Aside from debating WHEN interest rates are likely to rise, I'd like to propose two possible scenarios for debate.
When the RBA decides to issue an interest rate rise, the reaction from the RE market is going to be either
1, A small rush on the market as buyers seek to enter the market and secure their loans before any further interest rate rises.2, Immediate stalling of the market as already struggling homeowners struggle to handle the interest rate rise (some newly unemployed are only hanging in there with their homes because of the low interest rates at the moment), and first home buyers back off seeing as the optimum finance conditions have ceased.
What do you all think?
S
In the current market conditions the most likely reason for interest rate rises is if the rest of the world decides it is too risky to lend to us at low interest rates. In that scenario expect house prices to collapse as house loans will be very hard to come by and only under very tight conditions as credit is rationed.
That is quite a scary scenario. How likely is it though? We are led to believe that our economy is one of the strongest / best positioned to wether the GFC. If that is the case, isn't it most likely that credit will continue to be extended to Australia by the rest of the world? Who else will they lend money to? While our own economy might be shaky, or worse, perhaps more important, I would have thought is our economy's health relative to other economies around the world.
Can you explain what's so good about our economy, Or what makes it strong for that matter ?
Is it our high industrial capacity ?
Is it our booming young population base ?
Is it our budget surplus ?
Is it our 20 billion dollar a year and rising Trade Deficit ?
Or is it just because of our very affordable and under priced property that alludes investors from across the world ? http://www.newstext.com.au/docs/CML/2005/get.jsp?docid=CML-20050827-1-007-4021827V18@QLD-METRO-2006-2005
But as for Interest Rates… I guess that will all be decisions of the World Bank Oligarchy to make (according to time magazine), As soon they will have all the power to decide such issues…
"a bigger, more powerful IMF that can act as a central bank to the world–and knock heads when needed."
http://www.time.com/time/magazine/article/0,9171,1877388-1,00.html
Ha ha ha. Love your sarcasm. Glad you bit. Afterall, I did want a debate. Not a cup of tea.
I think my point was that our economy is better than some of the others. Not that there is nothing wrong with it, or that it is outstandingly strong. And I think I said we were led to believe that our economy was stronger than others, I didn't actually state that as fact, just as something that we are being led to believe. But what the market BELIEVES is very important, perhaps more important than what is actually FACT.
What is stronger about our economy? We haven't had any banks actually collapse yet (though they might have if the government hadn't interfered – that is another debate, fact is none have collapsed). Our subprime mortgage market was not in the same mess as the USA's. Our recession, officially, has only just begun. We don't have a whole class of people camping in the parks, and living in low priced motels (not that we have any of them here anyway) because they have been foreclosed upon. You can't buy a house here for about $5000 (please tell me where if I am wrong). Of course our economy has its weaknesses, faults, problems. My point is, compared to many other economies, it is not as bad. So why wouldn't weaker economies lend Australia money? Possibly if our govt defaulted… We all know home loan lending is up (thx Kruddy and his stupid FHOG), but did you know that business lending is also up? What does that suggest? That business owners still feel confident enough to borrow money? And what drives markets? Confidence? (well partly anyway). Point being there is still some confidence in Australia's businesses. Sure, maybe we are just a few years behind everyone else and that is the only reason things are not as bad here yet as they have been overseas.
QLD election this weekend hbbehrendorff, are we going to see a change? Will it be a change for the better? Do we just vote in the LNP and hope they get their act together enough to run the state? Or do we keep going with Labor (groan)? Will we ever get the opportunity to vote for someone who has won our respect and confidence? Or will it always be a competition between the ones in power who have run a stuff for 11 years and the ones who don't seem to be playing on the same team, or even the same game?
But what will happen to Australia's real estate market when the ineviteble (sp?) interest rate DOES happen?S
Yes, your right, I doubt any Australian banks will falter, Especially now that they are Government Guaranteed, After all, If the government is involved its reliability is second to none.
Ohh… well except for the collapse of the State Bank of South Australia in 1992
http://en.wikipedia.org/wiki/State_Bank_of_South_Australia
Yes, Our economy is much that way, The strength of our economy is based in the perception of its strength, Not on its actual strength… But they are very good fundamentals none the less.
Our banks are paramount, With strong institutions in Australia like Suncorp and other strong banks cutting there dividends by 25% like Westpack, Its no wonder why everyone is fleeing to our money markets and making our dollar rally so much
Dam… Im going to loose all my money on the shorts I placed on Australian banks…. Oh wait, thats impossible… Shorting Banks In Australia is Banned atm
Our Subprime was not as bad as it has been in the US, that's correct It was much much better
our boom is nothing compared to theres, We are so beating them its not funnyhttp://www.whocrashedtheeconomy.com/ausrealhomeprices.gif
Recession ? are you a economic terrorist ? There is no recession, There never will be… not in Australia anyway..
http://www.abc.net.au/news/stories/2009/03/19/2520741.htm?section=business
"My point is, compared to many other economies, it is not as bad. So why wouldn't weaker economies lend Australia money? "
How and why would a country with a weaker/worse economy then ours lend us money ? huh ? Can two broke country's lend each other money to spend our way into prosparity ? I didn't know we could do that !! someone ring Krudd right now ! Its time to ring the zimbabwe central bank !
