That's a very good point. The APM commentary in Friday's Fin Review identified an alarming number of suburbs in Sydney forecast to fall by 10% or more in 09. If wanted to live in one of these I'd be seriously concerned about buying there now. Far better off renting (many of these only yield about 4% anyway) and buying IP in one of the very few areas which will likely head up this year.
Will the next IR drop force property prices up?
- Thread starter The_Bludger
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That's a very good point. The APM commentary in Friday's Fin Review identified an alarming number of suburbs in Sydney forecast to fall by 10% or more in 09. If wanted to live in one of these I'd be seriously concerned about buying there now. Far better off renting (many of these only yield about 4% anyway) and buying IP in one of the very few areas which will likely head up this year.
Yes but if we remind ourselves that property is meant to be a long term investment it still makes sense, after all in normal cycles prices can stay flat or fall so in actual fact any property that you buy at any time doesn't come with guarantees about what will happen to the value over the next year or two.
However its a dead cert that if you pay rent you will never see any return on that money, its dead money. Ideally set up a loan account with attached offset and pay off as much as possible while the rates are low so that should that time come when you lose your job there will be a nice little buffer to see you through. Yes there are other costs attached to home ownership but the rates are still falling so even if you factor the extra $50 per week for other bills it should still make sense. The icing on the cake would then be if the value does increase sooner rather than later.
St George are now 1.5% below standard variable for the next year so next month if 1% comes off the promo rate will be sitting at 4.39%, so just another 1% to go and it gets very interesting at 3.39%!
Totally agree re the long term. I think the point is that in this almost unprecedented state of the market the potential (in fact “likely”) fall in many areas should be a factor. Typical example; many of the “blue chip” areas of Sydney are highly likely to fall by double digit figures this year. The question should be one of timing; is it better to rent in those markets over the coming year then buy or buy now and likely lose 10% off your capital by Christmas.
The “dead money” term is very emotive and is usually not used objectively. Another way of using this phrase would be to say that non-deductible interest payments are “dead money”. And it’s usually significantly more than rental payments.
Remember that’s only for 12 months and as you said, you need to think of these things in the long term. Keep in mind what those (non-deductible) repayments might be in five years time.
Hi all,
Just on the original question,
History shows that drops in interest rates do not tend to lead to increases in property prices (city medians). In both the '80's and '90's the dropping of IR tended to have flat periods of prices. Booms tended to happen as IR rose. I'm not expecting prices to go anywhere (perhaps down little) until after IR start rising again, either due to improved economic outlook or much higher inflation.
bye
Just on the original question,
History shows that drops in interest rates do not tend to lead to increases in property prices (city medians). In both the '80's and '90's the dropping of IR tended to have flat periods of prices. Booms tended to happen as IR rose. I'm not expecting prices to go anywhere (perhaps down little) until after IR start rising again, either due to improved economic outlook or much higher inflation.
bye
One must ask themself the question...Do people buy when prices become cheaper,or do they buy because they see prices becoming dearer
Yes point taken. Rates = $1,400pa, water does not come into it - tenants pay for useage as do OO, allow $1,000 for repairs (say) and you get an additional $46.00 per week
Well there won't be strata - we are talking house & land here - not townhouses or units.
Yes, agreed - a long way to go in many areas and not very far to go in quite a few others. So lets go forward a couple of weeks to Feb 09. RBA do a 0.75% drop as a guess, so rate = 6.04% - 0.75% = 5.29%. The $310K loan now (on IO) becomes $315.00 per week. Add the $46.00 for rates & repairs = $361.00 per week.
That's a ridiculous statement to make. Sydney has 4M+ people spread over many markets. Some parts of Syd yield 2-3% and some yield 6-7%. A $350K house in the 'burbs would be outer ring and these are the places that have higher yields atm.
No, the property in the example was $350K purchased with a $310K loan, which on current interest rates and a ~5% yield costs $350 pw to rent and $406pw ($360 + $46) to own.
However, with the example of a 0.75% IR drop would in Feb cost $361pw.
The whole point really is that in some areas (not all admittedly - but in a growing number) with only 1 more IR drop it becomes the same price to rent as to buy................and given the chance many people would prefer to own.
I think that's all we were saying.
My thoughts here were that you would only stick with this variable rate until the more attractive 5,7 or even 10 year fixed rates raise their heads and this can't be far away now. Apparently the Government are now working on more strategies which include increasing the welfare benefits and finding ways to prevent mortgage owners from losing their homes so it will be interesting to see what they come up with.
I keep seeing this on the forum. I think waiting for (relying on) government assistance, rock bottom interest rates, etc etc is no basis to buy property medium/long term. Either for OO or investment.
It's this short term thinking that gets a lot of people into trouble. Interest rates rise, government assistance ends, fixed interest periods usually reset in a higher interest rate environment and people struggle. You can either afford to buy property or you cant.
I hope people take more responsibility when posting stuff like this constantly on the forum.
It's this short term thinking that gets a lot of people into trouble. Interest rates rise, government assistance ends, fixed interest periods usually reset in a higher interest rate environment and people struggle. You can either afford to buy property or you cant.
I hope people take more responsibility when posting stuff like this constantly on the forum.
