RBA and Interest rates 3May2006
- Thread starter jkool
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hey jcool you've read The Richest Man in Babylon, I love that book!!!
I don't think they'll raise it, just a hunch...I bet all the news/current affair programmes hope they do so they can go on able it for months and month!
I think if they do raise it then all the shares I hold will instantly double in value!
I don't think they'll raise it, just a hunch...I bet all the news/current affair programmes hope they do so they can go on able it for months and month!
I think if they do raise it then all the shares I hold will instantly double in value!
To kick this thread off:
- IMHO the official interest rates will go up by .25% tomorrow due to increased oil prices and general effort to keep the inflation low (within anticipated 2-3%pa)
- shares/stock market & property:
Being no economy expert myself i cant really figure this one out all that well (that's why I started this thread
but generaly (if rates rises) it seems obvious that with less money in the investors hands both markets are perhaps going to decline from their current levels.
Since ASX is at record levels I can easily see some slowdown here.
However with property being pretty flat in most areas perhaps the rents may be due for increase and the yields from investment properties should therefore also rise.
What's your thoughts?
jkool
- IMHO the official interest rates will go up by .25% tomorrow due to increased oil prices and general effort to keep the inflation low (within anticipated 2-3%pa)
- shares/stock market & property:
Being no economy expert myself i cant really figure this one out all that well (that's why I started this thread
but generaly (if rates rises) it seems obvious that with less money in the investors hands both markets are perhaps going to decline from their current levels.Since ASX is at record levels I can easily see some slowdown here.
However with property being pretty flat in most areas perhaps the rents may be due for increase and the yields from investment properties should therefore also rise.
What's your thoughts?
jkool
jkool said:
share investors: today will be a RED day due to caution about 2mrw... if 2mrw rates go do up, then RED again... but if stay, then a 50pt+ rally carried by banks and financials
property investors: have to pay more mortgage repayments
Im with ctp6360, its more likely to stay than go up, because the oil price increase has already had the effect of an interest rate increase, ie. the prices of everything have gone up eg. petrol + grocery shopping + especially banana's because of cyclone Larry, lol
http://www.theage.com.au/news/natio...ared-rates-hike/2006/05/01/1146335671086.html
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I hope its not a red day today, although my new policy is that when everything is red I just go mental buying everything!
ctp6360 said:
Yes, great book and an essential reading for everybody I would say. And its not all that thick either.
I hope, for my own selfish and greedy reasons
, that you are right.Well this is what I dont understand. How can your shares double in value with an interest rise? The real value will remain same, the market (speculative) value remains uncertain to me...I would incline to stick with my original conclusion that interest raise would have rather negative effect.
jkool
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I must emphasise that my last point was a joke, I don't really think they'll double But wouldn't it be nice!
But wouldn't it be nice!
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I am expecting a rise of 0.25% and another one (also 0.25%) later this year.jkool said:
We are now firmly in a global tightening (raising interest rates) period so it's only a matter of time before the RBA goes along with the trend. The markets seem to have already priced in an interest rate rise. Bond yields have in many cases broken out recently so the signs are certainly there for ongoing global rate rises. Also the comments from Japan about raising rates.
As for the effect on shares, a big rise isn't good but I'm not at all convinced that 0.25 or 0.5% will have any real effect.
Property is, however, another matter. Markets are made at the margin and it's no secret that we had record levels of house reposession before the recent surge in petrol prices. Add in the effects of rising interest rates and I do think we'll see a substantial increase in forced sales. Add in the effects of a lower "how much can we borrow?" amount and that's not conducive to rising real estate prices.
IMO yield on property is cyclical and will at some point recover from the present very low levels with the questions being how and when. As for the how, either rising rents or falling house prices in real terms are the only possibilities. The former implies a serious wages breakout which isn't good for business or stocks. The latter is what has already been happening in some areas and I see no reason why it shouldn't continue, especially with another "push" from rising interest rates. Some of both is a distinct possibility also. If drawn out over a sufficiently long period then a serious decline in real value can be completely hidden in terms of nominal prices (which would stay roughly flat) due to the effects of inflation. Locally (Hobart) and also in Sydney that process seems to be already underway.
wayneL
VIVA LA LIBERTAD, CARAJO!
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It will be interesting to see if they have any backbone, or whether they follow the jellyfish model like the Bank o England.
I hope they raise.....and keep going.
I hope they raise.....and keep going.
tech/a
No Ordinary Duck
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+.025% will be a good thing.
Smurf where did you get this well known fact.
I cant find it anywhere.
Can you point it out to me.
Smurf where did you get this well known fact.
I cant find it anywhere.
Can you point it out to me.
Just like to suggest they will keep them steady because:
a) high petrol prices are behaving like an interest rate rise.
b) the treasury and most economists see current metals prices as a bit of a bubble and will fall off next year. Dont want to crunch other industries right now when things may get difficult next year.
c) housing buble has deflated gently so far. The treasury has as much to loose as everyone else if they bankrupt all the mums and dads.
However, the tight labor market is a real concern.
a) high petrol prices are behaving like an interest rate rise.
b) the treasury and most economists see current metals prices as a bit of a bubble and will fall off next year. Dont want to crunch other industries right now when things may get difficult next year.
c) housing buble has deflated gently so far. The treasury has as much to loose as everyone else if they bankrupt all the mums and dads.