Not that us saving Australians need a loan anyway
http://www.debtdeflation.com/blogs/wp-content/uploads/2008/03/IMG0010_739046.PNG"but did you know that business lending is also up? What does that suggest?"
It suggests that our economy is heading into another boom as business struggle to keep afloat with sinking profits and thus have to borrow more money to survive
http://www.news.com.au/perthnow/story/0,,24975203-951,00.htmlGovernment….ohh… I don't like either candidate, None of them know anything about running the state or anything about the economy, They are all working for the same people anyway.. Im not even registered to vote…
I'll take the easy way out and explain that with a documentary.
http://www.youtube.com/watch?v=eAaQNACwaLwWhat will happen when Interest rates rise ? The economy will implode and the bank's will own basically everything in the country
Maybe it would be better to know when they will rise… Why don't you ring up the RBA and ask for a list of Shareholders so you can ring them up and ask them when they plan on raising interest rates in Australia ?
I hope that helps
heheheI'm afraid I'm not always sure when you are taking the pi$$ and when you are actually agreeing with me.
do you think Suncorp is strong? I had believed that they were the bank at risk of a rush, which is why Kruddy guaranteed deposits, to stop them from collapsing. Perhaps that was one of your sarcasms?
OK, my expression is a bit wrong there, with the weaker economies lending Australia money. I was more getting at the idea that a) in an ocean full of sinking ships, our floundering vessel might be a more attractive prospect for investment than one that was well an truly stuffed.
b) why would another economy decide Australia was not safe to lend to, when it may be safer than others This was more in response to the poster who suggested that interest rates would rise when the rest of the world decided it was too risky to lend money to Australia. And maybe your point here is worth expanding. Perhaps interest rates will rise because no one has any money to lend to Australia, not that they don't want to, but because they can't afford it.No recession? I must have misheard the news. I thought the last quarter was negative growth, technically a recession. OK, if I'm wrong about that I'll cop it on the chin. Anyway, you should know you sound a bit like Lawrence Springborg on that ALP ad.
"It suggests that our economy is heading into another boom as business struggle to keep afloat with sinking profits and thus have to borrow more money to survive
http://www.news.com.au/perthnow/story/0,,24975203-951,00.html"
Bull. Your link to a news story about one company doesn't mean that is what is happening in the whole economy. Rio tinto in this article are looking to raise equity, not debt. I said business lending is up, (as in debt). (And upon reflection, the statistic I heard MAY have been about small business lending) Debt and equity are two different things. Perhaps business is borrowing money to fund a shortfall in operating budget due to downward pressure on profit, perhaps business sees new opportunity within the current market and is seizing the opportunity while interest rates are low. Either way, the decision to borrow indicates confidence in the ability to repay the loan. Confidence in the future of the business. The banks decision to lend this money to business also indicates a confidence in the ability to repay the loan.Your little graph on the home price index is not an adequate rebuttal about the sub prime mortgage issue. Interesting graph though. To me the graph illustrates how house prices have changed in the USA and Aust over the period 1890 to now(ish). This is just as indicative of the status of the respective economies in 1890 as it is of their status today. In 1890 I can only imagine that the USA economy was more developed than the Australian economy, and the Australian economy has done quite a bit of catching up, which may be somewhat responsible for Australian house prices rising so much more compared to the 1890 price than has been seen in America. (All pure conjecture). I have no argument with the fact that Australian real estate is terribly overpriced. There was more at play, though, in the American sub prime disaster than simply overinflated housing prices.
Yeah, that's a good idea, I might just ring up someone and find that out (interest rates). Don't know why I didn't think of it before, really. While I'm at it I'll ring the US govt and ask them how much silver they've got left and when they plan to dump that on the market.
Congratulations on the referenced opinion. Pity some of the links had only a vague connection to your point. I couldn't justify the time to download the Obama thing – perhaps you could surmise?
Pity you don't have time to register yourself to vote. You could go and register and move to Beaudesert, where you could vote for Pauline Hanson. But then, maybe she IS a part of a plot to take over the world, dye everyone's hair red and mandate poor fashion sense.
