Forum Replies Created
Rob, yes. If less $$ is spent on loan repayments then more $$ is left to spend.
But….
1. As I understand it Derivex has pretty tight servicibility criteria (I looked at my own situation and realised I could borrow $40k less than I currently have if I used Derivex – and I know I can still borrow more atm using the big banks). So this actually retards housing demand.
2. What sort of take up of this product do you expect? Unless it becomes the market leader with well into double-digit market share – or unless copy-cat loans emerge and between them the mortgage market is turned on its head – then all we are talking about is a small section of one part of the economy.
I recall that just after the election (of course) the Treasurer came out and admitted that the economy probably would slow in 2005. To the best of my knowledge, this remains typical sentiment.
FYI http://wopared.parl.net/library/pubs/mesi/ is a great one for economic data.
MB
Lumwood – what the RBA has said is that interest rates have yet to reach what they consider to be a neutral level. While this does, on the face of it, appear to be RBA speak for “rates will rise” it is not as simple as that. They have been saying this for months now. And?? No rate rises. Economists (of which I am one) refer to this as “jawboning*”. There have been some ridiculous suggestions reported in the media that interest rates will not rise in 2005. While I am not saying that they wont – be very wary of anyone who makes such statements as they are the economic equivalent of peeing into the wind.
I dont see Derivex’s product as being a major stimulant to the housing markets. Also, as much as property investors like to think that they are the centre of the universe, the reality is that the RBA takes account of many macroecomic factors and not just asset prices.
The short answer is this. Atm it is very difficult to see justifcation for higher interest rates.
BIS Shrapnel are on the public record as saying that interest rates will approach 10% within a couple of years though, unless I have missed it, they have kept a very low profile lately. My understanding is that BIS’s forecasts draw heavily upon the US economy – where if things went pear shaped then the realities of international inflationary pressures could force the RBA to move quick. Of course this is all conjecture atm, but then that is economics.
It is not called the dismal science for nothing.
FWIW
MB
*Jawboning – when influential people / organisations such as the RBA or the US Federal Reserve make statements about what they may do or the future may involve. The mere suggestion that the RBA *may* raise interest rates causes concern and causes many people to stop and think. This of course actually reduces the pressure to raise interest rates. Which is kinda the purpose in the first place. Of course, the RBA can jawbone all it wants, but it wont mean diddly squat to the US economy.
