All Topics / General Property / what does a 1% drop in rates do for us?

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  • Profile photo of crashycrashy
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    RBA drops rates 1%………I expected this forum to get all excited at what opportunities now present themselves.

    instead………..NOTHING!

    come on people……surely this situation has created massive opportunity?

    on the shares side, rates will drop the full 1% (unlike banks passing on 0.75 – 0.80 via mortgages) so positively gearing shares has a bigger advantage over property.

    I saw on "your money, your call" Monday night they showed the high rent yields around aust…….who is investigating these?

    Profile photo of foundationfoundation
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    Huh? This only takes interest rates back to where they were last November.

    Prices are still ridiculously high. Affordability is very low. Yields are still very low. The inventory of unsold homes sitting and stagnating for months on end is very high and continues to grow. Credit is tight. House prices in countries with similar economies and smaller house price bubbles are proving quite dramatically that prices can and do fall, and often fast at that. We're almost certainly headed for recession.

    As an investor, I see "massive opportunity" in investments that provide me with a decent return on my money. Homes don't right now. If I was to buy on the hope of capital appreciation, to me that is not investment, but speculation. Given the outlook, I'm afraid it might be more than mere speculation, it might be abject idiocy. So I'm not excited by the rate reduction.

    Cheers, F. [cowboy2]

    Profile photo of crashycrashy
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    have rents gone down to where they were last November?

    who said anything about capital gains? my post was CLEARLY discussing positive gearing.

    but hey, dont let that stop you from posting condescending arrogant irrelevant negative dribble.

    instead of looking for opportunities, lets all join Scamp & F(wit) & co at a wrist slashing convention……….

    Profile photo of foundationfoundation
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    crashy wrote:
    have rents gone down to where they were last November?

    No, but they're still woefully inadequate to make property purchase anything other than gambling. I'm an investor not a speculator.

    Quote:
    who said anything about capital gains? my post was CLEARLY discussing positive gearing.

    Strange, your proposition was "this situation has created massive opportunity". My stated opinion was that it has not. Seems entirely on-topic to me? And if your "massive opportunity" relates to positive gearing, I'm afraid that there isn't much around that can be positively geared to the extent that it will offset current and impending price declines.

    Care to share just one example of "massive opportunity" with us? You know, actually contribute constructively to the discussion?

    Quote:
    but hey, dont let that stop you from posting condescending arrogant irrelevant negative dribble.

    instead of looking for opportunities, lets all join Scamp & F(wit) & co at a wrist slashing convention……….

    Nice. You sure have a unique view of life – one where my measured post is "condescending" and "arrogant". A view of life where my measured post is "irrelevant negative dribble", where calling me names – "F(wit)" and making an irrelevant sarcastic remark about a " wrist slashing convention" is somehow contributing to the conversation!

    Believe me, I'm far from negative. I'm excited by the opportunities that the current turmoil has already thrown my way. My superannuation is UP over the last 12 months, 18 months and 24 months. Every single one of my investments is UP over these same periods, and has meanwhile provided significant positive cashflow (with the exception of precious metals and collectibles which were never intended to do so). And I'm finding plenty of bargains to buy right now. But right now property is simply so overpriced as to be not even on my investing radar. Not for at least a couple of years. I simply can't be bothered "looking for opportunities" when those same opportunities are getting cheaper by the month and will be much cheaper in the future. I'm positive about that!

     

    Cheers, F. [cowboy2]

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    yep , me too, positive about the sharemarkets in the future. Much more money to be made on shares than on property. Renting and investing is a much better option than buying a property.
    Why lose 50K a year and even more on capital losses, if you can make 100K a year with the same investment ?
    Doesn't make a lot of sense to me. I'd rather invest my cash in shares ( the right ones ) and make money instead.

    Plenty of opportunity is there, just not in property.

    Profile photo of god_of_moneygod_of_money
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    I am confused…. interest rates on the way down.. with prediction of some economist predict further cut next year…
    Used to be lots lots of bullish comments about investment when the interest rates reaching its peak…bla bla bla long term value…

    dividend yield 10% and rental price still on the way up (better than 3-4 years ago)…. I can't understand why people shunned away from investing…. recession.. yes….. but is this time to buy… lots of preaching…buy low sell high???? I am not sure I got it wrong from invesment philosophy. Correct me if i m wrong

    Profile photo of ScampScamp
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    god_of_money wrote:
    I am confused…. interest rates on the way down.. with prediction of some economist predict further cut next year…
    Used to be lots lots of bullish comments about investment when the interest rates reaching its peak…bla bla bla long term value…

    dividend yield 10% and rental price still on the way up (better than 3-4 years ago)…. I can't understand why people shunned away from investing…. recession.. yes….. but is this time to buy… lots of preaching…buy low sell high???? I am not sure I got it wrong from invesment philosophy. Correct me if i m wrong

    You cannot invest what you don't have. Banks will not give you money as easily as they did.
    And that means 0.0% of the FHB's will get mortgages. This means noone will buy the starter homes, which means noone will buy anything else either. It's bound to crash, there's no question about it.

