 1% after RBA 3 February meeting this equates to annual interest on purchase price of $10,920 or weekly interest of less than $210/week. With body corporate levies of $2800 and council rates of $700 ($3500 total or $67/week) it would still be cheaper to buy rather than rent.
If I also factor in a $14,000 First Home owners grant such that the purchaser only needs to borrow $196,000 annual interest at 5.2% would be $10,192 and weekly interest $195/week.
Adding in rates and body corporate levies (at $67/week) results in $262/week which is $18/week less than current rent payments.
Net result...further significant interest rate cuts when coupled with first home owners grant should increase the price of cheap high yielding rental properties (such as the one in the example valued $210,000 with a current rental yields of close to 7%).
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Been speaking with some property managers in West Pennant Hills and Castle Hill and things are dire. Feedback from the managers are that a mass of investment properties are up for sale, tenants are weeks behind on rent and according to one property manager from a major agency he has spent the past week in tribunal hearings for defaulting tenants. I think 2009 will be a terrible year. Hopefully it will just pass by quickly and we can get into 2010. Jobs are going. People are financially hurting and the world is really suffering. We aren't going to be out of the woods for at least six months. Sorry it's doom and gloom but I'm not seeing a sunny day outside (well I am at the moment its 39C here and bloody hot). Anyway time for us all to band together and help those who are affected by this crisis.
Hiya Col
You are correct, In certain price brackets, rents are still significantly y lower than buying with a 100 % or 95 % lend. As rates come down further more property will fall into the "parity factor".
One other ( perhaps small) thing, that affects the parity factor other than straight dollars is that once loan repayments get within 100 dollars or so of rentals, the emotional issues of home ownership have a lot more bearing.
Perhaps increased PPOR ownership may place downward pressure on rents.
ta
rolf
You are correct, In certain price brackets, rents are still significantly y lower than buying with a 100 % or 95 % lend. As rates come down further more property will fall into the "parity factor".
One other ( perhaps small) thing, that affects the parity factor other than straight dollars is that once loan repayments get within 100 dollars or so of rentals, the emotional issues of home ownership have a lot more bearing.
Perhaps increased PPOR ownership may place downward pressure on rents.
ta
rolf
I reckon you are missing quite a bit Col.
Financially, renters need to pay rent. Owners need to fork over a tad more than just interest on the loan.
Yes, $ 350 / wk in rent vs $ 360 / wk in interest is close.....but the gravy train of house ownership doesn't just stop at the first station at Bankhur(s)t.
I thought there were compulsory whistle stops at the council rates station, water(loo) rates station, insuranceville, if you have more than one locomotive and more than one driver on the train, there is also the lovely BC within the district of stratahaven, not forgetting the main port of tenance, which can be a varying and long station indeed.
If you don't post a guard at the rear of this juggernaut, you very often find that the train de-rails into that mythical abyss known as "potential growth".
Very interesting, evand.
I was wondering whether it would be possible for you to update this information for us occasionally - if it's not too difficult? I would certainly be interested.
Cheers
LynnH
Hey if you start saying things like that you will wind up being dissected on the mcp site! LOL
Loan say for $310000 at 6.04% is approx $360/week on IO. As Rolf says very close to rent.
Don't forget to add rates, water, repairs and potentially strata. You could easily rack up $50/w with these alone. Rents and repayments are certainly getting closer but there is still a way to go in many areas. Most of Sydney, for example, is yielding somewhere between 4% - 5% which puts your rental on a $310k property at under $300/w while your total purchase costs are more in the order of over $400/w.
My two cents worth on this discussion about renting vs buying for people right now is that even if it is less than 100bucks more than renting to own your own home, people still have to be reassured that what they buy wont drop in value. That has some effect on people's decisions too.
