Whats the logic behind buying in lower IR

Discussion in 'Property Market Economics' started by dragon, 12th Jul, 2019.

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  1. dragon

    dragon Well-Known Member

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    guys, seems Interest rates going lifetime low now. Whats the point you buy now at this rate?
    Do we expect this goes further low or stay there forever?
    Are you going to pay more for principal now and pay interest forever when IR goes high?
     
  2. paulF

    paulF Well-Known Member

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    Very circumstantial question but i think buying just because IR are low is very risky. You should buy when you can afford to and make sure you can afford higher rates too.

    I do believe that low IR rates are here to stay in the short to medium term and that was one of the reasons why i bought around 4 years ago or so and the plan was to take advantage of the low IR rates to pay down the mortgage ASAP. I never expected the rates to go down this much though but it's definitely a great time to pay down PPOR debt i think
     
  3. marmot

    marmot Well-Known Member

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    You just have to understand that you are never ever going to see real downwards movements again in interest rates, at best maybe 50pts.
    Unlike those that have seen 600-700 point movements over the last 15 years
    , which at times has been used to stimulate the economy in bad times and also to stimulate house priced .
    1987 and 2013 onwards are good examples of big property booms in certain parts of Australia when interest rates came crashing down.
    Although the big property rises after 87 all ended in tears when interest rates shot up again and many could not afford the new repayment levels.
    The current rate just adds a lot more risk to long term house prices, especially if the economy gets into real trouble and commodity prices see some big falls.
    Anyone that had a $500,000 morgage in 2012 would be almost $20,000 yearly better of in interest rate savings even if they never touched the principle of the loan.
    Anyone buying today are not going to see those sort of movements ,ever , at the same time as wage growth is dead.
    The easy money is all gone , but the debt just lingers around..
     
    Last edited: 13th Jul, 2019
  4. highlighter

    highlighter Well-Known Member

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    I think they're going to zero sooner than we think, because the economy's likely to go into recession.
     
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  5. skater

    skater Capitalist -- www.skatepro.com.au Premium Member

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    I think if you are buying now....make sure you can afford a much higher interest rate, and have a strategy to use those extra payments by putting into an offset, or paying down PPOR. Do not spend the savings, because when it's time for them to move back up again, you don't want to be the one swimming naked.
     
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  6. dragon

    dragon Well-Known Member

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    I was thinking same. But having low interest rate in UK and other countries now, is it going to be norm now. When comparing other countries Aus have mor IR now. Will we follow them for IR also.

    Can Aus afford to have low IR?
    How long do u think this will continue?
     
  7. highlighter

    highlighter Well-Known Member

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    I think part of it is demographic. Economies aren't growing as fast because more people are retiring and winding down their spending, rather than consuming, having babies etc. We may see low rates persist for years.
     
  8. Kangabanga

    Kangabanga Well-Known Member

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    Imho low rates are becoz of central banks trying to save economies from recession by increasing liquidity and credit creation in a deleveraging cycle post gfc. It has worked somewhat as a stop gap measure but debt continues to build, which someday has to be deleveraged in some way in order for the cycle to continue. Euro region and Japan are good examples how negative rates don't really do much other than provide some life support.

    Demographics play a part in growing an ecoNomy but I reckon if Japan controlled their boom in the 1980s and didn't allow massive bubbles to form, they would still be doing pretty well financially now without having to resort to negative rates.

    Dragon pretty certain we going to zero rates soon. Rba has no choice when economy goes into prolonged recession.
     
    Last edited: 14th Jul, 2019 at 9:22 PM
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  9. Trainee

    Trainee Well-Known Member

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    When rates were 17%, did people think better buy now and reap the rewards when interest rates go back down to there long term average?
     
  10. Beano

    Beano Well-Known Member

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    Not at 17%
    But at 10% to 12 % yes but did not think the interest rates would fall.
    The thought was interest rates would always return to 14% to 15% not 17%
    Even after GFC I still thought interest rates would return to 10% hence I keep my total debt relatively low
     
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  11. qemist

    qemist Member

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    [QUOTE="Kangabanga, post: 718632, member: 618"
    Dragon pretty certain we going to zero rates soon. Rba has no choice when economy goes into prolonged recession.[/QUOTE]

    Negative rates wont be really effective until they close the cash hole.