RBA to cut interest rates twice in 2016 - down to 1.5%!

Hey guys,

Read this today.. In short, according to ANZ interest rates will dip to 1.5%:
http://propertyupdate.com.au/rba-cut-interest-rates-2016/

If you have any opinions on the questions below, I would love some feedback from you guys (feel free to add more):

1. If this was to happen, will property prices continue to surge in Sydney?
2. What does this mean for property market in Australia, particularly in Brisbane?
3. Is this a good or bad thing for investors?
4. Does this mean APRA will tighten lending even more?
5. Do you think this will happen?

Cheers,

Taku

 

Apra and the rba belong to the same old boys club. Apra knew the rba would likely cut, or at least release commentary as above suggesting cuts on the horizon. This is also why they raised investor lending rates to curb investor led house price growth and in anticipation of either cuts or commentary as above.if the rba does now cut, which they likely will; apra will not budge and I don't thinks the banks will either- maybe a bit but not the full amount.
What will it mean for sydney- not much.
What will it mean for country bumpkin villages like brisbane - more stronger growth especially driven from Fhb and OO. They will be competing with investors in this market much more. Already happening to some extent and expect it to intensify with IR cuts.

 

Means we as investors will only receive a portion of any further rate cuts anyway..

 

Banks will probably pass it on to owner occupiers only. Why not keep the extra money from investors, when they can't grow their investor books anyway?

At the moment, the cash rate market is pricing in only one rate cut next year: http://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

The market implied yield curve in early 2015 correctly predicted the 2 rate cuts in Feb and May.

And it appears that starting this year the RBA staff are using market expectations of interest rates to formulate their Statement on Monetary Policy. It would be awkward for them to use market pricing assumptions to project GDP, inflation and unemployment rates, and not implement it.

 

Great if its passed on, payrise by virtue of expenses decreasing and incomes remaining

 

for another 0.5% drop to happen, which will bring us to another all time low, it will just mean that previous cuts have been unable to prop up the failing economy.

Property prices whether in Sydney or elsewhere in the country will not hold up in a prolonged economic downturn which is probably happening given mining supercycle is over.

APRA will tighten further if lending continues above their target yearly rate.

Brisbane is very dependent on investment and spending in the mining and LnG sectors. Increasing unemployment will just mean less money to feed the rental yields and even wipe out some investors with high debt levels as they lose their jobs. have had a couple REAs/PMs saying that especially in the CBD area, properties getting much harder to rent out even with price drops.

Gold coast might benefit though as tourism and services will boom with the weakening AUD as it has in the past.

 

To answer point number 4 first:
My opinion is to not get to excited about predictions from economists that are more than about 3 months out. You could toss a coin and get about the same accuracy.

Personally I don't see any benefit to the wider economy in further rate cuts. The RBA has previously commented that they've done pretty much everything they can with the tools they've got to help the economy. The rest is up to various government policies and programs.

Questions 1 & 2:
Further cuts will make housing more affordable so rate cuts could give various markets a longer growth period than they might otherwise enjoy. Late last year the Melbourne market started to show a few cracks. Then there was two rate cuts and it solidified and kept going up. I doubt further rate cuts would do a lot for Melbourne or Sydney if they come along next year, but it's possible there might be a similar effect in Brisbane.

Question 3:
APRA doesn't need to get banks to tighten lending criteria. Further rate cuts won't increase peoples serviceability as lenders have had to introduce a 'floor rate' for their assessments. A rate cut might make your personal affordability better, but the banks won't drop their assessment rates any further, they're as low as they're going to go.

That said, if rate cuts continued to push the market upwards, no doubt APRA would use it as a reason to throw their weight around some more.

 

Hey @Peter_Tersteeg thanks for the great feedback.

On your answer to Question 3, are you saying if there were to be more rate cuts, that APRA won't tighten lending for investors any more than it is now?

