Interest Rates - Up Or Down ?

[F6 RAPID]

I won't comment on the purchasing a house, but I will make comment on Interest Rates for you.

I am actually in the Funds Management industry and all we talk about is sharemarkets (domestic and global) and economies (again, domestic and global) which includes inflation, interest rates and all the good things that affect sharemarkets long term.

As far as Interest Rates are concerned, you may see another RBA rate rise soon, you may not........ Aussie Banks are doing their bit trying to curb inflation (I jest - that is not their job or what they are trying to do!) and slow the economy down by raising their rates over and above the RBA cash rate recently and that is why the RBA sat on their hands last month. Generallly, there is downward pressure on rates over the longer term. There is no way I would recommend fixing a loan for anything longer than a year right now.

I could go on about the sub-prime fall-out from the US, market liquidity and credit spreads widening again now but I think most people would very quickly switch off and eyes glaze over..................

[groper]

I don't think it'll be that bad. We'll certainly be in a buyers market for a while, but there's an Australia wide housing shortage, people always need a roof over their head and their home is the one thing they're not willing to take a loss on. If they do sell it cheap, investors buy in and the sellers still have to live somewhere which drives up the rental market and hence investor activity.

This cycle coupled with record wages growth and reduced consumer spending (finally!) will maintain property prices.

Also, the top end of the market which I assume ZAP is talking about isn't as strongly affected by economic cycles. Here in Perth $1m+ property sales are sailing along like nothing has happened to interest rates and economic growth. Nice houses in unique locations always have been and always will be in short supply and those with $ buffer themselves against economic downturns.

I like your 2 posts mark, agree.

however, my house was valued 6months ago @ $550k, in this valuation the property valuer commented that they belived the market was peaking at this time. 1month ago, my place was valued at $535k... Other people I know have similar stories.

Im not saying housing prices will collapse totally, just a backward movement of around 10% is my estimation.

I work in the construction industry, and new houses are not selling like they used to, so we are starting to build less of them already.

I also believe that the historical realestate capitol growth averages around 8%??? we are paying more than that now in interest rates, so why would investors put money into a losing equation? I invest in realesate, and im sitting back watching the prices come down, waiting ready with my money for when the time is right. Id say a majority of investors are doing the same.

less demand = lower prices until things balance out, same as the share market. People have got a bit too carried away with spending on housing and driven the prices up beyond what is reasonable, they will come back to equilibrium soon enough IMHO.

[TOSKA]

hey ZAP

As soon as fixed rates are a % point or more below the best variable I can get, I'll consider fixing for 3 years maximum. In the 90s I fixed at 10% for 5 years thinking I was clever - but never again at that rate. Fixing at 6% for 5 years is clever, but that opportunity left us in 2005.

Definitely variable for now IMHO - you can always fix later.

And I also strongly believe that fixing for 10 years is madness. Remember the govt is talking about introducing legislation to stop banks charging huge fees when you re-finance? Imagine how easy refinancing could be in 5 or 10 years...

Just my opinion based on what I've done with my loans.

Mark

Agree with Mark.

[SCRIBR]

Approriate thread, seeing as I am meeting with banks this week

I could go on about the sub-prime fall-out from the US, market liquidity and credit spreads widening again now but I think most people would very quickly switch off and eyes glaze over..................

I am actually quite keen to hear about this stuff from a person in the know!

[TUFXRT6]

I won't comment on the purchasing a house, but I will make comment on Interest Rates for you.

I am actually in the Funds Management industry and all we talk about is sharemarkets (domestic and global) and economies (again, domestic and global) which includes inflation, interest rates and all the good things that affect sharemarkets long term.

I could go on about the sub-prime fall-out from the US, market liquidity and credit spreads widening again now but I think most people would very quickly switch off and eyes glaze over..................

I Personally also wont comment on the housing market and I will stress that this is all general buddy buddy conversation and not to be taken as direct advise as I am a senior dealer at a fixed income firm and I dont know all your details.

There are two points to the currently high interest rate market.

The first is the continual threat of further interest rate rises from the ever increasing inflation.

Inflation in Australia is being led by two key area's, the first is higher fuel costs. The second is the high employment levels / wage pressures.

These two pressures I personally believe will take a few years to settle as they both intertwine (being led by Asia's demand & the long term projects in place).

The second key point to the current interest rate market is the deterioration of economies through out the rest of the world.

