- HOME loan interest rates will rise to 9 per cent next year, causing house prices in Sydney and Melbourne to collapse by up to 20 per cent, according to forecaster BIS Shrapnel.BIS predicts variable home loan rates will rise to 9 per cent by the second half of 2006, the reason for an across-the-board downturn in house prices.
and More Here
I personally believe the 20% prediction is conservative given BIS expect 9% interest rates in late’06. Still, it’s very good news for serious investors with portfolio LVRs of 60% or less (although a tightening of lending criteria may well make even lower LVRs a necessity).
Cheers, F.[cowboy2]Good news for investors if it happens.
However I have yet to see BIS Shapnel get interest rates right. It seems like a good idea to make such a prediction because it gets there name out there. With a cooling housing market and a slowing economy why would interest rates rise.Finally housing affordability really has more to do with first home buyers. If you are buying and selling in the same market it does not really matter.
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
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Originally posted by nkibel:With a cooling housing market and a slowing economy why would interest rates rise.
As long as the US Fed maintains it’s tightening bias, there will be pressure on Australia to also raise rates. The alternative is price inflation (particularly in oil and anything (everything?) that requires transport) as the AUD loses value and foreign investment dries up. Remember, monetary expansion (including credit) leads to inflation.
Finally housing affordability really has more to do with first home buyers. If you are buying and selling in the same market it does not really matter.Correct, price falls are good for FTBers, but they also enable single home owners to trade up / take the next step on the ladder more cheaply, and if you are a ‘Buy low / sell high’ kind of investor (me!) or a strict yield based investor you can also do well by following price trends. The only people who lose out when prices fall are speculators who have recently paid well over the odds for negatively geared properties and investors who constantly ‘withdraw equity’ during a booming market.
Cheers, F.[cowboy2]You have to remember that with the tightening of the US rates. They also came down a long way compared to ours. We are still higher than the us. It is also unlikely that rates will continue to increase there. There is no doubt that even as is housing affordability for first home buyers is at an all time low
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
service and seminarsNigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
Hi Foundation,
Great work! It is great for investors to get exposed to as much media/information about the economy as they can, especially when it comes from reliable sources.
I am not saying I agree with the article just that it is healthy for us to be exposed to both positive and negative information about the PI world we live in.
Thanks for posting I would not have had a chance to see that particular article if you had not alerted me.
Intereset rates have recently risen to around the 9% mark in NZ. It has not caused a 20% fall in prices but we cant compare apples and oranges. Aus and NZ are totally different markets. Variable rates forces here have not had such a dramatic impact because fixed term rates were discounted for a while last year with alot of competition “war” between the institutions. Many investors chose to fix for five years at rates lower than the variable.
Back on topic. Whether or not a 20% fall in prices occurs the important thing is that we remain informed and prepared. All serious investors will have a plan A and a plan B. Some will seek other markets and the more sophisticated will branch into other assest classes and diversify their entire portfolios. Some will sell with the market trend and others will buy up big against the market trend.
The beauty is that for those starting now they will have an opportunity to learn valuable negotiation skills and will have the opportunity to buy property below vendor asking. They will able to seek bargains and find them. Exciting times. This property investing stuff is so much fun!
these guys have been out on a limb for quite some time. they have a vested interest into talking up their forecasts to prove their credibility. see http://www.smh.com.au/articles/2003/08/25/1061663735507.html?from=storyrhs
the projected interest rates of 10% still seem extreme and we are only 6 months away from 2006.
http://www.megainvestments.com.auJohn Carroll
Foundation, why is when I post something like this I cop an avalanche of abuse, but when you do everyone agrees that a fall in prices is a good thing?
Anyway, here is the Sydney angle on the same story:
http://smh.com.au/news/National/Interest-rates-tipped-to-rise-to-9-next-year/2005/05/29/1117305503675.htmlInterest rates tipped to rise to 9% next year
By Wendy Frew and AAP
May 30, 2005Sydney house prices could fall by up to 7 per cent over the next three years because of higher interest rates, economic forecaster BIS Shrapnel has said.
That would mean Sydney’s June median price of $500,000 would fall to $465,000 by June 2008, BIS said in its latest property report.
The forecaster has based its predictions on expectations the standard variable home loan rate will rise to as high as 9 per cent by the second half of next year, from 7.3 per cent now.
