Yesterday I heard a financial commentator say he recommends people fix the interest rates on 40% to 60% of thier loans. With interest rates at historical lows, with an outlook is for increasing interest rates and with some fixed rates below the variable rates now is the ideal time to fix rates.
I made an enquiry to my bank and the fixed rate for 3 years was 0.02% greater than my discounted variable rate. I advised the bank over the phone that I wanted to fix my rates and they recorded my request for a 3 year fixed interest rate and are sending out the paperwork. The bank promised the present rate will hold, because of my request, even if the rates go up while the paper work is being mailed. I hope that is true but I have had plenty of broken promises and mis representation from my bank – but never in writing. Has anyone else had changes made to their loan conditions after agreeing on them?
I also live in WA and can’t see WA prices dropping because of the 0.25% increase in interest rates (a quarter of a % is 0.25% not 0.025% as in Steves newsletter)
There is a large net migration into WA causing the housing shortage and the increases in housing prices. Perhaps a 0.25% increase in interest rates may reduce what people can borrow but they will still need houses. I think some of these realestate announcements are deliberate attemps by agents to manipulate markets to their advantage. With a shortage of houses for sale and people hanging on to houses to get the capital gains of course real estate agents are going to say “sell your house prices will drop”
John
Originally posted by jneale:There is a large net migration into WA causing the housing shortage and the increases in housing prices. Perhaps a 0.25% increase in interest rates may reduce what people can borrow but they will still need houses. I think some of these realestate announcements are deliberate attemps by agents to manipulate markets to their advantage. With a shortage of houses for sale and people hanging on to houses to get the capital gains of course real estate agents are going to say “sell your house prices will drop”
Wow, that is almost exactly the vibe that was coming from investors in SEQ 18 months ago (and at one point even Tassie [blink])! Amazing!
Two things for you to consider –- The rate (% increase) in house prices over the last X years vs the rate (% increase) in rental returns. This roughly apportions the gains to market forces and hype (eg, 50% vs 45% = a little hype, 75% vs 25% = a lot of hype). A more sophisticated analysis would consider wage inflation, but I think you’ll find it’s fairly irrelevent. The big problem with hype based gains is they tend to compound…
- The rate (% increase) in total dwelling numbers (total, not new starts) over the last X years vs the rate (% increase) in population.
Originally posted by Philip Harvey:5. Prices for property in 10-20 years will be much higher than now based on long term demand increasing.
I think this may be a fallacy of logic. Consider Japan, with around 128 million residents on 378,000 square kilometers vs Australia’s 20 million residents on 7,682,300 square kilometers. Last year their net population growth slowed to a tiny 640,000! They had positive population growth in the range of millions per annum over 14 years of consecutive falling house prices. In contrast, last year our population grew by around 200,000 (and incidentally we built around 157,000 dwellings).
Cheerio, F.[cowboy2]
Originally posted by foundation:I think this may be a fallacy of logic. Consider Japan, with around 128 million residents on 378,000 square kilometers vs Australia’s 20 million residents on 7,682,300 square kilometers. Last year their net population growth slowed to a tiny 640,000! They had positive population growth in the range of millions per annum over 14 years of consecutive falling house prices.
I am not sure that it is entirely correct to compare Australia to Japan, as the fundamentals and history are vastly different. The main being that Japan at the height of its boom was incredibly overvalued in all sectors. The NIKKEI dropped from around 40,000 to 9,000……..the banks in Japan are only just starting to finish writing off the bad debts of the 80’s.
However, if you were to compare the two, from 1995 until 2005, the Japanese population has increased from 125,600,000 to 127,400,000 (1.4% increase) and Australia’s has increased from 18,200,000 to 20,100,000 (10.4% increase). The projections are for the Australian population to reach about 23m in 2024. I think it is fair to say that in the next 20 years the Japanese population will not be 146m……….
[medieval]
New to Property Investing, but have been following for a while
Good Afternoon.