However, the tight labor market is a real concern.
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Short answer is mainstream media. Was the Sydney Morning Herald or the Age from memory. I'll post a link if I can find one. Headline was along the lines of "Repossessions hit all time high" with the story itself mentioning that it was worse now than during the last recession.tech/a said:
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99% certain of a rate rise tomorrow, if not, June (100%)
All factors point to a rate rise!
All factors point to a rate rise!
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Petrol prices also fuel inflation as all other costs go up such as transport, food etc
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Here's a link which says that repossessions have risen and explains, albeit briefly, how it acts to lower house prices because lenders will accept a sale for any amount which recovers the debt plus costs of selling. So, for example (my example, not in the link) if the debt is $300K on a house worth $400K then they would be happy to accept an offer for $300K plus the real estate agent's commission for selling the property. It also mentions in a matter of fact way that house prices are falling. http://www.smh.com.au/news/national...ges-boom/2006/02/10/1139542402615.html?page=2
Here's another link which says that repossessions in NSW are at all time highs. http://www.infochoice.com.au/banking/news/homeloans/06/01/article14383.asp
For the benefit of property bulls who may think otherwise I will state (again) that I am NOT against property investors, or any other investors for that matter. But IMO if the market doesn't look good for a particular asset class, stock or whatever then it's sensible to acknowledge that and act accordingly.
Of course rates can be fixed and many sensible house buyers and investors have presumably done just that or have relatively low debts and need not worry. But markets are made by the marginal sellers and buyers and IMO there are likely to be enough sellers with high debts and variable rate loans to justify my concern that there will be more forced sales on the way. With the "how much can I borrow?" amount falling as rates rise I don't see how that would result in anything but falling house prices at least in real terms if not in nominal terms. People can not spend what they do not have or can not borrow.
Here's another link which says that repossessions in NSW are at all time highs. http://www.infochoice.com.au/banking/news/homeloans/06/01/article14383.asp
For the benefit of property bulls who may think otherwise I will state (again) that I am NOT against property investors, or any other investors for that matter. But IMO if the market doesn't look good for a particular asset class, stock or whatever then it's sensible to acknowledge that and act accordingly.
Of course rates can be fixed and many sensible house buyers and investors have presumably done just that or have relatively low debts and need not worry. But markets are made by the marginal sellers and buyers and IMO there are likely to be enough sellers with high debts and variable rate loans to justify my concern that there will be more forced sales on the way. With the "how much can I borrow?" amount falling as rates rise I don't see how that would result in anything but falling house prices at least in real terms if not in nominal terms. People can not spend what they do not have or can not borrow.
tech/a
No Ordinary Duck
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Smurf.
There is a small minority (relative to buyers in the "Boom") who will be adversely affected by rate rises.
When I first started in 1996 I was 90% geared and just kept gearing to 90% as equity in those I had increased. In 2000 every 6 mths was giving me a new ability to purchase 2 more. I stopped in late 2001. Sure at that point had there been a sharp rise it would have been difficult to service,however I had factored in 9.5% as maximum risk ability to service without fire selling one or two.
Today I have sold some property and with funds freeholded some and increased equity dramatically in others.Gearing is now 37%.Gearing is positive to 9.5% so up to that rate Tennents pay the interest.
Most have Mortgage insurance.If they default and the house in fire sold then the insurance picks up the difference to what is owed.Chances of bankruptcy for these people who would have to have had mortgage insurance due to gearing (like myself) is pretty slim.
Rises to 8.5% in my veiw will have little bearing on "Boom" investors generally.
Some of them will simply now be geared well into this bullish boom.Frankly any interest rate will only be a pain for most due to a slowing of their portfolio. Some are making $10,000 + a week with reasonable portfolios.So a 1% rise on a million is only $10000 a year!
Those investors with multiple properties will generally take rate rises as a cost of business.
There is a small minority (relative to buyers in the "Boom") who will be adversely affected by rate rises.
When I first started in 1996 I was 90% geared and just kept gearing to 90% as equity in those I had increased. In 2000 every 6 mths was giving me a new ability to purchase 2 more. I stopped in late 2001. Sure at that point had there been a sharp rise it would have been difficult to service,however I had factored in 9.5% as maximum risk ability to service without fire selling one or two.
Today I have sold some property and with funds freeholded some and increased equity dramatically in others.Gearing is now 37%.Gearing is positive to 9.5% so up to that rate Tennents pay the interest.
Most have Mortgage insurance.If they default and the house in fire sold then the insurance picks up the difference to what is owed.Chances of bankruptcy for these people who would have to have had mortgage insurance due to gearing (like myself) is pretty slim.
Rises to 8.5% in my veiw will have little bearing on "Boom" investors generally.
Some of them will simply now be geared well into this bullish boom.Frankly any interest rate will only be a pain for most due to a slowing of their portfolio. Some are making $10,000 + a week with reasonable portfolios.So a 1% rise on a million is only $10000 a year!
Those investors with multiple properties will generally take rate rises as a cost of business.
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