    It will crash until wage * 4 = houseprices = median houseprices of 250.000.
    That's 250.000 less than now ( 500.000 ) which means a 50% drop.

    Profile photo of Edvico_kvnEdvico_kvn
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    If you've got excess cashflow and have an offset account (linked to your home or investment loan)……park it in the offset account.

    It will guarantee you around 8% AFTER tax return on investment which equates to around 11% before tax (if marginal tax rate is 30%) and 14.5% before tax return on investment (if your marginal tax rate is 45%).  It means you have to earn 8-14.5% before tax from other asset classes to get to the 8% after tax u can get from the offset account.

    There's not that many investments out there right now, that can almost guarantee such levels of returns……..the only thing that can prevent your offset account from achieveing such high returns is if your home loan IR falls dramatically……..if IR drop dramatically then you're better from lower loan repayments.

    If you fancy yourself as share market guru, yeah there might be bargains for you in the sharemarket…..those not so savvy with the sharemarket…..the offset account is a safe and sound place to park your excess cash

    Profile photo of god_of_moneygod_of_money
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    Hi Kevin… That is what exactly I was doing over the last 12-18 months pluging cash into PPOR loan.. my understanding the market has changed and in the current market… as IR is falling  and dividend yield is more appealing in the next 12months.

    I still don't understand why people are selling while the market is crashing…. Isn't it time to buy.. remember 1987/1997/2001?
    When all ords hits 6800.. BUY BUY BUY….but now… look at broker recommendation… HOLD or SELL… isn't it stupid?

    Profile photo of Edvico_kvnEdvico_kvn
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    Its crazy times at the moment……banks all over the world going bankrupt/bailed out by Gov't, sharemarkets crashing, central banks slashing interest rates…..its probably a good thing in the long run to get excess debt unwound and asset values to deflate

    if we're not at the bottom of the sharemarket, we sure are much closer to the bottom than it was 12-18 months ago……so I would take a cautious approach and maybe punt on a few stocks that may continue to profit in a slowing economy

    Profile photo of rlomenrlomen
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    I think there is a fortune to be made in the stocks.
    I feel sorry for those having to sell and who wanted to retire.

    property is a gamble, but i think that something is worth a value that provides a reasonable rate of return – and rental yield isnt too bad with good prospects in the right areas due to population growth.

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    Scamp wrote:
    yep , me too, positive about the sharemarkets in the future. Much more money to be made on shares than on property. Renting and investing is a much better option than buying a property.

    And how would you go about investing in the sharemarket if you had no money ?

    Quote:
    You cannot invest what you don't have. Banks will not give you money as easily as they did.
    And that means 0.0% of the FHB's will get mortgages. This means noone will buy the starter homes, which means noone will buy anything else either. It's bound to crash, there's no question about it.

    Guess what Scamp, I just looked at the price of building a new house (Ascent 305) with AV Jennings and since I last looked at it 3 months ago the prices went up by at least $20K  I didn't write down the prices first time I looked at this house a year ago so I'm not 100% sure but I think that over the past 12 months it went up at least $60K.
    Could be explained by inflation, wage rises and increase in steel prices. I think that 30% fall in AUD will start affecting prices  soon since some of the materials are imported.  If FHBs can't get mortgages then they just have to rent but house prices bound to crash ? I don't think so..

    Profile photo of ScampScamp
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    god_of_money wrote:

    Hi Kevin… That is what exactly I was doing over the last 12-18 months pluging cash into PPOR loan.. my understanding the market has changed and in the current market… as IR is falling  and dividend yield is more appealing in the next 12months.

    I still don't understand why people are selling while the market is crashing…. Isn't it time to buy.. remember 1987/1997/2001?
    When all ords hits 6800.. BUY BUY BUY….but now… look at broker recommendation… HOLD or SELL… isn't it stupid?

    doesn't that count for houseprices also ? Why buy at the high end of the bubble ?

    Profile photo of ScampScamp
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    harb wrote:
    Scamp wrote:
    yep , me too, positive about the sharemarkets in the future. Much more money to be made on shares than on property. Renting and investing is a much better option than buying a property.

    And how would you go about investing in the sharemarket if you had no money ?

    Quote:
    You cannot invest what you don't have. Banks will not give you money as easily as they did.
    And that means 0.0% of the FHB's will get mortgages. This means noone will buy the starter homes, which means noone will buy anything else either. It's bound to crash, there's no question about it.

    If FHBs can't get mortgages then they just have to rent but house prices bound to crash ? I don't think so..

    I do think so. Let's leave it at that.

    Profile photo of gibbo1gibbo1
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    Scamp wrote:
    yep , me too, positive about the sharemarkets in the future. Much more money to be made on shares than on property. Renting and investing is a much better option than buying a property.
    Why lose 50K a year and even more on capital losses, if you can make 100K a year with the same investment ?
    Doesn't make a lot of sense to me. I'd rather invest my cash in shares ( the right ones ) and make money instead.