… I don’t know?! I guess it’s all about the spin. See, I started off all positive:
Positive forecast for house buying bargainand ended positively:
Still, it’s very good news for serious investors with portfolio LVRs of 60% or less (although a tightening of lending criteria may well make even lower LVRs a necessity).Despite my being absolutely positive this encompasses very, very few amateur property investors and positive that a larger proportion are going to positively take a bath over the next couple of years, my positive post recieved a positive hearing!
Yay! F.[cowboy2]PS Happy birthday for yesterday! [biggrin]
[worried]Hey dmichie, did you write to the media about your negative outlook? I just saw a news update where the media is suggesting interest will increase 1.50% by the end of the year. I personally don’t see it but it fits with your ideas about our economy.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksBIS Shrapnel and Marvin the Depressed Robot have a disturbing likeness.
Good to see that even in the depths of their depression they did comment that once their projected mayhem of the next year or so has cleared the residential property market “would be strong coming into the next decade, Dr Gelber said.”
F and David – are you backing the 10% forecast interest rates? There really will be blood on the streets in this event.
http://www.megainvestments.com.auJohn Carroll
I guess it’s all about the spin.I thought I tried that with my “Why a House Price Crash is GOOD for your Wealth!” thread. I obviously need to work on my language and make liberal use of the word “positive” throughout futute posts.
PS Happy birthday for yesterday!Sorry … dunno what you’re on about there.
F and David – are you backing the 10% forecast interest rates? There really will be blood on the streets in this event.There would have to be some pretty serious inflation in the next few months for the RBA to get anywhere near 10% by next year. Australians are so heavily in debt at the moment that even the tiniest move in interest rates will knock the heat out of the economy … and I agree, there would be blood on the streets.
So, no I can’t see it happening. In the near term I see a continuing stalemate in the property market and a grinding slow decline.
Sorry … dunno what you’re on about there.err.. [blush2]It was a tongue in cheek reference to this gem:
Originally posted by 1Winner:Sydney market is busted, people are going broke left right and centre, banks are cutting their losses and relocating in China and Pakistan, the current recession makes the thirties look like a picnic I am diggin out a bunker in my backyard to wheather out the bad times, stocking up on no frill food …. [baaa]
Come on people join in it is dmichie’s birthsday!!F and David – are you backing the 10% forecast interest rates?Ignoring current economic trends; I’m not interested in making specific interest rate predictions, and the latest BIS forecast is 9% in late ’06. However, I will state for the record that I expect the RBA to raise interest rates at least once more this year. That will take many home-borrowers into 7.7% territory. From there, 9% would not seem such a huge jump. Interestingly, in 21 of the last 35 years, home loan interest rates have reached 9% and above. The average during that time has been just over 10%!
Cheerio, F.[cowboy2]err.. It was a tongue in cheek reference to this gemSorry, missed that one. I was struck down with the ‘flu yesterday, and I’m a bit slow on the uptake today. Perhaps God is punishing me for not being positive enough?
Originally posted by dmichie:err.. It was a tongue in cheek reference to this gemSorry, missed that one. I was struck down with the ‘flu yesterday, and I’m a bit slow on the uptake today. Perhaps God is punishing me for not being positive enough?
Or Maybe God missed…..[biggrin]
See Change
dmichie, there is nothing wrong with having a negative economic outlook. I just find being negative in general is distracting. A positive person, like myself, does not mean we believe the economy is just peachey all the time. We tend to look through the doom and gloom and try to find the diamonds…
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential Links“and the latest BIS forecast is 9% in late ’06”
I suspect that they are realising they were well off the mark and are slowly bringing it back.
http://www.megainvestments.com.auJohn Carroll
BIS MUST be right.
Why? I have shelved my higher interest rate scenario and have been modelling for steady/lower % rates.
A sure sign they are about to race up! Ahaha
With our foreign debt mounting, will this not also place pressure on rates (ie attract funds from o/s)
Apparently our foreign debt GDP ratio is worse than when Paul made the BIG BANANA speach.
Also saw figures that our non business debt, rose close to 12% in a year when most property markets slowed or moved south.
Borrowing just to fuel consumption ?????
Not a good sign for economy.Borrowing just to fuel consumption ?????Yes, we’re borrowing from East Asian countries to buy goods made in East Asia. Our banks are also borrowing from overseas to fund our appetite for housing debt. Very little of our overseas borrowings are going into business investment.
[worried]
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