I note that some members are thinking of switching their loans to fixed rates. I have been buying properties since 1984 and have never switched to a fixed rate; and in the times when rates were rising (mine peaked at 17.6%) and in the times when that same loan plumeted to only 5.5% I have always been ahead. Always. If you are at the beginning the loan’s lifecycle you want to think long and hard – coz that’s when you owe the most [blink] .
Now, I worked for a big 4 bank for many years [puke] and let me tell you they never loose on their loans (I don’t mean from defaulters, etc – I mean in terms of payments and profit off the laons). If they are offering a fixed rate, it is because their (1000’s – literally) of analysts think they will make money.
That said, they will be no doubt some members who have paid more in repayments under a flexible/floating loan rate, than if they had fixed. But never in my case.
The big 4 don’t make virtually $2 000 000 000 [biggrin] every 6 monhts AFTER tax and abnormals (ie NET profit) coz they’re silly.
My thoughts. [snitch]Gerry G
Hi all,
Comm Bank raised thier interest rates (fixed terms) by .25 on April 21 (“in anticipation of the Reserve Bank’s move”, as my personal lender told me). I just read that St. George is the first bank to adjust its rates. Is that really so?
Cheers
Originally posted by Philip Harvey:Japan at the height of its boom was incredibly overvalued in all sectors.
Sure, with hindsight this is obvious… Looking back on this boom period may provide a little perspective also.
The projections are for the Australian population to reach about 23m in 2024.So at our current ‘slumping’ rate of building 157,000 dwellings per year, those 2,900,000 newcomers will have an additional 2,512,000 dwellings to occupy? Wow, and HIA etc, are telling us that the huge undersupply of new building is going to force rents up? Do you believe this ‘demand outstripping’ supply is going to make house prices double, then double again from their current highs over that period?
I think it is fair to say that in the next 20 years the Japanese population will not be 146m……….No, it should be more like 110 million, but relevance?… I think my original post clearly rebutted your original postulation that an increasing population necessarily correlates to increasing real-estate values. The future of Japan was not at issue.
F.[cowboy2]
[medieval]
New to Property Investing, but have been following for a while
[/quote]Originally posted by foundation:
Consider Japan, with around 128 million residents on 378,000 square kilometers vs Australia’s 20 million residents on 7,682,300 square kilometers. Last year their net population growth slowed to a tiny 640,000! They had positive population growth in the range of millions per annum over 14 years of consecutive falling house prices.I am not sure where you read that i said prices would double and double again……..I remember saying they would be alot higher, but can’t remember saying 200% higher.
As far as your attempt to “rebutt my postulating”……..Japanese population increased by 1.9m in 10 years………..would hardly call that millions per annum.
Anyway, back to the story of interest rates, I heard today that National Foods are looking at increasing the price of food by 3% to cover transport costs……this can only put more upwards pressure on inflation………….
New to Property Investing, but have been following for a while
Wanted to quickly point out another error in the newsletter… if someone had $80,000 for a deposit and wanted to borrow 80%, they’d be going for a loan of $320,000, not $400,000 as in the article. Point made though.
Philip Harvey – It’s a bit rude to go back and edit your previous posts after I’ve responded. I see I’ll have to quote you in full from now. Slow day at the REA office?[wink2]
Originally posted by foundation:Philip Harvey – It’s a bit rude to go back and edit your previous posts after I’ve responded. I see I’ll have to quote you in full from now. Slow day at the REA office?[wink2]
And it is even worse to insinuate that someone has done that to cover the fact that what you said was an exaggeration………but then if you think the Japanese population increased by millions a year, then it seems exaggeration is possibly your strong point
Please feel free to quote me in full, but please don’t alter things to suit your own viewpoint.
REA – I suppose you know where I work then…….
