Interest rates rise

http://www.rba.gov.au/MediaReleases/2006/mr_06_03.html

Cheers
N.

 

What's the concensus?

1) That following this rise, the rate will remain unchanged again for another length period?

2) This is the first of many?

 

Dave,

Another one in the back half of this year is my punt. Inflationary pressure is still too strong despite a 25 basis point hike.

Cheers,
Michael.

 

The govt is trying to reduce our love affair with both borrowing and spending, though my thoughts are that it will only keep the market in a plateau state, ultimately cause rents to rise ( overdue at least in Sydney) and possibly scare some vendors off from putting their properties on the market.

REINSW are none too pleased, with Cristine Castle (president) saying that:

"..the Reserve Bank of Australia’s decision to increase interest rates by one quarter of one a percent will damage NSW’s struggling economy, wreak havoc with the State’s residential property market and will trigger a rental housing crisis in Sydney that will punish families and low income earners.."

Her opinion is that the rise will kill off the weak recovery currently taking place in Sydney and will ultimately cause a housing crisis, as vacancy rates plummet and investors are forced to raise rents.

The REI property management survey shows that vacancy rates are now down to 1.9% in Sydney and are continuing to steadily deteriorate month by month.

 

So Jaq

If supply of rental properties is down and demand stays the same or increases then rents will rise.

Does that then mean that we'll reach an equilibrium point where people start saying...hey you can get 5% yield in Sydney again in decent growth suburbs...I'm buying back in...

Or is that ignoring the fact that 70% of properties are owned by their occupiers and thus rents are irrelevant and interest rate movements are all pain...

What do ppl think? I guess what I'm asking is - are we near, at or just past bottom of the market in Sydney inner-middle ring?

Cheers
N.

 

Inner to middle Sydney is quite a vast area, Nige
Traditionally, inner ring performs better over time, even given it's much larger median ($868K in 2005) but even it suffered an annual fall of 2.34% in 2005.

Though there may be more owner occupiers than renters, 30% of the population renting is still a sizable proportion, and a group that may have increased, given Sydney's affordability at an all time low for first home buyers in the recent boom.

Poor yields may be a large determining factor in investors deserting the market, but rising interest rates can quickly play havoc with gross yields as well, making the out of pocket costs even higher. In turn, investors turn to increasing rents, home buyers and (other) investors hold back from buying and demand dwindles temporarily.... which affects pricing... until yields improve enough for investors to buy back into the market. 'Tis all so very cyclical, isn't it?!!

Buying opportunities are out there, but investors need to be able to see the bigger picture long term before they're going to be out spending their dollars again in large numbers. Caution is still the key, and I believe that, a few years from now, we may be saying "Remember the bottom of the market in 06/07? If only I'd bought in then!"

Then again, I could be wrong. The federal and state governments, along with the RBA, have the power to turn things on their head just when you thought it was all going to be different

But let's not forget historical facts as well. Despite the falls of recent times, average annual growth since 1995 up to 2005 has still been a healthy 14.15% in NSW.

Now if we could just wind the clock back 10 years, however, to get those medians down. *sigh* Sydney is so expensive still!!!

 

Jacque,

I hope that's what we'll be saying! That is definately my buy timeline. I'm kinda hoping this winter will bring out some real buying opportunities in my hunting grounds. A .25% rise in rates and the usual Winter softness might prove just the right ingredients to get me that dual occupancy zoned development site I'm looking for at the right price!

Cheers,
Michael.

 

It's very difficult to accurately predict the future (as my lotto number picking demonstrates) so it is far better to look at the facts - and the main fact is that we are not at the top of the property market. We are 2-3 years since the peak and there has been a significant drop in prices. I believe that now is a reasonable time to consider purchasing property. It is certainly not the flavour of the month - where have all the property reno TV shows gone? Hope you find a bargain, Michael.

 

I am just interested in what the real drops in value have been over the last 2-3 years.Better to get it from real live market buyers than all the anecdotal talk.
Regards
Denis

 

Best place to look for drops is to research median values in individual suburbs. What suburb are you specifically interested in?

 

But Denis even if the drops are 50% does this mean we now have good value, or does it mean prices were really overinflated like the Nasdaq in 1999?

 

Sorry,my question is probably too general.Would it possible to say that across Sydney values have decreased by 15 to 30 % ?
Glebe,is it good value yet ?In five years we will both know.
Regards
Denis

 

Hi Denis.

I certainly don't know about 'across Sydney' but it would be fair to say that in the areas I have properties, I would expect to get at least 10% less than my previous valuations.

I guess this is a two-edged sword. I had the properties revalued every 12 months or so and set up LOC's against these valuations each time for other investment purposes.

I'm pretty pragmatic about this though. I don't necessarily expect the banks to go and reduce my LOC's while I'm happily paying for them, BUT if they do, I have had the use of those extra funds for a period and obtained a profit from their use.

Similarly to the share market, there will be times where I am holding 'paper' profits or losses, but the LOVELY thing is I can usually hold a number of asset classes without feeling the need to sell any of them. If something is going down, often another is going up. I think the 'secret' is to find ways of keeping your assets so that in the majority of cases it allows you to experience growth(or income) in one area while another may be 'quiet'.

The property part of my portfolio has theoretically probably experienced a 'paper' loss of 10% over a certain period and yet I don't even think about it as it has been more than offset from other areas.

What would have bothered me and caused me lack of sleep? If I had continually bought in and out of different asset classes trying to chase a winner. Personally, I'm sure I would never have picked them correctly.

I've diversified considerably and sold nothing. I rarely lose sleep, although I do have the odd night.

 

Hi Rolf.

Ooh.........that would hurt. If they'd actually paid the $850K.