Interesting comment Steve however you are assumming that firstly rates will go to 10% and secondly that will cause a crash.
I am not suggesting that rate rises do not hurt people, however the difference today compared to say the 1990 recession is that people today have access to their equity. They did not in 1990.What that means is that anyone who has owned a property fopr 5 or 10 years is sitting on a lot of equity. So if rates go up the worst that will hapen is that the rate rise might eat into the equity a little. A prime example of this is New Zealand. Rates have now hit 10.55%. There is no doubt that the market has now slown down and I would suggest that in some regional areas and in the Auckland apartment market we may see falls but prime property in good locations will in my opinion hold up.
Steve in many regional areas around Australia, have also seen falls because people will invest their money in areas that show the strongest and surest growth.
Nigel Kibel | Property Know How
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Hi Nigel … don't totally agree
the difference between 1990/94 is now 13 years of new buyers who have not experienced bad times … a 35 year old today was 20 back then … in addition to that we have a record 40 + billion dollar credit card debt … it's cheaper to purchase a 3 year old house than build and landscape a new one in many cases … there are lots of factors to consider … another one is a survey I read that 56 year olds and above are opting out of the market for a life style change and are not wanting to retire at 65 so this will add pressure to the 5 million people (baby boomers) starting to retire in 2010 … etc etc
D
IMHO the main difference between now and the 1990/94 recession is the percentage people can borrow. Not sure what the exact figures were in 1990, but when we built our first house in 1975 the bank would only lend 66% under savings bank rates, any more and higher interest rates were charged. 100% mortgages were unheard of, and even 80% was difficult.
I've lived through the 17% interest rates and the "negative equity" dramas (where people owed more than their house was worth, even though they only borrowed 75%-80% of the value initially).
People who have owned for some time and have been able to take advantage of price rises have an advantage in that their debt is a lower proportion of the value of the property, it is those who bought recently and borrowed heavily who are most vulnerable. There are also far more options these days than in 1990/94, i.e., interest only, renegotiating loans, more lenders etc.
Having "been there and done that" – ever since I have always ensured a substantial buffer in alternative liquid investments for if/when those times ever come again.
MargAGree
Also, as interest rates increase, more and mroe people who have mortgages will be finding it harder to cope. This will mean more of thier disposable income goes to the bank rather than the economy. Businesses will also find it ard to cope as it is harder for them to pay off their bank loans, which would affect unemployment rates etc.
AS you can see, this is all very negative, and property prives will have no choice but to head south
Nigel,
The reason equity will be eaten away is because there is a price slump….so you seem to be contradicting yourself a bit here. People will find it harder to access their equity as banks tighten their credit policiies.The rise in interest rates will lead to difficulty in serviceability which will lead to people selling which will lead to an over supply which in turn drives prices DOWN.
Kieran Trass has published a very interesting book titled the property cycle. Amongst other things he says that interest rates are not a driver in the property cycle. His book also suggests that right now some cities are in the upturn phase of the cycle which is consistent with other progress reports and what prices are doing certainly in the stuff that I am looking at . He also says that you should not over-commit and sail close to the wind and if you do then regardless of the stage of the cycle things can go off the rails for you big time and interest rate increases are one of the drivers for this risk to occur.
I'm on long term buy and hold and think that SEQ is a no brainer, major infrastructure developments (to many major projects to list), population growth, land scarcity, wages growth, climate, lifestyle and immigration. Right now Brisbane is prospering big time the price of iron ore will increase 30% in December coal will rise something similar, uranium looking very good, coal-seam methane gas is expanding in western Queensland, the amount of major resource developments taking place across the country in mindboggling and house prices are on the move again. Oil prices keep rising and that has got to be good for our LNG, coal and soon uranium exports and theres a lot of that sitting untapped in ozzie.US will slow down and buy less (not stop)manufacture products made with Australian inputs but domestic growth in India, China and Russia should continue to keep demand up for ozzie energy and mineral resources. Why wouldn't these people in the emerging economies want to get the consumable luxuries that we have enjoyed for generations.
