Upcoming interest rate rises not a done deal?

[DTM]

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

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.

I agree with you Smurf on prices. I spent two years living in Tokyo and came back at the beginning of 1993. I really noticed how everything had become so expensive in the two years that I was away. I thought Tokyo was expensive at first but when I arrived back, Tokyo seemed a lot cheaper..., except for the beer. $20 per bottle in the night clubs back then. With the Yen having dropped so much, its more like $12 per pop now, and not too far off from Sydney prices of $5 minimum (in town).

 

[krisbarry]

. The things I actually need to buy keep getting more expensive.

Yes....why is it that all the essentials in life have skyrocketed?

*Education
*Health Care/Medicines
*Housing
*Food
*Petrol
*Electricity
*Water

and yet a DVD player which in 2000 cost $600 and now cost $60.


That DVD player is useless unless you have an education to read the manual, a house to store it in and electricity to run it.

 

[Dwib]

Interest Rates on hold for another month at least.

6 April 2005
At its meeting on 5 April, the Reserve Bank Board decided to leave the cash rate target unchanged at 5.50 per cent.
RBA Website.

 

[suzanne]

Dear Krisbarry,

In response to your previous post, I can gauge you are very bitter about your lot in life. You have the same opportunity as us 'baby boomers' as you call us. Life was just as tough for us. Rates back in 1988 when we started out, were around 18% if I remember correctly - so the generation today have got it easy at 6.99%.

We have a decade up on you guys. Image what you can do in that time if you put your mind to it.

Another thing you have to remember is at our age we are thinking of retirement - there is all this talk that there is going to be very little in the way of pensions, so us 'baby boomers' have to save up our own pension.

When I worked prior to the children being born there was no compulsory superannuation so I have very little to fall back on in retirement - my investments are my retirement fund.

So as you can image in todays dollars what we need to have saved up to give us a weekly allowance in 10 to 15 years time - a damm lot of money- equivalent to 10 properties!!! - to live a decent life style anyway.

Most of our properties are long term investments and are leveraged.


Cheers

suzanne

 

[krisbarry]

Well... Employment figures suggest May Rate rise on its way!

Ouch this one may really hurt a few home-owners.

Maybe then I can afford to pitch a tent on a block of land that is way over-priced.

 

[markrmau]

Folks, the cardinal rule of investment is to never allow emotion to get in the way of you decissions. You are here to make money. Period. If you want to frig around with emotions, get a cat.

Krisbarry, the worst thing that could happen for all of us, is if the reserve bank decided that investment housing had run too far and an interest rate increase was needed to deflate the bubble. (Raising rates to cap an overheating economy is preferable by a long shot).

Raising them purely to cap the housing market would screw up Australia's economic growth where there is money for you to make. Relax about house prices - market supply and demand forces will take care of that. Currently, in my opinion, it does not make sense to buy your own house. Even if you were suddenly given $750k, you could find far safer and more profitable ways to invest.

Low interest rates are the worst time to take out a housing loan. As Suzanne found out, the best times are when interest rates are at their peak.

 

[DTM]

Thought this link might interest people. Explanations to what happened in Japan. Three schools of thought, keynesian, monetariasts and austrian. Even though conditions in Australia are totally different, I found that the austrian school of thought was interesting as it states that there is a cycle of boom and recession, and one necessitates the other. The market correction is necessary after an unsustainable boom. The longer you delay the pain the the bigger the problem becomes and the more it will blow up in your face.

Just another perspective in looking at property/interest rates.

http://www.gold-eagle.com/gold_digest_02/powell120602.html

Make of it what you will

I'm positively geared with two properties while I am currently renting (with another property in NZ) and am hoping for a market crash to pick up more property. I've set myself a timeline of three years before I buy another house, maybe 18 months if interest rates go up faster.

 

[markrmau]

Don't forget that a lot can happen between now and when the reserve bank meets next....

Market Views: Housing's last hurrah?
Apr 11 13:57

Housing finance again surprised on the upside in February, signalling that demand among investors and owner occupiers was turning up again before the Reserve Bank raised official interest rates in March.

