will you fix 4 years at 8.39% now ?

[alexlee]

Absolute rubbish.

http://www.egoli.com.au/egoli/egoli...0D6-401D-8A62-087B5EF85EAF}&Section=NewsViews

You're going to have to be more specific about which part of my post was rubbish, Rino.

My understanding of the Centro collapse was that it initially started with an inability to refinance. Some of their debts were maturing and they were unable to renew the loan or find a replacement loan because of the credit crisis. If I'm wrong, please enlighten me.
Alex

 

[Andrew_A]

The 90 day bank bills are headed in the right direction, I'm a bit encouraged by that. The spread between them and the cash rate is still very high though, so I would expect the RBA to possibly jaw bone in April and hike in May at the moment based on my read, though these things are changing pretty quickly at the moment and who knows what another two months will bring?

 

[keithj]

The 90 day bank bills are headed in the right direction, I'm a bit encouraged by that. The spread between them and the cash rate is still very high though, so I would expect the RBA to possibly jaw bone in April and hike in May at the moment based on my read, though these things are changing pretty quickly at the moment and who knows what another two months will bring?

I read Greenspans Age of Turbulence (I recall you did?). He mentioned that he had no idea when the tipping point of consumer confidence would be reached. We still have v. high employment, so I'd say jaw-boning won't have much effect and we should expect at least 2 more rises. I'd expect the recent consumer confidence plunge to be fairly short lived (assuming we have a pause in April). Then when we do hit the tipping point, the media/govt/public will whinge about it being one IR rise too far. Having said that, things are to uncertain for me ATM, so forecasting more than a month or so out is as likely to be wrong as right.

And in response to the original Q, IMO IRs are nearer the next top than the next bottom, so fixing for 2yrs is the max I'd be going for assuming a good rate. However, the banks are v. unlikely to pass on all of any RBA decrease, so there's another level of uncertainty.

 

[Bazza]

really?

http://www.news.com.au/business/story/0,23636,23380935-462,00.html

don't think so...

fix for 5 - 7 years, at least you know what your payment will be, even if rates go up or down..

When rates go back to 6% in a couple of years you may be sorry? I have a buffer to cover the next 7 years no matter what the rates do but I'm betting they go down next year.

Cheers,

Bazza

 

[GoAnna!]

What rates do in 2 years time is meaningless if you can't hold for the next 6 months.

 

[Andrew_A]

Keith I have thumbed through the book, and would get it out from the library.. actually will check that now. But wouldn't pay for it yet as I'm not an easy Al fan and agree with some of the opinions that paint him as a lucky clown (and skilled manipulator of congress).. so probably I should read the book as it's good to challenge a strong opinion!

Isn't it supposed to be 'property nirvana' when you have falling IR's and increasing yields?

 

[alexlee]

What rates do in 2 years time is meaningless if you can't hold for the next 6 months.

Yes, it really depends on how much you can afford. If you can't, for example, afford higher rates, fix. Variable rates are a punt, and you have to make sure you can afford the punt.
Alex

 

[Rino]

http://www.egoli.com.au/egoli/egoli...0D6-401D-8A62-087B5EF85EAF}&Section=NewsViews

You're going to have to be more specific about which part of my post was rubbish, Rino.

My understanding of the Centro collapse was that it initially started with an inability to refinance. Some of their debts were maturing and they were unable to renew the loan or find a replacement loan because of the credit crisis. If I'm wrong, please enlighten me.
Alex

Yes but why were they unable to renew the loans or find replacement loans? Do you think the banks wanted to see them fail, or do you think that they were just following sensible lending guidelines and after taking one look at Centro's balance sheet, asset valuation methodology and future cash flow forecasts decided to pull the plug on them? All companies are currently operating in a tight credit environment, but contrary to what the media is telling the sheep at the moment, the environment is not responsible for bringing companies down indiscriminately. The truth is most of the companies and individuals in trouble today have dug their own graves. Do you think lenders would have any problem renewing loans to a properly run property group with a strong balance sheet like Westfields for example?