No one knows what will happen in the future but all I can say is that right now its good and if it turns to custard there will be a few people jumping off the bridge before me.
bardon I agree with you 100% in regards to SE Queensland being a no brainer.
For investors who already have properties look to the future , what will Aus be like in 2017? another couple of million people to house and feed? As long as investors buy wisely and have a buffer built in then don't focus on the now but the future.
All that said and done I'll look for opportunities created by the raising interest rates, because one thing is for sure the interest rates will fall. Then I reckon look out, the pent up demand and low interest rates will fuel wonderful price growth.
I havent red Steve's email but judging from Nigel's post and the opinion of quite a few people here that almost everyone is looking at one side of the coin.
THEHEATH said that by increasing rates there will be an over supply of properties as people cant afford to hold on to their properties. Now that's assuming that owner occupiers are the only ones who buy and sell properties. No one is really taking investors into acount.
Over the past few decades the property market has been controlled by the owner occupiers. But now as more and more people are becoming educated about property and becoming more investment concious; the wheel has been turning of sorts. This is based on my personal opinion but if we keep going at this pace then one day the whole property market could be controlled by investors.
The rate rises wont really hurt investors as much as rental demand will go up since not many people will be able to afford to buy a home and giving the investors the upper hand which leads to higher rents. So really the higher rents are offseting the high interest rates.
Another thing that could offset the over supply of properties are investors looking for bargains and population growth. So the over supply, if there is one, might not last for too long. Add in all those factors Bardon talked about and things are not looking that bad from an investor point of you.
If we stop relying too much on the "interest rates affecting property values" and "land appreciates, house depreciates" type of theories and look more at the broader picture by analysing all the major economic factors affecting property values rather than one or two smaller factors then we can go along way with our investments rather than buying a peice of land here and there.
Wow
A lot of negative feedback here!!!!!!!!!!!!!
Gold has just reached record highs, china and india are thirsting more and more of our iron ore and nickel……..the eastern states have resurfaced on the investment scale, wa is holding guys guys don't panic we live in a period that is not once in a life time or once in a century this emergance of two "poverty striken nations " evolving into western societies is an opportunity non of us can afford to miss. Sure interest rates are rising, however as said before equity has gone through the roof in the last few years surely wise people have budgeted for this increase in expenditure???
My opinion only we are still in for a hell of a ride………hold on tight and don't slip off………………..
Mikey PIf we go back to 1990 which was the Australian depression. There was a downturn in the property market brought about by the drop in commercial property. Unemployment hit 14%. Even then we did not see a dramatic downturn in the residential markets. Returns even in areas such as Camberwell were over 7%. That was with interrest rates at around 17%.
Today we are not in a recession. There is no doubt that the market is slowing with the volume of property currently on the market. However show me the evbidence of a collapse.Nigel Kibel | Property Know How
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I purchased a house in 1995 at a honeymoon interest rate of 6.5% which went to a 10.5% interest rate 12 months later.
I am nearly 40 so I remember "the recession we had to have" {ref Paul Keating}
If housing prices keep rising so to will rent. If rent, food, petrol and mortgage interest rates increase then people will want a wage increase. If wages increase then food and services prices increase and people will want a wage increase.If wages increase then food and services prices increase and people will want a wage increase. This is known as uncontrolled inflation and is referred to as a spiralling inflation growth. This is where the RBA steps in and reduces the amount of money in the economy and thus pushes up interest rates to control this inflation growth.
As rents increase people will not be able to afford to rent properties within 16 km of cities. If property investors cannot rent out their properties or have to decrease their rent while at the same time having to pay extra interest they will have a cash flow problem especially if negatively geared.
Nigel is right about built up equity but what happens to the recent first home buyers that are paying $500,000 or more to buy their houses with 106% loans and absolutely no equity?
Or to the Credit card users with over $20,000 borrowed on their credit cards.
What happens to market housing prices when they are forced to either sell or go bankrupt?
