What's going to push rates back to 6-7%

Whilst some banks are increasing rates at the moment, it's probably not the start of a general upward trend. Some people here think it will actually give the RBA scope to lower the cash rate again, maybe even twice. Thereafter, who knows?

There is talk here on PC that there will be 'pain' and people forced to sell when rates get up around 6-7% again. I can remember paying up around 8% late 2000's but never really thought about it too much as it was a small debt on a PPR and I also hadn't looked into or learnt about investing.

I'm asking this question as I have no clue really, but think it might be important to understand.

What will have to happen here domestically and internationally, for rates to start to move up towards 6-7% again? And over what time frame do people think this might happen?

Do more experienced members think that the number of new investors entering the market depend somewhat on rates of the day?

I think there might be a lot of newish investors who have loaded up in the last couple of years, having not had a mortgage back when rates were 6-8% and they might get a bit of a shock if they haven't planned for increases.

I also believe people underestimate the fact that as quickly as things come down they can go back up.

Thanks

 

The RBA needs to cut rates for business to stimulate the economy. The banks have raised rates in order to meet APRA's requirements that they hold more cash reserves.

When they first were approved for a loan, their serviceability was supposedly calculated on current IRs of 5% + 2% = 7%. There should be no problem.

Also you have not taken into account rents on the income side of the equation also increase over time.

I paid 13.25% on my first loan 33+ years ago.

IRs go up when the economy is doing really much better than it is at present.

Who cares? If you are a buy & hold forever (as I am), over a 30 year mortgage period, you will experience almost everything. Just go with it and take evasive action (like locking in on fixed rates, if necessary, before rates become difficult for you to handle) if necessary.

Sure - it is an affordability thing for new investors.

Perhaps. It will be a good lesson in having buffers in place if that is the case.

 

Thanks Alan,

I guess this is more of an economics questions, @Simon Hampel may move this thread?

What things might, or are going to have to happen in Australia for the economy to improve in order for rates to push back up to 6/7/8%?

Yep, exactly. What will be, will be. Just curious to see peoples thoughts.

Jesus, I'd be screwed, what type of LVR did people have during these times? I guess the house price to income ratio was a lot different?

 

80% if memory serves.

Based on only 1 x breadwinner back then, not the 2 x breadwinners' calcs of the last few years.

 

Maybe go back into the other site,and search when several years ago and see what people were posting when the rates were just below 8%%,then follow what happened,that's the difference with property and several other investment markets,it's no good ignoring valuable information in daily newspapers..

 

A THRIVING ECONOMY

 

On a basic level;
As Steve said, the economy needs to be chiming along and putting upwards pressure on inflation.
Once inflation concerns start out weighing recession concerns then the RBA will start to raise.

But on a more complex level this is going to mean that Australia has been able to keep rates low enough to not push the AUD to high, transition to non mining/home building industries, China needs to achieve stable medium term growth, the US and Europe need to move IR up from zero which is going to require them to have strong economies. And everyone needs to do this without keeping rates so low for so long that hyper inflation kicks in and ruins the party...
Disclaimer; I am not an economist and this is purely my simplistic interpretation.

I actually would like to know other's thoughts on when they think the economy is going to be in a position to do this.

Obviously it is pure speculation but anyone keen to put a number on it?

I reckon we will be back to long term average of 7.5% variable rates in 7 years.
Which will hopefully mean the economy is kicking along and Sydney is ready for it's next round of property growth not reliant on low IRs. (Hey one can hope).

 

mining is still on the way down of course - how about home building industries? i thought this was starting to peak in some areas also?

 

what is hyper inflation and why would this cause a problem?

 

Check out Zimbabwe for an example of hyperinflation.
http://www.bloomberg.com/news/artic...ion-to-deflation-no-end-to-zimbabwe-s-decline

 

To answer your question. Only time will take to push rates back to 6-7%. I would welcome these rates. At least by bank deposits will have a healthy boost.

 

Thanks for that,

Not a bad outcome - beer for 90c

 

Another factor - Australian loan rates here aren't entirely dependent on RBA. Our banks are still heavily reliant on offshore funding. When US begins lifting rates, this is likely to push up long term cost of long term funds for our banks which will be passed onto residential loans. US rates 'lift off' continues to be deferred, but will inevitably happen unless US unemployment starts ticking up again. APRA changes aren't likely to change ours banks offshore funds reliance dramatically in the short term.

 

5-10 years..

 

An old boss of mine was from Zimbabwe. He said you'd go to the shops to buy something one day, and then the next day the prices had gone up.

I'm pretty sure I remember learning at school that when Germany had hyper inflation post WWII, people would literally push wheel barrows of money to the shop.

 

High Inflation.

Which is the opposite of what's happening to the CPI right now, despite the AUD weakness.

 

It is quite possible that despite a thriving economy the interest rates could stay low because inflation is low.

That's what happens when we are oversupplied with stuff -- cheap oil and other commodities, cheap chinese goods etc -- because the expansionary policies around the world has created capacity supplying goods more than what the underlying demand is.