The Centro collapse wasn't initially started with an inability to refinance, it was finished with an inability to refinance. It was started by a case of plain and simple over-borrowing. It says so in the very article you just posted.

 

[keithj]

...Greenspan... mentioned that he had no idea when the tipping point of consumer confidence would be reached. We still have v. high employment, so I'd say jaw-boning won't have much effect and we should expect at least 2 more rises. I'd expect the recent consumer confidence plunge to be fairly short lived (assuming we have a pause in April)..

Westpac (here) believe we've hit that tipping point & the RBA is on hold for around 2 yrs.

Keith I have thumbed through the book, and would get it out from the library.. actually will check that now. But wouldn't pay for it yet as I'm not an easy Al fan and agree with some of the opinions that paint him as a lucky clown (and skilled manipulator of congress).. so probably I should read the book as it's good to challenge a strong opinion!

Isn't it supposed to be 'property nirvana' when you have falling IR's and increasing yields?

Hi Andrew, I borrowed it - it's not worth buying, the 1st half may be worth skimming, I found the 2nd half more interesting. And we may be approaching high yielding LPT nirvana, bank nirvana is still a little way off, and res IP nirvana is still a couple of yrs away IMO.

Cheers Keith

 

[sash]

really?

http://www.news.com.au/business/story/0,23636,23380935-462,00.html

don't think so...

fix for 5 - 7 years, at least you know what your payment will be, even if rates go up or down..

Interesting....you are getting your facts from new.com......they don't always print the truth it influences spending patterns as this affects the masses. Note that investing psychology is just as important as empirical data when investing.

Fix for 5-7 years at your own risk...what happens if rates go down to 6.5% again?

Base your facts on the 90 day bill movements and the 2, 3, and 5 year fixed rates. Bear in mind if there is another 2 more rate rises....we will be in recession for sure by the end of the year.

My research....I actually went out to surburbs and talked to people...they are severely hurting.

Also, the banks want you to fix....you are playing into their hands.

Time will tell.....regardless...I am 24k in positive income.

Look forward to having this debate in 12 months time.

 

[crc_error]

Fix for 5-7 years at your own risk...what happens if rates go down to 6.5% again?

nothing.. I can still afford the payment

what if rates up to to 12%?

I loose my house.

the risk is not fixing from what I can see... your trying to predict the future which is impossible to do..

inflation will not slow.. hence rates will continue to go up.

I don't need news.com to tell me that...

 

[alexlee]

If you fix, and variable rates go down below your fixed rate, you just pay more than you would otherwise have. You still have the certainty. On the other hand, if you stay variable and rates keep going up, then you really do pay more, and there is no certainty as to how much more you might have to pay.

Going variable is a punt on interest rates. You're punting that variable interest rates will be on average lower than the fixed rate during that period. Some people may not have the financial ability to cop the losses if you bet wrong. If that's the case, fix.
Alex

 

[sash]

nothing.. I can still afford the payment

what if rates up to to 12%?

I loose my house.

the risk is not fixing from what I can see... your trying to predict the future which is impossible to do..

inflation will not slow.. hence rates will continue to go up.

I don't need news.com to tell me that...

On what basis are you expecting inflation not to slow?

 

[crc_error]

On what basis are you expecting inflation not to slow?

oil will continue to go up.. bananas will continue to go up.. rents will always go up. so why would inflation go down?

 

[alexlee]

oil will continue to go up.. bananas will continue to go up.. rents will always go up. so why would inflation go down?

The only way I can see inflation coming down: we have a recession.
Alex

 

[sash]

oil will continue to go up.. bananas will continue to go up.. rents will always go up. so why would inflation go down?

OK....lets look at the facts...interest rates are move in cycles.

The facts are:

1. Not everything is moving up in prices...as a matter of facts imports are getting cheaper due to the stronger OZ dollar. There is a expectation that the Fed plans to cut rates further (1% in fact) in the US...experts are saying the OZ and US dollar will hit parity..especially if our rates remain as they are edge up.