    Plenty of opportunity is there, just not in property.

    Scamp, some very big differences in investing in sharemarket v property.  Both investments have cyclic movements, but the chance of being forced to take a capital loss or loose all invested is greater with shares.  With shares the value could drop 50% and then have another company make a take over bid.  If the bid is succesful you dont have the option of holding the shares until it regains its share price.  With recent actions of some companies it is possible to have shares in some companies that go into liquidation and have no return to shareholders. 

    If you are using a leveraged investment with shares, if the share value falls you will be required to make additional capital payments or once again be forced to sell at a capital loss.  With property, if you buy a property for $300k @ 95%LVR and the value falls to $250k over the following year, the bank wont force you to sell if you are still able to make repayments and you don't need to make additional capital payments.  In a few years time the property prices have improved and you have maintained your investment.

    Profile photo of Don NicolussiDon Nicolussi
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    Crashy – you are probably a bit ahead of the curve.

    There is usually not much hoopla about property until it is too late or at least until most of the gains have been made. There will be a dozen reno shows on tv this time next year and we will all be back on these forums discussing how smart we are and how much money we have made. Or will we?

    By the time people are interested again alot of buying and profit taking will have occurred and we will all be asked to line up and buy the seminar about how to do it. That's a bit cynical, perhaps too cynical really. Let's stay positive.

    On the interest rate front: Well at the outset I will say this. There IS such as thing as good news. In order not to turn these forum posts into small novels then I will make some sweeping statements.

    The IMF says in a report released yesterday that there will be no recession in Australia. In fact, growth will remain above 2% for all of 2009 – but someone forgot to tell the media.

    Our banks were ranked 4th out of about 130 of the worlds banks for security.

    Lower dollar higher exports.

    Higher unemployment at around 5%.

    So what does this all mean. Well I would gestimate the following based on my gut feelings and in the end as an investor that is all you can do. That is, take a position based on your view of what is going to happen.

    I got invited to dinner which was nice and I wondered does the fact that the person who invited me now has about $250 extra per month in their pocket due to the mortgage rate reduction have anything to do with it. Probably not on this occassion but I am sure the restaurrant does not care why we eat their food and drink their wine and contribute to their overhead. They are pleased to see us.

    The effect of interest rate cuts on the domestic economy will be positive. There is no doubt about that. It would not be to much of a stretch to think that rates will fall another 1% and it will be sooner rather than later. So in the above example my friend may invite me on a short holiday with their $500 a month extra in their pocket. Who know's.

    What will we do with all our new cash. Most of us will spend it. Discretionary spending that is. We will not invest it.

    We have been hammered over the past year or two with nothing but bad news. Fuel cost, mortgage repayments and the list goes on. The first thing that consumers will do is treat any new money as a windfall and spending it quickly without thinking about the future too much. Reward themselves with something nice or do something fun or go somewhere nice.

    You would think that we would start to hide some cash under the matress but I can't see that happening. Let's face it most of us just spend everything we have and maybe a little more than that.

    When will people start investing in property again. That is, when will everyone be doing it and when will it be the only thing people talk about at parties and the back yard bbq? Who know's. I don't think it will be this year and noone does anything over the holiday months. Maybe average investors will need enough time away from the constant barage of bad news and enough time for the smoke to clear before they can actually see what is going on and even think about investing in property.

    On the flip side as investors we are constantly told to buy our straw hats in the winter, break away from the herd and look to the fundamentals when we invest. We don't though. We sit and wait until everyone is doing it.

    Don't get me wrong. It's hard to take the plunge. It's hard to be first and even harder to do new things. It's hard to see positive outcomes when all you hear in negative sentiment. It's hard to have confidence when all people see is doom.

    I do know one thing. There is no point in being right about the market, any market, if you are not investing in it and you do not stand to profit. There is merit in taking a position and if that position is to sit out a few round then so be it.

    Actively monitoring the market and looking for the right opportunities is very different to sitting on the side line and doing nothing.

    Let's face it. Some people don't know how to do anything except complain and be negative. When the market is high it is about to crash and when it has crashed they told us so. They are in your office or on your train on the way to work. They have that look on their face, a smug look at the moment but look a little closer and it is the look of someone who has the ability to read the market but does not have the kahunas to do anything. I can't think of anything worse.

    So what does the drop in the cost of credit mean. Just my opinion it means that most of us will have a bit more to spend on consumer goods.

    What should it mean – new opportunity!

    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

    Profile photo of crashycrashy
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    Profile photo of coalstarcoalstar
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    BOOM,BOOM,BOOM,BOOM.
    I will be selling between 2011-2013

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    Don,

    Excellent write up.

    It is possible for the RBA to do another .5 cut before xmas maybe even a second cut and help stimulate the economy further over the xmas period. 

    Profile photo of crashycrashy
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    rates dropping, FHOG doubling, rents increasing, prices dropping.

    anyone recall what happened when FHOG first came in?

    its all good

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