I am painting a grim outlook but as Neil Jenman told me in one of his seminars in the year 2000 this is a re-occurring cycle
and people get financially burnt when the economy cycle shifts and it is usually the first time mum and dad investors or first home buyers that are the first victims.I think the nature of the property cycles are changing, for a number of reasons. We have an ageing population. We will also only have a small numvber of people entering the work force after 2020. Infact according to government estimates between 2020 and 2030 a total of 140,000 will enter the workforce. Last year there were 175,000. In other words only around 5% compared to today will be entering the workforce during this period. So many people suggest that all we have to do is increase immigration, however there will also be huge demand on labor from all Western countries in the future. So the question is what will this do to demand on property during this period.
In terms of the current market we are now seeing a slow down especialy in the outer suburns of Australian cities. The main reason for this is the sheer number of properties current becoming available for sale. The market to a large degree has been driven by pent up demand and a lack of properties for sale. I would expect even more properties to arrive on the market once the election is over.
Expect a huge volume of property for December.Nigel Kibel | Property Know How
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I find it totally amusing that peopel can be so niave to think the business cycle will just keep going up and up-yet its these same people who also cry the loudest when things do take a turn for the worst and they are caught high and dry.
AT a BBQ yesty with a young couple (early 20's) who are lookign at spending over $500k on their first house-I tried to tell them that this amount was to high and we could be on the verge of a recession-but being the age they are and having only seen good times they had no problem in belittling me and basically telling me I was full of poop. Shoud l I feel sorry for these people when in 5 years time they cant afford repayments and have to sell at a loss?-no way
Of course they wre telling me in 5 years their property will be worth $750-$800k so I guess I really am just stoooopid…lolAUSTRALIA'S chronic housing shortage will continue for at least another two years because of record low affordability, a survey says.
The Housing Industry Association's (HIA) National Outlook shows a shortfall between the number of new dwellings being built this financial year and the "underlying requirement'' of almost 20,000 dwellings.
Over 2004/2005 to 2009/2010, demand will have exceeded supply by 77,600 dwellings. This is roughly half a year's worth of new dwellings – 1,016,000 required dwellings versus 938,400 actual.
http://www.news.com.au/business/story/0,23636,22744122-462,00.html
Hey Masih, the problem with that HIA spin is that, well, it's not actually true.
They have a vested interest in getting a better deal for their members. Scroll 3/4 of the way through the article to find out exactly which (self-serving) barrow they're pushing today.Then do a bit of research. Grab stats from the ABS – specifically, the number of households and the number of dwellings. Overlay these on a chart. Then divide annual population growth by average household size. This gives you an approximation of the number of dwellings that must be built to avoid a housing shortage. Contrast this figure with the current "underlying requirement" figures from the HIA. It’ll open your eyes. I’ve done it and would share it but I reckon sometimes it’s good for people to go through the motions themselves.
I’d love to see the results posted here when you’re done.
Cheers, F. [cowboy2]
Cheers Foundation. Sounds interesting. I'll look into it soon
Hey Masih, you could also check out a current thread on the very topic over on Steve Keen's blog here:
http://www.debtdeflation.com/blogs/2007/11/08/deflated-changes-in-wages-and-debt-730-report-data/#comment-392foundation wrote:Hey Masih, the problem with that HIA spin is that, well, it's not actually true.
They have a vested interest in getting a better deal for their members. Scroll 3/4 of the way through the article to find out exactly which (self-serving) barrow they're pushing today.Then do a bit of research. Grab stats from the ABS – specifically, the number of households and the number of dwellings. Overlay these on a chart. Then divide annual population growth by average household size. This gives you an approximation of the number of dwellings that must be built to avoid a housing shortage. Contrast this figure with the current "underlying requirement" figures from the HIA. It’ll open your eyes. I’ve done it and would share it but I reckon sometimes it’s good for people to go through the motions themselves.
I’d love to see the results posted here when you’re done.
Cheers, F. [cowboy2]
Come on F;
only you can be bothered to go to all that trouble with the stats. Put us out of our misery and give us the answer.
In a nutshell, I'm guessing it will be too many houses for the increasing population?
Of course they wre telling me in 5 years their property will be worth $750-$800k so I guess I really am just stoooopid…lol
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