S
Yes, It was all Sarcastic, and no, I wasn't attacking you… just in case you thought so
hahahah, Didn't you know that I have a good sense of Humor Im sick of people calling me Mr Doom of Gloom.If anything my post was more of a funny then a serious attempt at Converting the Sheep
And yes, I do realize that the Rio Tinto Article was for raising equity, Not a new bank loan, as such… I thought you would just read the headline and not the whole article, lol, Im impressed.
But I don't need a news article to tell me that the increased Business borrowing is to sustain business operations, If businesses profits are plundering into the abyss and 50% of businesses are firing staff to cut costs so they can tread water, Its obvious business are accessing credit to continue operation, Its a no brainer really, Sure.. Not EVERY business is going bankrupt and contracting, But im positive that a large portion of businesses are suffering pain and are making up the shortfall with credit…. I know many many close examples in my own city… So why wouldn't it be the same everywhere else ?
Besides… When is the expansion of debt a factor of good business fundamentals ???? im really confused… People continue to link prosparity with credit and debt…. This couldnt be any further from the truth…
Who do you think Credits the world ? China, It is with China's MASSIVE production base and HUGEMUNGOUS Trade Surplus's that they can afford to lend us money so we can spend it on Plasma TV's and VE SS's
Government is the same as Pro Wrestling… WWF, WWE or even Jerry Springer, Its just show business and the puppets pretend to throw sticks at each other while continually pushing through the same adgenda through the generations…
I wouldn't vote for Pauline Hanson, She isnt smart enough…. If there was a guy like Ron Paul in Australia, I would Register and vote for him… But while I see puppets throwing mud at the opposing puppet I will stay Annomous
What about Barnaby Joyce? So, he's a senator, (and a ?National? – or did he get the shit$ and go independent, can't remember), but he seems to have his own brain a bit and a set of balls. Yeah, I was just joking about good old Please Explain.
So baaa baaaaa baaaaaaaa baaa. Baaaa baaaaaa baa.
I'll have to check all your links from now on, obviously the mere appearance of a link does not assure the credibility of your information, just your enthusiasm to appear credible.
Increased business lending = confindence. You still have not rebutted that, only waffled on about how business borrowing is bad. Pain, and confidence are not mutually exclusive, you know.
China china china. Yeah, I can't really argue that one, don't know enough about it really. Expand your point with conjecture (I love conjecture) China recession = massive reduction in finance worldwide = higher interest rates = bad. Hey, has this already happened. Baaaaa baa.
That's enough for this little sheep tonight.
SI never directly said YOU where a sheep
With the link thing, That's one of the few times I have kind of cheated, But I don't want anyone to take me for granted, Everyone should be researching what I say for themselves.
Ok, I can have 26 Full Buckets of Confidence but It still won't Increase my net profits and make my business successful, And why is increased Business lending confidence ??? wtf ? If I need a million dollar loan to continue operating this Quarter does that mean im Confident and a Succesful businessman now ?
A Farmer who was close by to our farms who has been on the land for 50+ years Pre Sold his crop, Then he couldn't deliver on his promiss, Then he suddenly went bankrupt with 27 million dollars Owing
Im sure he had plenty of confidence… lol
Confidence in the context your speaking is merley another word for Hope, And hope is just a false premise
Hope: Expect and wish "Gee, I hope I don't loose 50% of my retirement in the stock market in 2009" , "I hope the market recovers quickly!"
China is the main creiditor to the U.S.A through the purchase of T Bills, China is already complaining about there investments being very risky, But they sent Hillary Clinton, Head of Sate to bully them into financing more of there Debt. Once China DOES stop buying T Bills, America will have no choice by to go into Hyperinflation to pay its obligations…. And I think that if America does collapse, Most of the western country's will kind of follow along there path…
USA has 13,000,000,000,000+ of Current debt with 50,000,000,000,000+ of Future Obligations…
Now I didnt say EVERY politician was a puppet, Just like every Cop is not Currupt, But look at John Howard… He refused to bring in a Global C02 Tax, The Media Turned on him and Crusifyed him and then put the spotlight on our good little elitist following Krudd and Taaadaaa !
Remember we had a 20 billion Surplus… now we have a 52billion + Debt…. Even when Krudd PROMISED to have a SURPLUS as his top point for election ! He is a LIAR and should be Arrested for Treason
hbbehrendorff wrote:Ok, I can have 26 Full Buckets of Confidence but It still won't Increase my net profits and make my business successful, And why is increased Business lending confidence ??? wtf ? If I need a million dollar loan to continue operating this Quarter does that mean im Confident and a Succesful businessman now ?I had to go back to my original post about confidence, to make sure i stay on track. My point there was that Australia's economy is not as weak as some others. One of the indicators I was using to establish this is business confidence. Business confidence is a well used, well respected measure of the health of an economy and its ability to attract investment. I used an increase in business lending as an indicator of business confidence. I am not making any comment about wether these businesses will be successful, or have better net profits. I am making a comment that those business owners feel confident that they can repay their loan, the banks feel confident that the businesses can repay the loan, and everyone feels confident that it is worth making the related investment. Of course, the decision to borrow money does not assure success – that is not my point. My point is that the decision to borrow money, and the decision to lend money illustrates that there is still a level of confidnence within our economy that is attracting investment (even if that investment is largley just an investment in the future of the business by keeping it afloat now – and not even saying that that would be the right move, just that people feel CONFIDENT enough to make it.) You keep harping on about how borrowing is bad, and does not assure the business of success….. This is a different discussion. My point is that borrowing indicates CONFIDENCE in the economy, and confidence is good. This is not about the confidence that an individual may have, but about economic sentiment.
