Interest rates increasing!

Discussion in 'Property Market Economics' started by DowntownBlock, 28th Sep, 2017.

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  1. Trainee

    Trainee Well-Known Member

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    Must be tough being right and the world keeps disagreeing.
     
  2. Speede

    Speede Well-Known Member

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    You will be a property owner one day.....they said.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    eventually, this will be right, simply cyclical and Keen as Mustard

    ta

    rolf
     
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  4. Perthguy

    Perthguy Well-Known Member

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    Incorrect again. I didn't say interest rates are going down. Right?

    The obvious answer is for me to fix my rates and ride out what happens next. I am looking at 3 years for one loan and 5 years for another. Sharp rates too.

    So, since interest rates are about to skyrocket, where have you invested your money?
     
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  5. DowntownBlock

    DowntownBlock Well-Known Member

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    Wow it's almost like it's an Internet forum. Quite hard to have a sensible discussion without people taking it to extremes :)

    I think there is a large risk that rates will increase here in next year or two. My fixed income investments are all short duration and I am short corporate credit.

    I don't think rates will skyrocket, nor for those asking am I selling property as a result of this view. Actually looking at Perth or Darwin for next purchase.
     
  6. DowntownBlock

    DowntownBlock Well-Known Member

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    No it will be closer to 15% jump, and overnight.

    It's interesting how many on here think that interest rates are 'set' by RBA with no connection to real market forces. I guess a natural by product of our post GFC world.

    Cheers
     
  7. Perthguy

    Perthguy Well-Known Member

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    I can have a sensible discussion if that's really what you want. First tip is to discuss what I actually posted and ask a question about that. For example, nowhere in my post did I even hint that I think interest rates are going down. And yet you claim I am thinking interest rates are going down so I should buy bonds of whatever. I won't argue with you about something that you made up that I said. It makes it hard to have a sensible discussion when someone does that, doesn't it?
     
  8. Perthguy

    Perthguy Well-Known Member

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    Did anyone really say that though? My interest rates have gone up twice without RBA moving rates up. Of course it happens.
     
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  9. DowntownBlock

    DowntownBlock Well-Known Member

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    You see it in many comments, similar to yours above, indicating that interest rates going up will be ok because it will be as a result of economic strength and the DIRECT result of RBA action...

    I think the view that rates go up due to external tail risk events is underestimated, similar view to Taleb in Black Swan.

    just interested in the logic that forms personal views.
     
  10. DowntownBlock

    DowntownBlock Well-Known Member

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    Just to be clear - i surmised from the below statemetn. My point is that there are many more significant things, external to Aus economy that could cause spike

    "I would expect interest rate increases would affect property prices now because of the other economic conditions. However, why would the RBA increase rates? RBA generally increases rates to combat high inflation? Do we have high inflation"
     
  11. Perthguy

    Perthguy Well-Known Member

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    Well, considering I have had two interest rate increases without RBA touching rates, I am fully aware that lenders can increase interest rates without RBA changing the official interest rate. So I guess you surmised wrong.

    But economic strength is only one reason why interest rates go up. We both know that.

    Sounds like you need to do some work finding out what those personal views are first.
     
  12. Ted Varrick

    Ted Varrick Well-Known Member

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  13. DowntownBlock

    DowntownBlock Well-Known Member

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  14. DowntownBlock

    DowntownBlock Well-Known Member

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    From Torsten... when all of this debt trading at negative interest rates turns positive, watch out Australia!!!

    Sometimes clients ask me “Where is the bubble in financial markets?”. I think the answer to that question is easy: It is the red area in the chart below. $8trn in global debt is trading at negative interest rates. Think about it; almost a decade after the financial crisis we still have $8trn in bonds which yield negative returns.

    upload_2017-10-16_17-18-30.png
     
  15. skater

    skater Well-Known Member

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    Too late! Now that Sydney has nosedived, there'll be negative equity.
     
  16. OO1

    OO1 Well-Known Member

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    What do you guys think would happen to property prices if the RBA cut rates again? I know banks would hardly pass much on but it would change the sentiment that rate rises may be further away. When I read the language of the RBA it seems like they have been saying everything they can to put the brakes on without actually putting the brakes on, they also refer to the fact that they have not cut as far as other central banks so they don't see the need to raise in line with them. It's like they have comfort knowing they can cut again but they sure as hell wouldn't let on or asset prices will start running away again.

    One of the recent articles I've read:
    RBA says 'material further appreciation' in $A will hurt growth
     
  17. euro73

    euro73 Well-Known Member Business Member

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    Not much. For the first time since deregulation in the late 80's, lenders servicing calculators dont use the actual interest rate to assess affordability. That, and the ongoing 10% I/O speed limit and the more recent 30% I/O quota on new lending are clearly going to mean that even with rate cuts, most speculative investors will still be sidelined when they hit 2 or 3 or 4 properties. And its borrowing power that drives prices up. All the forum members you read about who are out of borrowing capacity... it wont change things for them one bit if the cash rate fell 0.25 or 0.5% or even 1% Their cash flow would improve for sure ( assuming banks passed on some of the reduction) making their ability to hold what they already have easier as P&I repayments start becoming a fact of life, but their borrowing capacity to purchase more property would not improve.

    Rate rises , combined with loans reverting to P&I however.... different story for cash flow and the ability to hold - completely different story. It would mean holding costs would become unmanageable for a lot of the investors with immature portfolios and immature yields. ie less than 10 years old and less than 7% yields.

    Im leaning towards your view on this. Its early days yet, but I think the RBA will be loathe to raise the cash rate soon or if they do, they wont want to do it by much... the AUD will likely surge if they do. I suspect they will be starting to feel quite comfortable with how effective the 30% I/O regulations have been , and if they feel that consumer debt has peaked , they may just be happy to keep setting as they are , or close to it, for quite some time. The regulations will eventually start delivering P&I debt reduction, which will start showing up in lower household debt data over time...

    Its a really delicate balancing act the RBA have on their hands.... keeping the AUD down while keeping a lid on consumer debt levels - and getting the banks I/O heavy loan books rebalanced to pre GFC levels - ie much lower/ safer levels of I/O ..... and it could be this way for some years yet. They may just have struck a balance with the APRA regulations which they will be happy to sit and watch for a while... I guess we shall see over the coming 6-12 months.
     
    Last edited: 17th Oct, 2017
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  18. DowntownBlock

    DowntownBlock Well-Known Member

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    Bit dramatic.... only been 6 months of price declines so far!
     
  19. skater

    skater Well-Known Member

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    You have a bit of trouble recognising sarcasm, it seems.
     
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  20. DowntownBlock

    DowntownBlock Well-Known Member

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    @Redom - re rates leading recession..

    This from the CEO of one of Australia's largest property companies

    "About six to 12 months ago we formed the view that if interest rates in the broad-based mortgage market moved 150 basis points it would effectively trigger a recession," Mr Fehring said, "It's moved about halfway by now."

    Read more: http://www.afr.com/real-estate/150-basis-points-on-lending-would-trigger-a-recession-property-exec-20171021-gz5o8v?login_token=XFrzOCV21JWTnU7PyTuVldgeDe0LXrKSwHtolPZQvdYjkB7JFcTEJXyDQXrv5DXYfzhC4z2apgIcDBLLoXLTxA&expiry=1508704340&single_use_token=GaL6hpZo-6RUbC9rvrX324QBUnE9O-_wNXgjhensiqAqwzPe9CfGfj4Y_89g7XywwRHaxERiJtFdTpu8srPyzg#ixzz4wGrPkUEj