The number of loans to owner occupiers increased by 3.7 per cent, the seventh increase in eight months and topping forecasts of a 2.0 per cent rise. The value of loans, which also includes investor finance, rose by 5.0 per cent.

Here's how economists interpreted the data and the implications for the interest rate outlook. The RBA board meets next on May 3:

DAVID DE GARIS, ANZ:

"These figures pre-date the March rate rise, but a good portion of the approvals would have been sought after the announcement by the RBA on February 7 that rates were likely to "rise in the next few months". This data adds a little more to the case for another rate rise, give the RBA's concern that household spending and borrowing could exacerbate inflationary pressures in the period ahead. ANZ expects that the RBA will lift rates in May, but that will be the last rise in this cycle."

TONY MEER, DEUTSCHE BANK:

"The RBA's rate hikes in late-2003 pricked the housing bubble, but as soon as it became clear in 2004 that interest rates were on hold, the positive fundamentals of still expansionary rates and a solid labour market reasserted themselves. At 5.5 per cent, the cash rate is likely to be still on the easy side of neutral and therefore the RBA most likely has more work to eventually do. If tomorrow's NAB business survey and Wednesday's consumer sentiment data show relatively strong results, the risk of a near term rate hike by the RBA would rise further."

SPIROS PAPADOPOULOS, NAB:

"The data continue to provide evidence of solid demand for housing finance in the lead up to the March interest rate increase. How this series performs in coming months will be driven by households' response to the March rate increase and the speculation about further rises. Although some softening can be expected, the consistently solid outcomes in recent months will keep the RBA on a slight tightening bias with respect to the housing sector, although we do not expect them to follow through with a rate increase due to the anticipated slowing in the wider economy through 2005."

JARROD KERR, JP MORGAN:

"Borrowers seem to have ignored the RBA's warnings and leapt back into the housing market, inspired perhaps by earlier falls in house prices. However, since the RBA delivered on it's hawkish commentary and tightened policy in March, consumer confidence dived 17 percent. Last month's rate hike, and expectations of another by June, probably will see the number of approvals for March to June come in much weaker. The sustained rise in finance approvals probably is inconsistent with what the RBA wants and keeps the bank on track for a further tightening by June."

 

[Mofra]

Just wondering where the RBA gets its lending figures from and how it determines what new borrowings for owner occupiers actually constitutes?

The only reason I ask is I work in the lending (approvals) section of a major Australian bank and of the number of loans we write, only a small portion are actually for buying or building. A huge number of small loans are being written for low income families and people whose sole income is from government benefits, and most of these loans are being spent on consumer luxuries & depreciating assets.

With all the focus on household debt, I find it strange that there seems to be no major study (that I am aware of) on what Australians are spending their borrowed money on - in my experience, the vast majority of borrowers see their equity as play money an not a useful nest egg for future investment.

If there is a major correction in the housing market, in my opinion the wider economic consequences will be magnified to a greater degree than previous pullbacks simply because so much consumer demand nowadays is fuelled by this secured debt (false equity if you will?) rather than savings or smaller amounts of unsecured credit.

 

[ghotib]

That's the most frightening thing I've read all year apart from speeches of the US president. We know that housing statistics are out of date and that no one has current knowledge of housing values nationwide. We know that at least one of the big four banks is publicising that it now offers low doc loans. We've started to get stories of people reducing debt and statements from credit card companies that people are responsible and sensible in their use of credit cards. And now you've reinforced a question that I've managed to avoid asking about how good the RBA's financial data really is.

Meantime the Treasurer spends his time telling the over 70s to get back into the workforce while over 45s tell anyone who'll listen that no one will employ them, the Prime Minister prepares to ensure that the time for money swap is worth even less than it is now for 70% of those who do have jobs and the economy continues to rely on exploiting the financially incompetent.

It's an odd thing to say on a stockmarket forum, but I really think the Anglophone socio-economic system is already broken and falling house and equity prices are likely to be one of the best things about the rest of the decade.

Ghoti (Hope I die before I get old)

 

[krisbarry]

New figures out today suggest/confirm that Melbourne and Sydney house prices are the most unaffordable the world.

