Upcoming interest rate rises not a done deal?

[markrmau]

http://www.tradingroom.com.au/news_...lished/2005/3/89/catf_050330_203800_6380.html

"The Mercer Melbourne Institute Quarterly Bulletin of Economic Trends has gone against market forecasts of a likely interest rate hike in April or May and instead predicted rates to remain on hold.

This may explain the jump in bank stocks this afternoon.

For us bulls:

"Despite the slowdown in 2004 the Australian economy is forecast to remain relatively robust in the next two years, with GDP growth slowing to 2.1 per cent in year-average terms in fiscal year 2004/05 and recovering to 3.2 per cent in 2005/06."

The Melbourne Institute forecasts show that GDP growth in year-end terms will moderate to 2.0 per cent in the first half of 2005 before gradually returning to the long-term trend rate of around 3.5 per cent by late 2006.

 

[Smurf1976]

Another reason to be bearish on the Aussie Dollar?

 

[wayneL]

Another reason to be bearish on the Aussie Dollar?

That seems to be the choice Smurf...

% ↑ or $ ↓

Cheers

 

[krisbarry]

Interest rate rise almost a sure thing for this Wed.

I am very happy for the interest rates to rise. House prices in Australia are way over-valued. Too many investors have been so greedy, putting pressure on house prices and not giving Generation 'X'ers a chance to even get into the housing market. $550,000 for a family home 1 hour out of the CBD of Sydney, get stuffed!!!!

Sounds cruel but I would love to see a few of these investors go under, freeing up property and dropping these over-inflated prices.

Almost all of my friends in their late 20's early 30 have never been able to afford to buy a house, they all rent. Some of them are on wages well above the average, and are still on struggle street.

I get so mad of hearing these people that own 10 houses and are stitting on squillions and the rest of us battle on!

TIME TO SHARE THE WEALTH!!!!

 

[dutchie]

Krisberry

Are you advocating communism for Australia?

 

[Warren Buffet II]

Interest rate rise almost a sure thing for this Wed.

I am very happy for the interest rates to rise. House prices in Australia are way over-valued. Too many investors have been so greedy, putting pressure on house prices and not giving Generation 'X'ers a chance to even get into the housing market. $550,000 for a family home 1 hour out of the CBD of Sydney, get stuffed!!!!

Sounds cruel but I would love to see a few of these investors go under, freeing up property and dropping these over-inflated prices.

Almost all of my friends in their late 20's early 30 have never been able to afford to buy a house, they all rent. Some of them are on wages well above the average, and are still on struggle street.

I get so mad of hearing these people that own 10 houses and are stitting on squillions and the rest of us battle on!

TIME TO SHARE THE WEALTH!!!!

Hi krisbarry,

I completly agree, I would like to see the house property market back to "normal" level.

 

[dutchie]

Krisbarry

Sorry I mispelt your name in previous post.

 

[suzanne]

Dear Krisbarry,,

I can understand your frustration with the rise of house prices. Unfortunately we are possibly one of those people you would like to see go under.

We started out about 4 years ago on the road of property investing where we just owned our own home - just an ordinary old house in need of repair. We came across a book by Jan Somers which set us on the path we are on today. Up to a few months ago we owned 14 properties - mostly leveraged.

We were ordinary people in our early forties with ordinary jobs- 3 kids at primary school at the time, living week to week - no real savings in the bank.

We used the security of our home to borrow the full amount to buy a house in Forster NSW. It was and still is the oldest, cheapest and possibly the worst house in town. It cost us $120,000 all up, including legals. After this we once again bought the worst house nearly, in Port Macquarie borrowing the full amount $140,000. We were lucky as the property boom came about a year later seeing a rise in both properties up to about $300,000 each.

We followed the boom up the coast to Hervey Bay, Bundaberg etc where increasing equity allowed us to borrow more + from the sale of a block of land we owned at Crescent Head.

But we did not earn big money, we went with out the luxuries, for me - no makeup, perfume, jewellery, dinners out etc I bought cheap clothes and watched the pennies. You can do the same. You are only young and have plenty of time to save up and buy a home. Probably a bit late in this property cycle- wait a few years save your pennies and when the time is right buy and pay off a home and you too can reap the rewards.

Don't be bitter towards others who have accumulated some wealth as I am sure they have worked hard. It doesn't come on a silver platter.

Regarding the interest rate hike - we are currently down sizing our portfolio and putting some into shares. Finally, hopefully I won't go under if the rates go up and you too can set yourself on a good investment plan.

This is not investment advise but my own personal experience.

Cheers Suzanne

 

[Smurf1976]

Nothing personal Suzanne, but I must ask if you were still living with mum and dad at age 30 as many are now forced to do. More to the point, are you quite happy for your kids to live at home (with their boyfriends / girlfriends in the same room) until 30-something?