Howard didn't just fall because of the CO2 thing. It was also about workchoices. Howard always had the guts to do what he thought was right, and in the end this cost him pretty dearly. In the end he was just in power for too long and too many people got sick of him. Too many new voters had no experience of the economic hardship that Labor can cause. Too many voters don't understand the slightest thing about the economy. I think that only employed people with an IQ over a certain level (say 120?) should be allowed to vote, and perhaps retirees that did earn their own living and not live on welfare. People on welfare should not be allowed to vote. Neither should greenies nor animal liberationers. I knew Krudd was dangerous the first time I noticed him on TV. Well spoken, charismatic, younger than Howard and seemingly more relevant to young workers.
S
http://www.news.com.au/business/money/story/0,28323,25223797-5013951,00.html
AUSTRALIA is facing its own version of the US sub-prime housing crisis, with thousands of young homeowners risking bankruptcy as a result of Kevin Rudd's economic stimulus package.
That is the grim warning from the economic expert who first called the debt crisis that is driving the global financial meltdown.
Dubbing the looming crisis "Sub-Prime Lite," Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US.
Professor Keen said in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt.
"Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn," he said.
The top end of capital cities housing market has been suffering for some time as mass redundancies within the financial sector have forced homeowners to sell.
Meanwhile, the first-home buyer end of the market has been booming.
But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels.
In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed.
According to Professor Keen, the First Home Owner Grant has cost the government about $200million, but has inflated property prices by close to $3billion.
"This is all illusionary wealth that could disappear very quickly," he said.
"The additional $2.8billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way."
The Government may well extend the first-homebuyer grant beyond its planned end-date of June 30, which Professor Keen says will end up pumping the market to even higher levels.
The University of Western Sydney professor said he had sold his Sydney house because he feared a property crash, but his gloomy view on the market has been backed by other experts.
Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve.
"People paid Hamptons prices for properties up there but it is not the Hamptons," he said. "Traditionally what has hurt people has not been rising interest rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast."
Mr Minack said while he understood the motivation behind the grants, encouraging marginal buyers to enter the market at this stage of the cycle (just ahead of a sharp rise in unemployment and with interest rates so low), Australia risked "creating a sub-prime underbelly in our own housing market".
With unemployment currently at just over 5 per cent, many economists are forecasting it will peak at 8-9 per cent in 2010, which will lead to a "bloodbath" in the property market as thousands of mortgagors default on their loans.
Most buyers were also taking out low, variable-rate mortgages, which left them exposed to rapidly rising rates when the economy began to recover and this would also spell trouble for many buyers.
No argument there. It is a scary scenario, and the possibility had occurred to me. Here I see some much better educated and informed people than I share my concerns.
oh yeah… read that article alright. Yes. It looks like a scary article, the increased FHBG has led to some FHB buying houses by simply using the both Fed and State FHBGs as the 10% downpayment. When the first interest rate increase comes with the decreasing employment levels, it will seriously affect those who are not in a good position to service their loans.
One question though; since all residential loans in Aust are recourse loans, even if the lendees are no longer able to the meet repayments, they will still be forced to do so. Unlike in the US where lendees are able to walk away due to the non-recourse nature of their home loans.
Shouldn't the recourse nature of the loans in Aust not be a factor in keeping lendees on to meet their repayments, and this thus keeping housing prices stable or limit their decline? Plus there is a strong domestic pride towards home ownership, meaning people will do what they can to hold on?
Regards
DanielDefinetely, the circumstances are different for a whole heap of reasons. Your point here was also well made in an API mag article a month or so ago. And I agree, we probably won't see a market decline here quite like what has been witnessed in the US, with houses selling for $5000 etc, but I still think that some people just won't be able to cope with their new financial situation and will hit the wall well and truly, creating a downturn in RE. How long can the govt keep propping up the market with a bandaid like the FHOG? And what lengths will the govt be prepared to go to to avoid this market downturn? Time will tell, as we watch the unemployment rate climb, and wait and see what happens.
our boom is nothing compared to theres, We are so beating them its not funny
Im sick of people calling me Mr Doom of Gloom.
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