2. Oil is traded in US dollars per barrell...if our dollar grow stronger..does it not offer a buffer against oil prices?

3. Don't underestimate the Rudd Labout government....they are about to deliver a very tough budget. There are already tidbits about means testing childcare, First Homeowners grants, and other middle class welfare. This will take money off people.

4. House price growth is slowing...particularly Perth, Sydney, Brisbane, and inner Melbourne.

5. With the drought easing...there is evidence of food prices normalising. Just look at the bananas...they have come down from $10 per kg to $2.49 kg.

6. The only thing which is still inflationary is rents....this is due to supply and demand.

7. The labour market is already slowing...once people lose jobs people will be careful about asking raises above inflation figures.

8. Do you realise that once we hit 12% interest rates...the mortgage defaults will be unpalatable for any government. For example repayments on a 500k loan would have gone up from 37.5k in 2003 to 65K in a period of 5 years. This would be highest increase...even higher than the 1989-1990 recession.

Crc....how many economic cycles have you seen out of curiousity?

We should all keep out heads....this is downturn is not the major recession....that is yet to come. China and India are still healthy.

PS - just heard the US Fed cut rates 1%....looks like our currency is heading towards the 1 to 1 parity!

 

[jingo]

OK....lets look at the facts...interest rates are move in cycles.

I agree, and would like to think that we have reached a peak in the upward movement of interest rates. However this time we have a credit crisis with banks being forced to raise rates independently of the RBA. To date banks have only passed on a fraction of their increased costs to buy money on the wholesale markets. I believe that they will pass on higher rates as the year progresses.

Personally I refinanced a couple of our loans last month and took a fixed rate for a longer term for peace of mind. I may end up paying more money in the end, but at least I won't be forced to sell off my portfolio at reduced rates into a falling market.

 

[alexlee]

You know the fun thing about a credit crisis. The central banks can cut rates. Banks might not if the spread in how they fund their loans is increasing. On top of that, banks may not be able to fund as much as they want. In any case, if they're taking losses on corporate loans and mortgage defaults, they may not want to make as many loans anyway. If people start having trouble getting loans at all or can't borrow as much because of credit rationing...... (I think it's already happening, in fact). Lower rates mean nothing if you can't borrow at all.

The effects of earlier rate rises (compared to say 20 years ago) was muted because of the discounts banks gave to the standard variable rate. Now it works in reverse. In the same way, earlier Greenspan Fed rate rises after the 1% period didn't really increase longer term rates because the Saudis and Chinese were recycling so many dollars back into the US economy. Now, Bernanke is slashing rates but it's not necessarily going to make loan rates lower, because the supply of money is based on both interest rates and confidence that the borrower will pay it back.

Latest Exhibit: Bear Stearns.
Alex

 

[sash]

You know the fun thing about a credit crisis. The central banks can cut rates. Banks might not if the spread in how they fund their loans is increasing. On top of that, banks may not be able to fund as much as they want. In any case, if they're taking losses on corporate loans and mortgage defaults, they may not want to make as many loans anyway. If people start having trouble getting loans at all or can't borrow as much because of credit rationing...... (I think it's already happening, in fact). Lower rates mean nothing if you can't borrow at all.

The effects of earlier rate rises (compared to say 20 years ago) was muted because of the discounts banks gave to the standard variable rate. Now it works in reverse. In the same way, earlier Greenspan Fed rate rises after the 1% period didn't really increase longer term rates because the Saudis and Chinese were recycling so many dollars back into the US economy. Now, Bernanke is slashing rates but it's not necessarily going to make loan rates lower, because the supply of money is based on both interest rates and confidence that the borrower will pay it back.

Latest Exhibit: Bear Stearns.
Alex

....and the 64k question....what did Bear Sterns lend? Sub-prime....not standard full doc loans. Agree about loan quality....the penetration of low doc loans in OZ is low.

Banks are still lending...just not at 100% loans or at lower rates. If you have a sound credit history and meet lending criteria it is business as usual. No change here....