The deterioration is being led by financial markets, financial markets have two area's of concern. The first is the US housing markets which is finally showing some signs bottoming (California just had its first positive housing in a long time). I personally have to see further positive numbers to believe that the US housing market has bottomed.

The second fundimental point is bank's looking for funding / liquidity.

I will give you an example which may make it clearer why when it comes to refinancing & the issue of new home loans the banks are putting up there rates.

This time last year a top 4 bank could have issued 5 year debt in the wholesale market at 25-30 basis points over a particular margin (BBSW) this month a major bank issued the same paper at 100+ basis points. therefore the bank has to cover that extra cost.

What I would say to you is these current interest rates will stay around for a little while (1-2 years) but over the long term these high rates cannot be sustained, maybe locking in the rate for the short term then floating thereafter.

I can go on for hours about interest rates & current markets so if you are looking for anything else send me PM.

Regards

TUFXRT6

Edited 27/05/08 05:28 AM by TUFXRT6

[Flukey]

There is no way I would be going fixed for 10 years. I believe that sometime ( earlier rather than later ) rates will ease again.

I would suggest variable right now and re-evaluate in 12-18 months.

[ZAP]

Thank you all for the constructive advice.

The last time we had a mortgage, we fixed for 5 years. 2001 - 2006 and there was bugger all rate rises. Then bam bam bam they hit one after another. Fortunatly we had sold out place and was not affected by the rises, but we did pay slightly more each month due to fixing them. We did get a discount on the rate due to my business, so all in all we broke even.

The house could go for a bargain. It is up for auction this weekend and has been on the market for over 7 months with 3 different agents. It would suite us perfectly, so this is the reason we are considering it. The price has also dropped by about 30% as the owners got a reality check.

It is hard to make a decision on what way to go. We have been given unconditional finance approval, but will need to make a decision in the coming weeks if we are sucsessful.

I agree withe people saying not to buy, but on Sydney's north shore, the places are expensive and do not usually drop much in price.

[Guest dico2020]

ZAP are you nuts?

Unless your buying into a really good deal, I wouldnt be buying into realestate at all right now. IMHO, realestate price are about to take a tumble.

After the last 5 years of impressive realestate price increases, the interest rates have HAD to follow them up. If the realesate sales and new construction slows down (they certainly already have up here), im betting interest rates will come down to stimulate the market.

IMHO, the only worst thing someone could do right now besides buying a house, is buying a house AND fixing your rates!!!

Not only my opinion either, my house is for sale, and we will be down sizing with our new place, smaller mortgage, in preperation for the deepening credit crunch and an abundancy of cheap houses coming onto the market over the next 12 months or so.

prices have already fallen. I scored a place for 285k (sold previously for 226k in 2003) on saturday, would have been worth well over 330k 6 months ago. I also sold my house around a month ago, made a 125k profit in under 30 months. I think I got out just in the nick of time. imo I would be looking for bargains and making stupid offers (which I have been, and still will be doing), and not fixing intrest rates .

I am no expert, but just an average bloke doing some good deals

[Guest dico2020]

Thank you all for the constructive advice.

The last time we had a mortgage, we fixed for 5 years. 2001 - 2006 and there was bugger all rate rises. Then bam bam bam they hit one after another. Fortunatly we had sold out place and was not affected by the rises, but we did pay slightly more each month due to fixing them. We did get a discount on the rate due to my business, so all in all we broke even.

The house could go for a bargain. It is up for auction this weekend and has been on the market for over 7 months with 3 different agents. It would suite us perfectly, so this is the reason we are considering it. The price has also dropped by about 30% as the owners got a reality check.

It is hard to make a decision on what way to go. We have been given unconditional finance approval, but will need to make a decision in the coming weeks if we are sucsessful.

I agree withe people saying not to buy, but on Sydney's north shore, the places are expensive and do not usually drop much in price.

youll find most of the people buying expensive properties are cash buyers, and its their 3rd or 4th or 5th home. intrest rates dont bother them.

also im only a young bugger (27 young?? hehe), but I remember watching paul clit-throe on money yeeeears ago when I was 11 or so telling people that if you cant afford 12% dont get a loan, and if you can afford 12% make sure you pay it. and its good information like that that sticks with me.

[O2STOCK]

Fix the rate for a maximun of 2 years IF you can get a good fixed rate % in comparison to the varible %.

Although by now all banks know that this current variable rate will be here for two years + maybe 0.5% - 1% and then fall........ TUFXR6T is right on the money as this is what my guys have been saying.

James

Edited 27/05/08 08:30 AM by O2STOCK