Hi All,
I know there is much more to interest rate rises than the obvious. I felt like putting my feelings out there towards the subject.
Property is increasing in value everywhere in Aus, which is great! However more and more people are losing the opportunity of purchasing property due to the jump. To top it off interest rates rise also.
I myself am young (21), I am not earning a huge deal but have managed to purchase a couple of properties. I love property and naturally spend hours being creative and learning and thinking of future formulas/ideas i may hopefully use in the near future. This however seems to slip further and further away every 1st Tuesday of each month. My questions are:
What about the young, the first home buyers, the struggling families etc? Wont the cycle of housing affordability happen again with banks having to adjust or lower there rates? I understand it is the lowest since bla bla bla. But shoudnt wages for example increase or do they think that the general economy can afford the extra repayments?
Things like this make it hard for people who actually care or are trying to get ahead. Like you always hear the gap between the rich and the poor seems to expand a little further.
Anyway Im not actually trying to sound negative, dont really know where Im getting at but any thoughts would be helpful.
Cheers,
Sash
Want it. Own it. Enjoy it. Achieve it.
Sash the reason for interest rates rising is because the economy is growing.
There is a concept in economics called sustainable economic growth.
see http://en.wikipedia.org/wiki/Contractionary_monetary_policy
see http://en.wikipedia.org/wiki/Monetary_policyIf an economy grows faster than 3 % there is a danger that inflation can ran away due to wages demand. Which increases the cost of goods which puts more pressure on wage increases which leads to more inflation it becomes a self feeding monster that gets out of control. See Hyper inflation definition http://en.wikipedia.org/wiki/Hyper-inflation
So the RBA has to guess or predict what the growth will be in say 6 months time.
This is due to a time delay from when interest rates are increased and when the economy reacts to the change.The only situation when interest rates go down is when the economy stalls and there is negative growth the CPI growth is like less than 2%
It usually follows a thing known as a recession.
http://en.wikipedia.org/wiki/RecessionHowever the Global Financial Crisis has also caused banks international fund source costs to increase beyond the RBA increases and banks have increased interest rates to cover the cost of finding external funding.
it means that our economy is booming…which is good and bad for property buyer
I don't think that there is any bad for property buyer. There is always a rise in property prices. Right now I think the best return is in property investment. I had seen many people who consider as property as gold producing hen. I really appreciate that you are considering investing at such a younger age.
Hi Sasha.
Good on ya for taking some action in property at such a young age…
One thing to note is that purchasing property is not a given right, it's a privilege to those that can afford it.
At the end of the day, property is seen as an investment and the majority of property is owned by investors, not home buyers, as much as we like to believe we can own our own piece of Australia.
Owning your own property is really an Australian dream, but if you take a look at much larger and older economies you will see that owning property has now priced out young people, look at Europe for examples of this.
Property you will find will generally increase during times of inflation along with interest rates as there is an increase in demand and income resulting in the government having to push affordability down to keep inflation within the 2-3 percentage range.
Keep up the good work and invest wisely, a time will come when it is no longer possible for young people to own property in Australia!
Cheers,
MiikeHi Sasha,
I think it's important to keep the rising interest rates in context. Mortgage rates are still (just) below average, and are still about 2% lower than they were in August 2008, less than 2 years ago.
From the RBA's announcement, it seems as though this may be the last rise for a while as the cash rate is getting back towards average rates.
Dan42, some support on your claims
A pause is well expected…
http://www.thebull.com.au/articles/a/11183-rba-offers-no-reason-to-expect-a-rates-pause-in-june.html
An additional simplified comment is this: times are now good for those who own two or more properties, and particularly bad for those who actually own none and are trying to get in.
I don't think there's a bad time for property per se in the current environment of overwhelming demand.
For the average worker with a mortgage I can see the potential for a degree of mortgage stress. If inflation is higher than your pay rise, you essentially earn less than you did last year. HOWEVER, if interest rates are raised to control inflation, then similarly you still need that pay rise to support the increase in mortgage payments.
IMHO, and as a warning: an average working-class Australian with either one (ie. their PPOR) or no house at all doesn't stand a chance in today's system. Doesn't mean they should give up, but they better bloody hope for a decent pay rise in the coming years, or otherwise find another way out of this rat race if they actually still have spare cash for investment.
Should the average working Australian consider renting for the rest of their life? Personally, I think that might be the way to go, and having spare cash to then invest in shares, rather than tying yourself to a 30 year mortgage that will drain you dry as prosciutto and then leave you cash-poor and asset-rich in the only thing you have: your house.
I've also read I think, in Robert Kiyosaki's book, that your house is NOT an asset either, in the strictest sense.
I think you should remember as well that not everyone wants to buy a house. Not everyone wants the great Ozzy dream of a lifetime mortgage. Renting no longer has the stigma attached to it that it did years and years ago. My parents bought their first house when I was 18. They rented for ever until they could afford to buy in the sticks after the 90's recession. Years ago you only rented coz you were poor.
A lot of people won't ever own their own home as they simply don't want to. There are also a lot of people who don't want to invest in property. An ex friend of mine refused to buy property as she did not like rental managers. She bought her own home but boughts shares as her investment. There are many people who simply believe (dumb yes) that property is a bad investment and that tenants will trash the place and you will lose lots of money.
Then there are the people who get moved around the country for work. You can pretty much count them out for buying a home to live in as they might have to sell in a year or two. They might buy investments but still never own their own home.
Try not to get too down on this Sash. Yeah I see what you mean, but try to distance yourself from the herd "oh man I will MISS OUT" mentality. Those people who really want to own property will beg, borrow and create ways to own what they want. You only get as far as you want to in life. And in investing. And plus there is still plenty of cheap properties to buy. It is just that nobody wants to own an investment first or a house that is further out or that needs work.
You are doing great, I wish at 21 I'd gone for investing and not listened to every other idiot. Now I listen to me. (And a heap of people who have been there and done that)
D
DWolfe | www.homestagers.com.au
http://www.homestagers.com.au
Email MeThankyou all for your posts.
Fword – I understand it may appear a liability. I am awaiting DA approval for subdivision.
Regards,
Sash
Want it. Own it. Enjoy it. Achieve it.
Always factor in a higher interest rate when working out your figures. I have paid 10.5 % interest in mid 1990's so factor in a higher interest rate and if it happens to be lower you have some breathing space.
Hi Sasha,
I think you are living proof that people in Australia can still afford property. I also bought my first house at 21, as I had a young son and wanted to provide a solid foundation for him. This involved living at home with parents and saving to pay for the land first while working and then studying. I also had to rent it out for a period when I went to the country to teach. It is a big scary commitment for the first five years or so, but if you hang on any way you can until prices and your income increases, you will suddenly realize you are in a good position.
You are in the game which is half the battle.
G
Agreed. I bought my first house at 21, 3 years ago for $380k. We didnt realise at the time that we bought VERY well… it is one of the only 4 bedroom houses with a pool and entertaining area and spa within our post code! Got it valued today – $430k.
Not bad for 3 years – $50k – we certainly couldnt save that much in 3 years. We owe $362k = $68k of equity.
I am a big believer in surrounding yourself with like minded people. Dont tell everyone about your grand plans as not everyone will get it and their negative comments can bring you down.
Crunch the numbers, have a crack! I believe it is worse to waste time than money… we only get one shot at this.
Keep the dream in mind and everything you do will get you one step closer.
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