Hello, I am just starting out on my investment journey and have signed up for Steve's training package (course). It's been said to prepare for the worst and hope for the best, so I am wondering if anyone can tell me what is likely to happen to interest rates if there was a depression? will they go up, or will they come down?
Thanks
Redcakeredcake wrote:Hello, I am just starting out on my investment journey and have signed up for Steve's training package (course). It's been said to prepare for the worst and hope for the best, so I am wondering if anyone can tell me what is likely to happen to interest rates if there was a depression? will they go up, or will they come down?
Thanks
RedcakeHi Redcake,
Usually if things start getting bad they will drop the interest rates to try and stimulate the economy, like what happened around the GFC. When things start getting better they will raise them little bit at a time, this also gives them room to move if things do turn around for the worst.
This is put very simply, there are alot of other factors they take into account when raising/lowering rates.
Cheers,
Nathan
Our debt levels in real terms are double what they where just before the great depression.
You may have already seen some high end property sometimes sell for half price eg: 4 mill property sell for 2 mill
I think its entirely possible that you could, in some cases see the same type of deals done on average houses.
Our debt binge we have been on since the 1980's is so insane it has to unwind, and many people will loose everything in the years to come, That is the true reason you have seen doubling property every so many years… The loans have got bigger and bigger and bigger and now we are at the point where you see the retail sector totally collapsing because house holds are spending a historically high percentage of there wages on servicing debt on there Mc Mansion.
I truly believe that in the mid term future, there will be awesome deals to be had, as the dog eat dog investors snap up real assets at a fraction of there historic high's
The people with large amouts of cash will reap the rewards while those who don't go bankrupt and loose everything won't be able to purchase any cheap property because they are so highly leveraged
Out of interest, what do you regard as "highly leveraged"?
Is it an absolute measurement or a relative one?
Just out of interest what do you regard as a depression? I know you need to plan for the worst but do you really think we will hit an economic depression?
Technically economists regard a depression as rare form of recession comprising of (1) a decline in real GDP exceeding 10%, or (2) a recession lasting 2 or more years.
emptyvessel wrote:Out of interest, what do you regard as "highly leveraged"?Is it an absolute measurement or a relative one?
This would vary from person to person and how risk averse you are.
When people are in the accumulation phase some are leveraged as high as 90%+. That scares me. A slight negative shift and you may have banks recalling loans. But each to their own. If you are on a high wage and have huge disposable income I guess you could quickly change your situation. But it's not for me. I like to play it safe.
It's also good to have cash reserves as a backup.
emptyvessel wrote:Out of interest, what do you regard as "highly leveraged"?Is it an absolute measurement or a relative one?
Scenario 1:
Income: $2000 week
Debt service per week on a $110,000 loan at 110% LVR @ 10% Interest : $230.50
Percentage of income to service debt = 11.52%
Scenario 2:
Income: $800 week
Debt service per week on a $400,000 loan at 80% LVR @ 5% Interest: $539.19
Percentage of income to service debt = 67.39%
Which one would you consider to be over leveraged ?
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