 

I see it as a positive for property, its not only investors that buy.

I also believe recent change in Prime Minister is a positive for property too.

Perhaps we have some breathing space now, fingers crossed.

However, it wont change what is currently happening in terms of economy and APRA. If you need to reduce debt perhaps now is a good time to review this just my opinion

MTR

 

No, I'm saying that they'd probably use it as an excuse to tighten lending, but it's unnecessary.

Some days I'm just a cynic.

 

If that's the case, tha AUD$ will be dropped even lower ?

As long as Central Banks continue to more print money and lower their interest rates, the gaps between the rich and the poor will grow even wider in the future (Income inequality).

I believe the root cause of the gap between the rich and poor is due to the level of Financial Intelligence/ Knowledge how the world monetary system works. The rich know the rule of money and know how the financial system works and they play by the rule to create wealth. However the poor and the middle class who don’t have Financial Intelligence/ Knowledge how the world monetary system works will see their wealth reduced over time.

It is amazing how decisions made by central banks have such great impact or control over your wealth!!. 99% of people in the world doesn’t understand how the system works.. Henry Ford founder of FORD Motors said– “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a REVOLUTION before tomorrow morning”.

 

Personally I think low interest rates are here to stay for a long time!
Back in the mid 90's financial pundits were all saying Japan had to raise it's interest rates and cut down its fiscal deficit. 20 years later Japan still has low interest rates and a ballooning budget deficit.

I regularly read Bill Mitchell's blog who is an economist who believes strongly in fiscal policy.

With regards to interest rates and them increasing back to 'normal levels' his view was:

"But having said that the main objection I have to this common view presented in this case by Sentence is the use of the term “normal level”. What exactly does that mean? Some prior average level? Reality changed in 2008 when the dynamics that had been set in place for some years by government and central bank policy built up and exploded. That reality destroyed the “normal” that Sentance might pine for. We now know that monetary policy is a relatively ineffective tool for stabilising the spending cycle, which means that previous ‘normalities’ were probably not well conceived anyway, given they were typically associated with passive fiscal policy (bias towards surplus) and elevated levels of labour underutilisation and well below historical levels of real economic growth.

How is it normal that millions of workers are still unemployed or otherwise underutilised (including out of the labour force as the participation rate has declined)? How it is normal that Europe, a major trading partner of the US is still mired in stagnant growth and could fall back into recession on the back of the Chinese slowdown?

Our times are anything but the previous “normal”.
http://bilbo.economicoutlook.net/blog/?p=31930

 

-25BP is inevitable. -50BP does look probable at this point in time.

I reckon lenders will pass on a fair portion of the cuts to owner-occupiers and a smaller amount to investors.

Should allow Sydney to slow more gradually and help Bris pick up.

Might be enough to help some of the other markets start to move too.

 

Just put your seatbelt on and enjoy the ride. Do what you can when you can safely at your own pace. Might be a good time to offload some under performers as there will no doubt be a rash of FOMO buyers jumping in as the media will whip up the old "never been a better time to buy" fever?

 

The RBA usually doesn't do a single rate cut when they need to make a move for changes in economic projections. It's at least 2 rate cuts.

 

I've never felt that the RBA has much appetite for a cash rate <2% and will avoid it if they can.

Today's statement was very non-committal about, well, anything.

But it does seem that they think they're still in the slot. If so, then the next move is up (whenever that is).

 

The latest inflation results are pleasing for the RBA. It gives them a good justification to keep rates on hold. Until inflation gets above 3% there is no way in hell they would consider a rate rise. With the latest job results coming out of the US (which were extremely disappointing) a US rate rise is looking increasingly unlikely as well.

 

Damn hoping for an IR drop, would have made for a great summer property boost

 

If ever, the banks are going to pass it on to owner occupiers only. They'd want to keep fat margins from investors.

 

I agree, but it will still helps as my target group is FHB, I am selling. Fingers crossed