Which state is this? Certainly in NSW and QLD I have always paid for it as a landlord and never as a tenant. In fact there’s a whole thread on this over here.
My points are generic and could relate to house or unit which is why I only stated “potentially”.
No, it’s a factual statement. Have a flick through the back of the latest API and you’ll see the majority of the city yielding between 4% and 5%. Probably also explains why the September 08 quarter median yield was 4.36% for houses and 5.2% for units (APM report). The comments on this thread are for illustrative purposes only so I think working with 5% is pretty fair.
Where does the $40k come from and what’s the opportunity cost? Let’s say it’s in ING at 4.5% and your home loan is about 6% so your 1.5% of the $40k deposit is only $600 over the whole year which has negligible impact on the financials.
I’m looking forward to more rate cuts just as much as the next guy (probably more so!) but I believe it will take more than just another rate cut for the numbers to add up. The other major issue which hasn’t really been addressed is when everyone expects rates to head back up. A risk we may now have in this climate is people jumping into finance at 4.5% or whatever it get’s down to only to find it back up at 7% in years to come. I wonder how quickly people will forget what rates have just been sitting at.
There’s also not been any discussion on how long the PPOR will be held for and the associated entry and exit costs. There’s also no discussion on how much it may appreciate by (or depreciate by in this climate) during that period and the advantage of CGT free profits. I don’t think any of want to open that can of worms!
Interesting question,if they the "Banks" do pass on the full amount then the price of property will stay the same,imho and still keep going backwards as most are starting to see,i look at it like this no matter what any Real Estate sales person tells me,it comes down to serviceability that may be fine in the short term with low rates-but how long will they last?
and when they climb again as they will the total debt will become greater
over time with a property that goes lower in value,and most investors run for the back door at the same time,this has happened several times in my investing life,and as unemployment is on the slide-the mining sector going
sideways-the ASX still to fall into the mid 2000 mark-there is only so much
this Government can do before the money tin is empty,negative gearing
does not only apply to property but when they cut it out last time the
government only hit property,it stayed in place for the sharemarket ??.
the money has to come from somewhere-just keep an open mind..
imho..willair..
yes I think prices will go up I know of several fhb waiting for the next IR drop as it works out cheaper then renting with the grant and 5% interest,
also have a friend that's waiting for 4% then fixing although I don't want typical ir rates go to 3% levels as this would mean hard times must be ahead for the cash rate to be so low, with all the msm hype I would be looking if I was a first home buyer as sellers think the sky is falling.
also have a friend that's waiting for 4% then fixing although I don't want typical ir rates go to 3% levels as this would mean hard times must be ahead for the cash rate to be so low, with all the msm hype I would be looking if I was a first home buyer as sellers think the sky is falling.
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I am not thinking if this in terms of something for investors but for families and FHB wanting to get into their first bought home, no intentions to sell in the short term or be concerned if it takes a little while for the values to increase. If rents keep going up they won't be able to afford the rent but if they are sensible as to how they go about it they will be able to buy a house and keep the roof over their heads. Or should they all go off and live in 'paper bag in middle of road?' They have to live somewhere! They can always rent a room or two out if things get tough!
In order for the prices to drop then people would have to stop buying houses but certainly in the $500k and below bracket demand has increased and looks set to keep on going so long as the rates keep falling. As for the top end properties and what investors should be doing well thats a different kettle of fish and depends on other factors and the individuals investing style.
In order for the prices to drop then people would have to stop buying houses but certainly in the $500k and below bracket demand has increased and looks set to keep on going so long as the rates keep falling. As for the top end properties and what investors should be doing well thats a different kettle of fish and depends on other factors and the individuals investing style.
Here is another interesting point, over the last few months the people I have been seeing come through the homes have been almost all FHB and investors. However this week only 1/4 were FHB, none were investors and the rest were families and empty nesters so despite the job concerns the activity is starting to spread to other types of buyers. Has anyone else seen this over the last week?
And thats just the point it is a forum where everyone has their own ideas if we all thought the same then it would be a pretty crap forum, just because you don't agree with what I have to say doesn't make you right it just means you don't agree!
1000% sure, the property price will not go up but go down.
I agree with you. The government assistance is not really an assistance. It artificially supports the market. Just like government bails out the banks and big companies. Foundamentally, the cancer is still there and need to be removed. The government assistance is short-lived and will have detrimental consequences.
For example, in WA, we have a Keystart loan run by the government -- you can borrow 98% without paying mortgage insurance --- this is impossible for commercial banks! I saw a lot of FHB now buy properties using these funds. Basically, they got a house for free but also have $14000 in their pocket helping them to pay the mortgage. Will this scheme callapse? When people can not pay the mortage (over the honeymoon period), what the government can do?
If I had a dollar for every ad I've seen recently with a headline like "take advantage of the first home owners grant" I could stop buying IPs! It makes you wonder how much of the advertised price is inflated with the expectation of buyers using their grant.
Can't speak for other builders but the company I work for were advertising the houses at the same prices they were selling for before the grant came along and rather than increase they kicked in an extra $10,000 cash rebate saving the FHB $34,000 all up. No trickery involved.
