Interest Rate Projections - 2022 and Beyond

Morning everyone!

I'm currently elbow deep in my latest spreadsheet looking at affordability of purchasing another 1-2 properties. I'm toggling scenarios with what interest rate changes will do to our cashflow. So far it looks good for adding 2 properties up to +3% (rate around 6-6.5%) but starts looking a little less cheery at +4% (7-7.5%),

Curious as to what everyone else is projecting rates to get to when you're looking at your current and future cash flow?

I'm finding it hard to see them over 6.5%, but I guess anything could happen. I'd hate to see what would happen to a lot of people who have recently over extended if rates get to those sorts of levels and beyond

 

50%+ of mortgagees would go bust if the rates went up that much. By all means, have an exit strategy in place, but I can't see the RBA allowing rates to go up to those levels in the short or medium term!

 

If wage growth remains at around 1-3% for the next 5 years.

This coming cycle, from bottom to top I believe maximum would be 2.85% from today. Bring it to around 3% RBA cash rate as top for the next 5 year rate cycle.

The equation will change if wage growth go nuts for certain sectors like tech. Then there will be some real winners and losers where Cash rates could go 7% as top for a short time.

I'm just reading this from my crystal ball.

 

My thoughts too... surely the RBA wouldn't let that situation transpire. Stranger things have happened though!!

 

Can you remember when interest rates got to 24% ? I personally borrowed at 24% and I am still around today.
I believe only about 10% of the mortgages failed at 24%.
I suspect at 6.5% it will be tough for some but there will be barely a ripple in the mortgage market.
There will be time when interest rates reach 6.5% again and it will again be the new morm.
Well till it gets to 10% again and that will be the new norm.
Life has a habit of repeating itself

 

I can remember having cash at a bank earning 21% interest for a while. My first term deposit which I think was about 1980.

 

Yeah it was amazing .
I remember every day at work transfering surplus cash onto the overnight market.
The one thing I learnt in life is I don't have clue in the world which way things are going to go .

 

No, I can not remember when interest rates hit 24%, but I'm aware of it. But your example is completely wrong, sorry.

If rates went to 6.5%, total repayments would nearly double. This was definitely not the case in 1989 (or thereabouts), as they were coming off a high base and rising reasonably slowly.
I don't know where the figures are that @Sackie posted a while ago, but they also showed that adjusted mortgage rates per month in Sydney are now similar levels to what they were back then (from memory), which is pretty much their all-time high. So you'd be almost doubling the all-time high by going to 6.5% overnight.

 

When I first ventured into property the interest rate was 3 to 5.5 % from banks and government. Building societies and insurance companies 7.5% . Solicitors 8% to 10% (private lenders).
So many persons experienced increases from 3-5% to 10% to 24%
I experienced 8% to 24% to 2% (last year) to 3.2% today
Even after fifty years of borrowings I still cannot predict the market, the interest rates and the effect on borrowers.

 

Sorry, but I feel you're missing the point again. Let's say that a mortgage went from 3% to 24%, in those years inflation was so high that it's unlikely that real repayments would have doubled on the same mortgage.
I'm not saying that I can predict interest rates, but at the same time, I'd be very surprised if the RBA forced millions of Australian's into bankruptcy.

 

I would agree with that statement.
RBA won't suddenly push past the interest rate to 1.5%

 

Sorry, but I'm pretty sure quite a few are missing the point.
The RBA continually points out that mortgage repapyments and the housing market don't dictate whether or not they keep interest rates on hold. That's during a boom.
By the same token, they're not there to manage interest rates for mortgage holders who don't plan for interest rate rises. They are detached from you and your loan.
Please don't take it personally. I'm sure you are prepared for interest rate rises if they occur, but there seem to be others who genuinely need to know about likely possibilities so that they can plan for them ie they need the reality check before it happens in real life.

 

I actually largely agree with you!
I'm convinced they're bluffing though. The economic factors I'm seeing now would point to us being "due" for a rate rise now, if what the RBA was saying was 100% accurate.
I just can't see them (or the federal government) pulling the handbrake if rising interest rates were going to bankrupt the country.

Having said this, I concede your point that inexperienced investors should not make financial decisions based on what some random on the internet (me) believes!

 

Whilst strictly speaking, the RBA is primarily focused on managing inflation and secondarily considers employment rate, I’d suggest that overtightening via rapid and significant rate rises targeting inflation would cause indebted consumers to rein in their spending (to service more expensive debt).

The knock-on is then business revenue reduction throughout the economy, leading to less investment and layoffs to target business operating expenses - increasing the unemployment rate.

Unlike the US, which is currently seeing rampant inflation and wage growth, a decent chunk of Australians are locked-in under enterprise bargaining agreements so the most their wages rise by is 2-3% pa. Also, Aussies are arguably more tied to home states/cities (our geography exacerbates this) and it takes a lot for folk to move from family and ties in search of better paid work. All that equals much more inertia in job changes and wage growth, so you’d unlikely see inflation being matched by wage growth here.

Lastly, as an export-centric economy, a lower AUD is generally seen in a positive light by many business.

 

Rates will all be above 2.7% by years end with fixed continuing to climb. RBA does not set retail banks variable rates, the market does. Prepare to watch variable rates rise from March onwards.

 

The RBA’a job is not to monitor asset values. It is to target inflation and underemployment. Retail rates will rise irrespective

 

Praise the Lord


Reserve bank keeps interest rates on hold and ends stimulus as Australian economy recovers | Australian economy | The Guardian

 

Praise because on hold?
They're not going to increase before elections anyway. However interesting to note no mention of holding off till 2024 or 2023. I'd say 1 rate rise in the second half of the year unless we have another cove outbreak

 

Being facetious