lowest rates is good or bad??

hi, i recently heard in a seminar that you should buy NOW as interest rates will never be as low again. however i am thinking, this should be priced in already in higher propery prices, so there is not really an advantage, is there?

anybody ever seen a nice graph putting rates and medium property prices in relation, x axis is change in mortgage rate percentage while y achse would be the expected change in housing prices? would i see a straight line or a curve in this graph? and also, is it a different effect on the lower compared to the higher housing price bracket?

 

If you're looking for a nice graph that directly shows a correlation between property growth and interest rates, you're not going to find it that simply. If low rates universally led to housing growth, then in additional the Melbourne and Sydney being expensive, Brisbane would have performed better and Perth wouldn't have been dropping for several years now.

Certainly some markets do tend to perform well when there's low rates as it makes them more affordable, but it's a lot more complicated that that. Try looking for a relationship of jobs, population growth, housing supply...


Personally I don't thing prolonged low rates is a good thing, nor high rates. Both are extremes and they have extreme indicators in the wider economy (which also affects housing markets).

One of the nice things about higher rates is it usually accompanies wage growth. Wage growth tends to be one of the quickest ways to erode a mortgage as the value of the mortgage as a multiple of the borrowers salary reduces over time. Wage growth means in the long term people will have more and more income to reduce debt.

This is something we haven't seen in many years and despite low rates, there are more people in financial stress than ever (if the media is to be believed).

As much as I like my low repayments on my own loans, overall I think it would be better for everyone if certain economic conditions caused rates to start to increase for a while.

 

Rate policy is supposed to work like the opposite side of a set of scales to house prices. Low rates stimulate low prices and high rates slow a boiling market. Though it doesn't always work perfectly in practice due to a billion other factors, your graph should reflect this.

My personal experience is that the affordable end of the market is less volatile than more expensive areas. For example, properties in Ipswich saw far less downward movement in the GFC than did properties in Brisbane, but they've also seen much less growth since then.

 

You mean, the opposite is true, as with low rates, more potential buyers can afford a given price level that is soon after rising..

Yeah, thats a good indicator to filter out the "trendy margin" of prices, looking after the volatility at boom at bust point of times

 

Supply and demand is a stronger indicator of property price movement than interest rates.

Im almost certain the seminar organisors where flogging property and likey OTP crap.

 

I would say, supply/demand ratio is an additive indicator to the interest rates indicator, both have their own right in its own and don't influence each other too much in their effects on the property pricing I gues

 

Supply and demand is influenced by low rates. Low rates = higher demand and fuels supply. Higher rates = more for savers, more conservative choices and in the current market I would expect higher mortgagee sales as riskier purchasers can not pay their mortgages. Higher rates are good for people unwilling to take on higher risk.

 

House prices depends on 30+ known variables (and X unknown) with different weights at different times, interest rate is just one of them. It's dynamic system with little possibilities to compute/predict the future.

For US market, they calculated that "a 1 percentage point change in interest rates would theoretically affect home prices by about 10%" (for fixed rates). For variable, it's close to 16%.

 

Also, lower rates are indicative of an economy in strife. Where people are working and retail sales are healthy rates would be higher. Low rates will eventually lead to a down turn anyway and should only be an emergency measure not a chronic measure. Low rates = bad economy always. Can expect rates to rise soon in real terms by the bank due to lower AUD to USD

 

Good comments above. Good or bad can be very relative to your own circumstances.(wage,cashflow,current debts...)

I think there was definitely a link between historical lower rates and rising high prices and speaking for myself, one of the main reasons for buying my current PPOR was the historical low rates but obviously it was't the only reason to do so...

That was three years ago though and if you ask me if i'd do the same thing again now, i would say no. Back then, prices(market dependent of course) were still affordable and presented good value to my mind and after a lot or research and risk assessment i thought that the lower rates are here to stay for at least 4 years so decided to take on more debt with the goal/plan of repaying the debt(saving against offset) half of it in 5 years or so.
Three years later now and i'm still on plan and the property pretty much had over 42% growth.

Can the same be repeated again ? Not in the same market for sure but looking somewhere else, it doesn't look impossible...

 

Buy when rates are highest and sell when they're lowest. Low rates are only good if you intend to spend 50 billion on submarines. Once prices move to compensate the extra affordability from cutting the rates it's all over.

High rates = low prices
Low prices = High rates

 

is it true for Perth and Hedland?

 

Taking everything into account, wouldn't higher interest rates will lead to an increase in rental yields? Through a combination of flattening house prices, and a higher demand for rentals as more and more people won't be able to service a mortgage?

 

No. It is more likely that high rates might place more people into financial distress. Financial distress does not automatically equal being able to pay higher rent. It may mean extended families living together. It could mean more people per households. I would expect government reductions in single parenting payments to be adding pressure to a decrease, rather than increase in rent. Also, as more people pile into investing you can expect that to deflate rental prices. Wages are not increasing so I can not see rents increasing.

 

Rates are high? Time to buy!