If not then I suggest you are in for a one hell of a shock since that's the reality for many first home buyers these days. Even saving 50% of income for a decade is nowhere near enough to buy a modest home in many cases. $50,000 is a HIGH income, $35,000 is a realistic first home buyers annual earnings BEFORE tax. They just don't qualify for a sufficient mortgage without, depending on where they live, well over $100,000 if not $200,000 deposit which is nearly impossible to save on typical young persons earnings if paying rent, hence living at home.

House prices going up is good in the same way that petrol, food, and clothing prices are good when they go up. Good in the same way as taxes going up is good, higher car registration charges are good and increasing health insurance premiums are good. All good for those making a profit.

As I said, nothing personal and I wish you well with your investments but we are creating the first generation with no alternative to waking up on their 30th birthday still living with mum and dad. Not good IMO.

And if they are foolish enough to move out and rent they have absolutely no chance of ever saving an adequate deposit.

Oh for the days of sensible house prices...

 

[clowboy]

It's called the property cycle.

People can't afford to buy and house so they rent. There is higher demand so rental rates go up which in turn increses house prices.

Unfortunatley house prices will only ever go up (in the longer term) and we have just experienced a rapid rise in the last few years (this has happened several times in the past).

Despite rapid rises in the past and many people (Im sure) would have thought how will we ever own a home? I look back and say what we they thinking? houses where so cheap.

House prices will cool and wages will go up and houses will become more affordable again (although not as affordable as the last time). Thats when first home buyers will start buying in a frenzy again and start the next cycle.


Just remember if you are 30 and living at home (trying to save for a first home) then you have had 12 years to save and buy that first home.

It is unfortunate that many people have missed out and are now priced out of the market but in today's society and economic world the rich will continue to get richer and the poor poorer - This in my opinion is the most valuable lesson of all.

 

[krisbarry]

Do the Maths....(On average over the past 4 years)

* 100% increase in house prices
* A 100% increase in the deposit needed to purchase a house
* And a wage rise of about 15%
* A first home buyers grant that in real terms has done nothing but create a false economy and jack up house prices even more.

Hmmm.... something tells me that a whole generation of young people will either live at home with mummy and daddy or rent.

What a mess this will create, a whole generation unable to create wealth from the housing market and in the end will result in millions of dollars in lost savings.

Well done to those who have gained wealth by investing in the housing market over the last 4 years, but at what cost.

Is it any wonder why young people have just given up on the "Australian Dream" of home ownership and gone overseas for a holiday instead!

GO RBA......JACK THOSE RATES RIGHT UP!!!!

 

[dutchie]

I realise how frustrating it must be to live in the capitals and striving to own your own home.

The main reason the prices are so high is because the Australian dream is to own your own home on the coastline. Continuous high demand and limited supply equals higher prices.

The solutions:

1. Analyse how important it is to own your own home - is renting for the rest of your life an alternative option (whilst investing excess capital in the share market/other). Don't blindly follow the dictum that you MUST own your own home.
2. Move to the country (where housing is cheaper) for a while and work your way up to go back to the city (employment opportunities are more limited however). Once you live in the country for a while you won't want to go back.
3. Live with your parents and let your parents live with you - improve the family unit in our society (its much needed!)
4. Don't knock others who have improved their life by investing - learn how they did it instead.

 

[clowboy]

Dutchie

Thankyou for those interesting points.

krisbary

Don't lose sight of the biiger picture, yes things look bleak ATM but so much can happen in an hour, yet alone a year or a decade.

 

[doctorj]

The state we find ourselves in is, I believe, an unstable equilibrium in the housing market.

You're right. Many younger people can't afford to purchase their own home in the areas they wish to live (ie. within commuting distance from work). Many people now look to renting rather than buying their own home. Yield on resproperty investments are low and demand is falling based on empirical observation. Coupled with rising interest rates, I would expect housing prices to fall in the near term.

Remember, DEMAND drives price as much as supply.

 

[money tree]

whats so bad about renting?

studies have shown those who rent and invest the difference end up much better off.

also, if self employed, you can claim half the rent through your business.

take my situation as an example:

to buy - $280 wk (IO)
to rent - $230 wk
claim half - $115 wk
net expense - $115 wk
saving - $165 wk

then theres rates, maintenance, water etc an owner pays but tenant doesnt

 

[suzanne]

Hi Guys,

Some very interesting points of view. Yes things are hard trying to buy in Sydney etc. We would never have been able to get started there either. We were talking to our nephew (28 years) the other day who lives in Sydney. He and his partner are on good money for their ages. He can borrow $250,000 -but he can't afford to buy anything down there. His rent is $350 per week.