[fez]
New to Property Investing, but have been following for a while
Great to read everyone’s viewpoint on the interest rate rise–it helps me to form a balanced opinion.Is there anyone out there game enough to come up with a bold This-is-what-will-happen type prediction? Please have a go.I believe the high-consuming 350 million -and growing- middle class in China, will keep our cogs oiled for a long time yet-especially here in W.A.
Hi Steve,
I have been following your updates regularly and I not only agree with everything you’ve said but I was under similar impressions prior.
I bought, renovated and sold my home back in July 05, and achieved record sale for the region in Laverton, Melb. When I placed my property for sale I believed that it was the last window of opportunity to achieve the maximum before the market starts to reverse. I have been sitting on the cash in a non term deposit high interest earning account with the funds available anytime but still working for me while I wait for a opportunity when prices start to fall. I am actively following the Hoppers Crossing, Werribee, Altona markets and have seen a lot of homes in the past 10 months take a long time to sell, not sell at all or sell at a much lower price than the seller expected. Currently I see a lot of Morgagees auctions taking place and to add a lot of them are not even getting a turn out….Most certainly times are getting hard for those heavily indebted, but as you say, others see this as an opportunity in disguise……sarma krastavac
1. I plan on building my portfolio to at least 15+ properties in the next few years, depending on finances and market forces.
2. I do not intend to sell these in the next 15 years, as selling properties will not build my portfolio (unless of course there are ridiculous capital gains to be made!!)
3. If i am going to buy something I want to be able to get it at the lowest price possible. More pressure on demand (ie petrol prices, interest rates, etc) helps me with this.
4. Whilst the above will put short term pressure on demand, the population of Australia is increasing, and as a result long term demand will continue to increase.
4. Prices for property in 10-20 years will be much higher than now based on long term demand increasing.15 properties sounds like alot right!!!
Is it achievable over 5 years – Definitely.
Once your portfolio reaches a certain size things will get easier BUT only if your knowledge and mindset grows at the same time.
A while back I read some material steve put out somewhere about “taking a position”. I you are investing you need to know why and if you are not investing it should be based on fact rather than emotion.
cheers
I Buy Property http://www.cashflowproperties.co.nz
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
I have reading these posts with interest – particularly on the WA front. Personally, I have just “cashed in” and sold 2 properties (my only 2 IP’s by the way!) as I couldn’t resist the big gains that had been made and was eager to use the suplus funds to pay off my home loan (which is costing over $1000 / month in non-tax deductable interest! I did this just before the rate hike. One of the properties has grown by 32% since I bought it 12 months ago and the other has nearly tripled in alue since I bought it around 6 years ago. I just copuldn’t resist with such frenzied buying here in WA pushing prices to ridiculous levels. I did this purely on gut instinct as my gut is telling me that the market is looking a bit toppy here in WA. Sure there are plenty of underlying factors to support more growth – but affordability has to become an issue at some point. I really feel for the first homebuyer faced with the prospect of paying 300K for a dog box and being up to their ears in debt for the next 25 years.
retail sales data
Australian Treasurer Peter Costello said that softer-than-expected retail sales data for March showed the economy was not growing too fast.“I think they were a little softer than was expected, but it shows that the economy is still ticking along, but not ticking along in any unsustainable way,” Costello told reporters ahead of Tuesday’s budget.
Australian Bureau of Statistics data showed on Monday that retail sales rose a seasonally adjusted 0.3 percent in March from February, slower than expected and softer than the strong growth of January and February.
Spending may be further tempered by last week’s interest rate rise and high petrol prices.
Costello welcomed the more moderate consumption growth.
“I thought that consumption two or three years ago was growing at unsustainable rates. I think it’s growing now at a much more sustainable rate,” he said.
However, a stronger-than-forecast 1.7 percent seasonally adjusted rise in quarterly retail sales will give a boost to first-quarter gross domestic product. Costello will hand down his 11th budget on Tuesday. A Reuters poll of 18 economists produced a median forecast of a A$13.3 billion surplus for 2005/06, and A$9.5 billion for 2006/07.
