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Low inflation level - rate cut next week?

Discussion in 'General Property Chat' started by Observer, 27th Jul, 2016.

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  1. Observer

    Observer Well-Known Member

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  2. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    I predict they will sit on their hands and drop rate towards the end of this year.
     
  3. euro73

    euro73 Well-Known Member Business Member

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    The cash rate isn't whats really important...the big question will be whether they pass it on to investors or not.....

    Rate to borrower is what I'm interested in , not RBA cash rate.

    But regarding the cash rate - the inflation data is telling us that Australia is continuing to slow, and we are likely heading to a very low rate environment for the next few years at least. With the mining boom well and truly exhausted, Australia is now catching the disease the entire Northern Hemisphere has had for 8 years + (since the GFC)

    Remember too - lower rates will improve affordability ( monthly repayments) for those with debt already, but they wont improve borrowing capacity (future Liberty borrowers aside)

    Use the lower rate environment to make inroads/extra repayments . Don't waste them on lifestyle.
     
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  4. Arnoldus

    Arnoldus Active Member

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    Already been said in the thread, but I don't think further rate cuts will stimulate house prices, as I don't think it'll stimulate credit growth.

    On an optimistic note, Joe Hockey's advice for people to get good paying jobs to afford a house should start flowing through to the market soon, so we might see some promising growth off the back of his sage words.
     
  5. Barny

    Barny Well-Known Member

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    Hey euro, although these low rates won't improve borrowing capacity. It will allow many others to get in the market at lower price points if they have a deposit.
    But doesn't lower interest rates help push prices up? Perhaps not the higher priced properties as those limits have been affected from APRA regs, but surely those that didn't consider prior will do so now if possible, pushing the lower to mid property prices up?
     
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  6. timetoact

    timetoact Well-Known Member

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    I think it will continue upwards pressure on prices as more people come to understand that low rates really are here for the long haul and they can afford to borrow more. Mainly talking about OOs here. Most don't actually borrow up to their limit but as they become comfortable that interest rates will be lower for longer they may increase borrowings to get their perfect home.
     
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  7. Barny

    Barny Well-Known Member

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    That's what I was thinking.
     
  8. Lacrim

    Lacrim Well-Known Member

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    Rents are going to be impacted - that's one major downside.
     
  9. big max

    big max Well-Known Member

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    If it's not passed on its a boost to the bank earnings (which ultimately flow on into the economy). So either way it's good but yes clearly more banks pass on the more its a direct boost to the economy. If you believe banks won't pass on then hedge yourself and buy bank stocks.
     
  10. samiam

    samiam Well-Known Member

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    as long as no deflation...
     
  11. MTR

    MTR Well-Known Member Premium Member

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    I think they will also want to bring the AU$ down, a tad high at the moment
     
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  12. euro73

    euro73 Well-Known Member Business Member

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    I see your argument, but broadly speaking I disagree that most people don't borrow to their limits, or close to their limits , already, as this somehow implies there is plenty of borrowing capacity oomph left in that O/O sector to replace the investors and non residents who are now sidelined, and keep driving prices higher....

    Perhaps in markets outside Sydney and Melbourne , a mathematical argument can be made to support that... but we have to remember that I/O lending surged to 53% of all lending last year. That isnt INV lending, thats I/O lending. It includes record numbers who borrowed on an I/O basis for PPOR purchases. So that tells us something... for the first time in history, even first home buyers were being forced into I/O because mortgage repayments were only affordable that way. So Im not convinced it's quite so straightforward...

    I accept there is probably a little capacity left in Adelaide and Perth and Canberra and Brisbane - but it wont be enough to keep the kind of growth soldiering on, that many have come to believe is "normal"... although I agree that all these cheaper cities will be where the greatest % of growth is for the next 6-7 years at least. Perhaps not $$$, but certainly %.

    But make no mistake- history will show that the great growth cycles from late 80's to late noughtie's were a phenomenon driven by the greatest expansion of credit in history. Now that regulators have pulled on the leash, growth will be more modest. History will show that.... it's a mathematical certainty now. Any broker who understands borrowing capacity will tell you that.

    Also - dont forget about the HEM's.... O/O borrowers arent exempt from those changes. Investors are obviously hardest hit by the double whammy of sensitised assessment rates AND HEM's, but owner occupiers have been hit by the HEM's just as investors have. All things being equal, O/Occ borrowers also have reduced capacity today when compared to a year ago...
     
    Last edited: 27th Jul, 2016
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  13. timetoact

    timetoact Well-Known Member

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    You are probably better placed to observe this than I am.
    However I/O loans with offsets are IMO becoming the preferred method of borrowing for a lot more people. Especially now that you can have a debit card attached to them so they are literally your everyday account but offsetting mortgage at the same time. Any sensible person is just piling all income into the offset and paying the interest monthly. Dangerous? Maybe but only for the financially irresponsible.

    So I don't necessarily believe that a surge in IO lending on it's own directly relates to buyers being at their limit. A survey of average LVR would be a better guide for this.

    As for the decades of credit growth. You are probably right. Will be interesting to see how the next few decades pan out.

    One scenario that I have been thinking about recently is that with IRs globally at ultra low rates and not going up anytime soon. If we do encounter a financial downturn the only option that central banks are going to have to promote growth will be to turn on the printing presses, which can only lead to hyper inflation which bodes well for all hard assets. Gold and property being the two main beneficiaries.
     
  14. 2FAST4U

    2FAST4U Well-Known Member

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    Great post!

    Low interest rates haven't helped the northern hemisphere much so far. The RBA have already made statements earlier this year urging the Government for fiscal stimulus as monetary policy alone can't fix the economy.

    The RBA is hoping that people will use the money they save on interest rates and spend it on consumption. However, most people have been taking your advice and using the lower interest rates to either pay down debt or purchase assets.

    As for businesses they also have different individual interests than the theory of what lower interest rates should do. The Government would be hoping businesses would use the lower interest rates to invest in capital and expand. However, businesses are operating in an uncertain environment, which is lacking aggregate demand.

    If the RBA does decide to cut rates I would expect the big banks to pass them on due to the negative publicity they receive when they don't/competition from other financiers.
     
  15. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Sportsbet currently paying $2.10 for "no change" and $1.65 for decrease 0.01%-0.25%.
     
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  16. JohnPropChat

    JohnPropChat Well-Known Member

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    I have this weird feeling that rental yields will drop to 3% on average as time goes by. The focus of housing affordability will turn into rental affordability as 3% of super high house prices will still be unaffordable with the way economy is going.
     
  17. Phase2

    Phase2 Well-Known Member

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    Actually they have in terms of GDP anyway (maybe not so much for standard of living? don't know). The Eurozone is a mess of it's own bureaucratic-making, welfare-state nonsense, but the USA, the UK and China's GDP has been ever increasing since the GFC.
     
  18. Observer

    Observer Well-Known Member

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    And it's a cut. It'd be interesting to see if it lifts the spring property market.
     
  19. euro73

    euro73 Well-Known Member Business Member

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    Lets see how much of it the banks pass on. There's an almost 100% certainty that O/O P&I will get the full cut passed on, but the more interesting thing will be whether I/O lending gets the full cut as well... I guess we will know in the next few hours and days...
     
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  20. Lacrim

    Lacrim Well-Known Member

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    I think the net effect is that banks are going to pass on up to 0.20% (in general), and rents are going to suffer in all markets. We need rampant immgration, now :)!