Interest rates - everyone is an expert

Discussion in 'Property Market Economics' started by Noobieboy, 23rd Jan, 2019.

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  1. Noobieboy

    Noobieboy Well-Known Member

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    It is interesting how every journalist thinks they are an expert when it comes to interest rates LINK

    I can’t see interest rates coming down unless there is major economic shock. RBA and APRA would likely to need a big issue beyond simple property prices before they adjust their models.

    China is slowing down, but Australian economy is chugging along nicely. This proves again that our economy, people and businesses are innovative and resilient. Regardless of what Canberra thinks. If China keeps slowing down, I have a feeling another markets would be found for Australian exports.
     
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  2. Ronald86

    Ronald86 Well-Known Member

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    Interest rate predictions to add to daily property downturn articles now :)
     
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  3. Waterboy

    Waterboy Well-Known Member

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    the irony of the thread title
     
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  4. np999

    np999 Well-Known Member

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    I recall when the prevailing rates were around 6 - 7% years ago during the GFC, an executive of a property development company strongly urged all customers present at a seminar to immediately fix the rates of their home loans to ensure certainty of their monthly repayments. He clearly indicated he had no idea where rates would go but said fixing would help the client when trying to get another loan from the banks.

    I chatted with a few folks at the table, most of whom were impressed by his insight and sound advice, and said they'd talk to their banks/mortgage brokers asap.

    Not sure how many actually followed thru and fixed their rates. Anyone who fixed for 5 years at that time would be in a bind when rates began falling soon after.
     
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  5. KinG3o0o

    KinG3o0o Well-Known Member

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    HAHAHAHAHAHHAH
     
  6. MC1

    MC1 Well-Known Member

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    Can we add you to the expert list?
     
  7. MC1

    MC1 Well-Known Member

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    Excellent! I should have read the responses before I responded
     
  8. MRO

    MRO Well-Known Member

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    I think the banks are a great predictor of rates. Have a look at their fixed rates compared to variable as an indicator of where the next move is. The banks have teams of economists and follow indicators around the world - i cant beat that so dont bother trying.
     
  9. marmot

    marmot Well-Known Member

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    And in more news NAB have just announced they are finally pushing their rates up for mortgages.
     
  10. Waterboy

    Waterboy Well-Known Member

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    I find the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve to be quite an insightful chart, it interestingly predicted many of the rate movements we had in the past.

    https://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

    The reason I like this indicator is that there are real-money players with "skin in the game" in these futures contracts, instead of journalists trying to make money from making headlines.

    https://www.asx.com.au/documents/products/30-day-interbank-cash-rate-factsheet.pdf
     
    Last edited: 25th Jan, 2019
  11. Waterboy

    Waterboy Well-Known Member

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    Actually in a risk-mitigated bank, they should not make any more profit when you lock in the rates, because they match your loan with their own funding with a similar maturity profile (or at least hedged with a swap). Their margin is fixed from day 1. Therefore it's not quite right that you can gain insights from their fixed-variable differentials, as their funding costs that drive these differentials are also at the mercy of the markets and many factors they can't control.
     
  12. Waterboy

    Waterboy Well-Known Member

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    which was interpreted by the market as a potential precursor to an official RBA rate cut to avoid negative economic repercussions
     
  13. Noobieboy

    Noobieboy Well-Known Member

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    The titles wasn’t meant to tell that the fact is no one really knows. My grandmas guess is probably as good as any other “expert” advice. Rates are being adjusted based on historical information so something has to give before RBA changes the rates. And even then, it’s just a semi educated guess by RBA economists.
     
  14. ollidrac nosaj

    ollidrac nosaj Well-Known Member

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    Lunatic RBA toys with the tipping point - MacroBusiness

    "The lunatic RBA doesn’t want to cut interest rates. This is for two reasons that I can see:

    • first, it thinks the Aussie economy is in good shape;
    • second, it would rather hike to rebuild ammunition for the future.
    The first point is fast losing air. Australia’s fading growth drivers make it plain:

    • credit growth has stalled;
    • consumption is weakening via cars and wider retail;
    • dwelling investment is about to crash;
    • infrastructure investment has peaked and will fall;
    • business investment will track the other three;
    • recurrent government expenditure remains strong but will get hit at the state level by collapsing state stamp duties.
    That’s all there is for domestic activity. Obviously it is going to slow sharply over the coming months and unemployment rise, not least given 1.6% population growth.

    This is a late cycle point in which a central bank would normally wait it out and begin easing when inflation ebbed with job shedding. But this is not business as usual. It is not some late cycle moment in which the RBA has tightened a little far to squash inflation. The downturn underway is being driven by a house price crash that has arrived without any rate hikes at all. Nor is there any inflation to speak of."
     
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  15. PMC Property

    PMC Property Sydney, Brisbane, Newcastle, Toowoomba Business Member

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    Who knows where it will go. You would logically assume that the outcome of future rates changes will be largely driven by the outcomes - both sentiment and real time - of the Royal Commission. I think we can all agree that if the credit flow tightens further (and yes I know the banks are saying this won't happen) and prices start to really slide then the RBA will be faced with a tough decision.

    If the worst is over and credit starts to flow a little freely again well the opposite could happen. The issue with Sydney and Melbourne is that there is still large underlying demand, not the recessionary conditions that pulled prices back in previous years. This time it's almost exclusively due to the flow of credit (and partly income growth). Dropping rates and flowing credit would see a spike in these cities again in my opinion so the RBA will be keen to avoid that. I think things will be tight for a while yet.

    - Andrew
     
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  16. MTR

    MTR Material Girl Premium Member

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    Excellent post
     
  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    What sort of buyers are these demands from,
    Are they investors who can but won't buy just yet or
    can't but want to buy? or others?
     
    Last edited: 3rd Feb, 2019
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  18. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    also at a time when employment on the back of huge fiscal spending is in full steam. Imagine the impact of RE development slowdown on job market, may be starting this year?
     
  19. Noobieboy

    Noobieboy Well-Known Member

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    There is a lot of infrastructure in pipeline. I think this will keep unemployment at bay. Labor is also very “spend” kind of mentality.
     
  20. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    RBA is in a tight spot here,
    it has not build any IR buffer by hiking like US fed has done in recent years to be able to meaningfully engineer an IR driven credit ease.
    The libor rate pressure on external funding will further blunt whatever little IR ammo it has.

    Income is not rising fast enough for the masses even with current full employment to expect thier increase in borrowing power on this basis,
    even with recent falls in syd/mel,
    system hasn't deleveraged as the debts are still the same, at all time high, many existing investors still capped by total DTI limit
    Given the headwind of NG/CGT reform going forward yields will matter a lot for new blood to come in, Rental yield is still too low for that.