Retail spending recovered in the first quarter after a slack previous six months as households felt the bite from high petrol prices. Fuel costs have again risen to record levels since March.
The Australian central bank said last week in raising the official interest rate to 5.75 percent from 5.5 percents that it expected the solid pace of domestic spending to continue.
The Reserve Bank of Australia said in last week’s quarterly Statement on Monetary Policy that the rate rise should be sufficient to curb inflation pressures.
I Buy Property http://www.cashflowproperties.co.nz
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
1. Interest rate raise << rates are still low compared to the last 10-20 years
2. Petrol prices << I’ll give you that one
3. Lack of job security with the new IR laws << I never believed in unionism anyway, and unemployment is the lowest it has been for the last 10 years, almost too low some would say
4. Inflation << again, still lower than those of the last 10-20 yearsThe media hypes up interest rate rises, most informed parties, i.e. banks who lend most of the money and investment houses who invest in a lot of property, say that an economic downturn is a combination of factors, not the interest rate alone. So you have to put everything in context. What about the US economy, the trade deficit/surplus and exchange rate trends?
Hi, I’m responding to the info that we built 157000 houses while our population grew by 200000. I think that these figures may bear checking for veracity depending on what categories of building is under consideration.
Let’s accept the accuracy of the figures. Can someone tell me whether the 157000 are additional homes or a portion of them are replacement homes? I read an ‘expert’ who said that based on housing starts and population growth, Adelaide is in over supply and he finds that Adelaide defies logic. It is a fact that in Adelaide, a lot of old houses are knocked down, often to be sub-divided into 2 or 3 dwellings. In many cases though, especially in the few years before housing prices went crazy, people just knocked an old house and built a new one in its place. Would that new house have been included in the housing start figures?
If Adelaide is in over supply, why do I not see empty houses? I wish the ‘experts’ especially those from other states, please check their data and their conclusions before they make public statements.
My take on the rate rise is this: it’ll take longer to sell a house but the cost of a house is not going to go down very much unless it has been overpriced. The reason is it is not going to cost less to build a new house. It used to cost $50000 to build a cheap 3BR room home. It now costs $110000, no matter if you build it in the country. If you can buy a block of land for $20000, you will have to spend $250000 to build a house, because building a road will cost $100000.
So we have to accept the fact that the days of ‘cheap’ houses is a thing of the past.
Sorry for such a wordy post,
Kum YinOriginally posted by kum yin lau:if you build it in the country. If you can buy a block of land for $20000, you will have to spend $250000 to build a house, because building a road will cost $100000
Rubbish! I just last year finished building one (2-bedroom) house on 600m^2, a stone’s throw (literally) from the beach for less than $140,000, including land.
I’m responding to the info that we built 157000 houses while our population grew by 200000. I think that these figures may bear checking for veracity depending on what categories of building is under consideration.National figures from the ABS, new starts only (residential houses+units). Speak to them if you believe they are in error. I agree, some knock-down and rebuilds occur, but they would have to account for >30% of all construction to balance the population growth/residential building equation.
F.[cowboy2]
<edit> Revised (latest) Figures:
238,000 net population growth year to Sept 05 link
Building Approvals link<edit2> Notice the net SA migration? 9,900 for the year, up from 8300 (year to previous quarter)… yet you continue to build ~12000 houses and units.
Hi foundation, thanks for the info.
I went to some suburbs, literally pounding the pavement. Clearview is quite rebuilt & from what my eyes could tell, most of the rebuilding would be at least 50% of the houses there, many one new one for an old one. Along Hampstead Rd, one old block may be rebuilt into 3 courtyard homes.And then I do see some evidence of ‘overbuilding’ and get quite confused as to what to believe.
I’m still building but getting increasingly worried whether we may be in over supply. Any input from you would be appreciated. Doesn’t matter whether I agree or not, any observation or opinion is still useful.
Kum Yin
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