If he was to look outside the box and think - Do I have to live in the house? Why not buy one in regional areas and rent it out. The renter out there will pay most of the repayment and the rest is like forced savings. You have to make some sacrifices. Go interest only on your loan so the repayments are less.

My partner's first house was an old dog box he moved on the back of a truck and fixed up. But he has gone through 2 property cycles. So in the first case it is the increase in equity you are looking for. Why not look at buying a block of land - not in Sydney, but wait for the next cycle now. When we started we were both on only around $30,000 each at the time and I was P/T on $35,000 -4 years ago.

A block of land we bought in 2003 for $41,000 probably the worst in the estate, went up to $180,000 in about 3 - 4 months - we couldn't believe it. It is just picking the cycle and getting that increased equity that lets you borrow more.

Why not live at home with your parents. I am happy for my kids to do so?

My oldest son is living in the outskirts of Brisbane ( he was 28 years at the time on $45,000 with 2 kids and a wife to support -1 year ago) where he borrowed with the help of the first home grant + a deposit to build a $250,000 brand new home. He sold it 6 to 8 months later and come out with $100,000, which he used to build a new house ( about $270,00 - now valued at $320,000), which he has just moved into + he bought another investment property for $238,000 which he lived in until his house was built- now rents it out.

So yes you don't have to be on big money to get there - just good money management. Why not use the share market now - IF THE RATES DON'T GO UP - to build up a deposit and in a couple of years you will have enough to buy a house elsewhere not in capital cities. Wait for the next boom cash in and go again. You have to start somewhere.

This is not advice just personal experience.

Yes any one can do it. If you come to a brick wall look for ways around it. There are more than one way to skin a cat!! I spend any spare money on books/ investment magazines etc. Read everything you can get your hands on. It the best investment there is.

Good investing

Cheers Suzanne

 

[krisbarry]

Fair points raised ....but at the end of the day, almost every regional town in Australia has seen this rapid increase in house prices too, some well up to 200% in 4 years.

** The scales are so far tipped that it cannot sustain this growth **

So you can say what you like to defend your positions.... but I believe that there have been some mighty greedy baby boomers that need not just 1 property and an investment property, but 10.

Hence the reason why the RBA will push this filthy rich attitude right back at them, send a few to the wall and re-distribute the wealth a little more evenly, accross a number of sectors.

Roll on the rate rises I say!!!!!! and I am sure that the younger generations would agree.

 

[dutchie]

Krisbarry

I hope you don't try and make money in the stock market because I am sure there will be someone out there who says you have too much!!! (and that you need to share it).

 

[clowboy]

While I can only speculate I am sure that all the board members of the RBA at the very least own there primary residence and I'm sure many would have investment properties.

 

[Smurf1976]

The simple solution to all of this would be to have the CPI measure the costs actually incurred by ordinary consumers.

Most consumers buy not rent, so the full cost of buying a house should be in the CPI at an appropriate weighting. Not sure what that should be in % terms but somewhere around 25% might be reasonable?

Rent should also be included because some do rent, but it should be at a lower weighting.

With money supply growth just under 10% per annum it is totally implausible that we have consumer price increases in the order of 2%. Real economic growth takes care of some of the money supply increase, but not 10% per annum.

I contend that true consumer price inflation over recent years has been somewhere in the order of 6% per annum when actual consumer costs (of which BUYING a house is the largest) are considered. Everywhere you go, prices have gone up.

What is it that makes me doubt official statistics? Perhaps it's got something to do with what happens every time I go shopping. And no, I don't need a cheap TV or electronic gizmo every day despite them falling in price to skew the stats. The things I actually need to buy keep getting more expensive.

Just a few common items:

36 watt fluoro tube - was $3.60 last year now $5.95 (reflecting the change from "uncompetitive" Aussie production to "cheaper" imports).

"C" size batteries. Aussie made for about $5 (alkaline type) in the mid 1990's. Almost double that today for imported product. (Another thing we don't make here anymore.)

Petrol - 30% increase over past 3 years.

Housing - Up 115% in local area in past 5 years.

L.P. Gas (delivered, for domestic use) up about 90% in a decade.

Cigarettes (I don't smoke, but anyway) - up 160% in past decade and about 250%+ since 1992.

My actual spending on eat at home food - up around 100% in 10 years and I haven't greatly changed my diet.

Health Insurance - Didn't need it in the past - that's what we all pay taxes for isn't it. Now we all pay and pay and pay and still get very little in return.

Some good news though. At least something now seems to be going down in most areas. It's called "house prices".

Just don't tell the investors who jumped on at the last minute.