ROLL ON THE INTEREST RATE RISES AND LETS BRING THINGS BACK TO A MORE NORMAL RATE.

25% increases each year, over the past 4 years!

It is nothing but crazy, filthy and a complete rip-off!

Like I keep saying, how are Generation X and now Y, ever going to be able to afford a house when prices dont even keep up with wage rises.

Source: Sunrise 14/4/05

 

[DTM]

Like I keep saying, how are Generation X and now Y, ever going to be able to afford a house when prices dont even keep up with wage rises.

Source: Sunrise 14/4/05

Something has to give because our wages can't rocket up to make property affordable.

I think that we are living on credit too much and as Mofra pointed out, its because we are tapping into our over inflated assets. It would be ok if we were using it to invest and generate more money but we are spending, spending, and spending on luxury items.

Our Stock market is also teetering on the brink because people are saying that consumer confidence is down so next year there won't be as much economic activity (quoted from NAB) hence less profits next year.

Looks like we could be heading towards recession.

 

[Smurf1976]

Something has to give because our wages can't rocket up to make property affordable.

...

Looks like we could be heading towards recession.

Certainly starting to look that way in my opinion.

 

[wayneL]

Have you guys read any of Prechters stuff...."Conquer the Crash" etc?

He reckons we're due for a '29 style depression. His arguement is quite compelling.

Bull exit, stage left LOL

 

[TjamesX]

Well just having a look at some of Prechter's stuff, I'm not that pessimistic - but I think the pain will come.

I love that comic though, that is Gold!!!

It pictured in my mind some dodgy music in the background as the Bear comes out to do his tap dancing routine, while everyone in the crowd starts booing, and throwing stuff at him :

 

[DTM]

For those who are interested. A study on relationship between commodities prices and interest rates. When interest rate are up, commodities are down and vice versa, so property is only one of the things affected by interest rates.

http://ksghome.harvard.edu/~jfrankel/cp.htm

 

[Investor]

With the latest PPI and CPI figures announced, it looks like we will not have a rate rise in May 05. This could help the current market correction stabilise.

Seems a bit strange that people worry about 0.25% rate rises these days. 1989 - that's what you call rate rises. However, inflation is lower now.

Due to the quantum of household debt now (over $800 billion and rising), a 1% rate rise now has the equivalent effect of 3% in 1989 in terms of debt servicing costs.

 

[krisbarry]

Dear Krisbarry,


Another thing you have to remember is at our age we are thinking of retirement - there is all this talk that there is going to be very little in the way of pensions, so us 'baby boomers' have to save up our own pension.

When I worked prior to the children being born there was no compulsory superannuation so I have very little to fall back on in retirement - my investments are my retirement fund.

suzanne

errrr correction....baby boomers are guaranteed a pension, unless you are too wealthy (self funded retirees). Latest reports suggest that the pension will run out in about 2045. So it will be generation "X"ers that will be forced to save for their retirement, hence the advent of the super fund and co-contributions. So not only will you have a house to live in but a pension to sustain your life-span.

 

[ghotib]

errrr correction....baby boomers are guaranteed a pension, unless you are too wealthy (self funded retirees). Latest reports suggest that the pension will run out in about 2045. So it will be generation "X"ers that will be forced to save for their retirement, hence the advent of the super fund and co-contributions. So not only will you have a house to live in but a pension to sustain your life-span.

<sigh>

(1) Where did thie date come from? (2) What are the assumptions in that date e.g. What level of aged pension? What constitutes too "wealthy" to receive it? What happens to other components of the social security system?

Hmmmm?

Ghoti

 

[krisbarry]

<sigh>

(1) Where did thie date come from? (2) What are the assumptions in that date e.g. What level of aged pension? What constitutes too "wealthy" to receive it? What happens to other components of the social security system?

Hmmmm?

Ghoti

Sounds like the what, when, why, how scenario....I cannot answer any of it. Stats have been plugged into compter models over time and media reports have suggested around 2045, same goes for Medicare.

America has the same problem too and they suspect the pension and medicare to run out much earlier than Australia, approx. 2035

They have based it on current and future trends, aging population, work force participation, tax rates, birth and death rates, pension age cut in rates, savings and super accounts etc.