Will interest rate rises hurt ALL markets??

Something about floaters at the old Bondi more like it

 

Hi All,

Will interest rates hurt all markets? Great question.
Some will sink and some will thrive.
Unfortunately there are allot of investors who loans are 110% loaned per property. Many people use equity for a deposit and stamp duty and then borrow for the house. In Melbourne I have notice rents coming down as well. I am not a big fan of property investing and I have sold most of my investments. CASH is KING atm.

 

I dont have the stats on me, but i think sydney and mel have a larger proportion of investors than say brisbane and adelaide.
Rises in resi IR will likely have a greater imopact on that segment than OO, so I think it will be felt more in mexico. but i think thats the smaller factor anyway because I am making the assumoption that resi rates which may increase more wont increase substantially ( at least not in the next 2-3 years).
Jobs are the main ( more so than home loan IR) driver for mexico. Their value proposition is mostly based on this. I doibnt hear many people say im in sydney because of the weather, lifestyle etc...I hear mostly that people are in mexico because of jobs, jobs, and more f@#$ing jobs.
The biggest driver ( to property prices in the next 2-3 years) i think is jobs. The business loan rates influence jobs more than resi rates ( im not talking about home building, plumbing, painter jobs etc- im talking of whether the business can effectively borrow 10 mil + to start a new project and the flow on of jobs from that- higher paying jobs who can afford higher prices that mexico commands) I would be looking at tghat number ( business investment loan rates) more so than the Home loan or investment home loan rates as a guage of what the near future will hold for mexican prices.

 

depends on the timing of the purchase I guess.

Anyone who bought when rates were up round 9% 8 years ago (approx) I think I had a fixed rate at 8.6% back then....and still had that same mortgage today is paying the lowest rates in history now so would probably think "meh" to increases.

Anyone who has accumulated property or just got in the market in the low rate environment in the last few years will hurt.

But I think the impact of the tightening finance IF we still have the huge population growth is pressure on rents.

Less investors buying equals less available property in the rental pool equals rents to increase.

So while the capital growth may sit on the sidelines for a while....rental pressure may increase rents over the next 2-3 years.

Nothing different to a "normal" cycle I guess....

Period of rapid capital growth followed by a flatline while rents play catch up.

 

Not an economist so if someone could enlighten me.

Have read that interest rates rises usually coincide with good economic indicators, leading to increased wages and therefore increase in rents?

How true is this or is it an unsubstantiated myth?

 

Yes . . "usually" is the key word .. . one the main drivers of higher interest rates is higher inflation, of which wage increases contributes. Wage increases are a result of higher employment and corporate profitability and other positive economic indicators, as you say.

However not this cycle. Wage prices have been stagnant in Australia and western world for last decade, therefore there has not been any pressure from wage prices flowing through to rental increases. Prices have been driven higher by asset price inflation due the cheapness of money, and the recent interest rate increases have been a reversal of this phenomenon and other macroprudential measures which have had nothing to do with wage gains.

Therefore unless something dramatically changes, interest rates have , and will continue to increase without a rise in wages and / or rents . . .

Dont expect a rapid jump in yield to make an overpriced investment with 2% yield look good anytime soon

 

Didn't Scott Morrison get on telly and say his party put measures in place to slow down regulators making a sharp interest rise.I believe it's banks this time that want to raise the IR. It might be a fiscal few years coming up as people have locked into high debt and the IR goes up and makes them work hard to pay it off.
Wish I had a crystal ball though.

 

Why wouldn't the banks want an IR rise? It's free money for them.

It's now become popular to raise IP loans with politicians and public.

Therefore they raise investor loans by 40bps and decrease PPOR loans by 5bps, and don't worry about the savings rates. Therefore 35bps of free money, which is literally billions.

Unless the sentiment against investors change, why wouldn't this continue?

Banks want it (profit), public wants it, politicians want it . . . Not going to end anytime soon.

 

I seriously do not want to like the above post, but I do agree with it.

 

It will end when this witch hunt against property investors ends. First it was bogans, now it's property investors. Who's next on the list? Dole bludgers? Oh, they've already been done together with the bogans. Yeah, two birds with one stone.

 

Classic and not so classic car enthusiasts @datto they are going to put GPS trackers in certain users cars.

 

That was a well directed stone throw too.
Too much scamming of welfare, the bogans and bludgers are experts at it.
Not all mind you, but we all know there are very many doing it illegally.
And welfare being the highest use of tax payers money, the more it's cleaned up the better.

Interest rates will go up until banks reckon its break point time.
Do they really want increased defaults?

 

After being through many cycles and highs and lows, I really think banks do not care about defaults, I actually think they like the down cycle, it would only be if it was going to bring them down they would sit up and pay extra attention.

 

Like some kind of scientific study. They'll probably get David Rabbitborough to do a doco on it I suppose.

 

Banks hardly ever lose out, they most likely know what your estates are worth before you do.

 

Only the ones with mortgages.

Beaconsfield Upper is the pinnacle of Melbourne. It has something like 95% of homes owned outright. While every surrounding suburb aside from Harkaway is heavily leveraged it will stand the test of time.

You can also catch lobsters from the river which is bound to move houses exponentially when the lobster shortage inevitably hits. This outweighs any risk of bushfires tenfold.

 

I agree. As interest rate in the US and Europe start to creep up (or bond purchases tapered...) the banks' "cost of funding" will go up, and term depositors and resi investors will bear the consequences.

To quote Lindsay Lohan, "It's not rocket surgery..."

 

By turning the housing affordability argument AGAINST property investors, they have divided the market... Gotta look after the hard working Owner Occupiers (who constitute 70
% of electorate).

Now that the banks are making millions of profit by penalising IP owners, don't underestimate the power of their lobbying / marketing to allow sentiment to continue and push rates higher.

Every time the banks make this much money in the cycle, they attract the ire of politicians - now they have found a way to act like the good guys while continuing to make profits.

Rate rises for IP owners aint going to end anytime soon

 

..... and this is what will slow down the property market, its inevitable