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Rates now lowest since Dec 2003!

Discussion in 'Real Estate' started by Jacque, 4th Nov, 2008.

  1. Jacque

    Jacque Team InvestEd

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    The Reserve Bank cut its key interest rate for the third month in a row as it attempts to prevent Australia's economy stalling.

    The central bank trimmed three-quarters of a percentage point - or 75 basis points - off its key cash rate, reducing it to 5.25%, the lowest level since December 2003.

    For a typical 25-year, $250,000 home loan, today's cut if passed on in full by lenders will save the borrower $112.63 a month in payments or some $33,791 over the life of the loan.

    The move, announced after today's monthly board meeting by the RBA, exceeded economists' predictions of a 50 basis-points cut.


    More here
     
  2. Billv

    Billv Getting there

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    Nice,,, 2 of my IP's are now cashflow neutral...:D

    This reminds me that I'll have to lodge a new tax variation form
    or my employer will be withholding too little tax.

    cheers
     
  3. crc_error

    crc_error The Rule of 72

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    why not just put the extra tax money into redraw?
     
  4. Billv

    Billv Getting there

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    The extra money goes straight into my offset account anyway, but (from memory) I believe that if I get my tax variation wrong the ATO could refuse my application next time.

    I will check this point out because the way things are going the amount I won't be able to claim is big and I might even have to pay tax on rental income as well...:eek:

    cheers
     
  5. voigtstr

    voigtstr Well-Known Member

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    How do we go about picking the bottom of the interest rate graph. I know there are more cuts to come over the coming months (yay (ok I "expect" rather than "know")) but will the bottom be marked by a long period of no interest rate changes or will the RBA suddenly say "whoa! Inflation!" and start raising them.

    if we are looking to fix the interest on our mortgages at some stage, are the banks own fixed interest rates a good indicator as to when the variable rates are swinging around?
     
  6. Jacque

    Jacque Team InvestEd

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    Hi Voigtstr :)

    Hard to tell if fixed rates are worthwhile right now and who knows when the bottom will come? More drops on the cards forecast and there's usually only small windows of opportunity when it comes to selecting the right time to fix. Probably best to ask some of the more experienced brokers who frequent here, as I'd be interested myself in their opinions.

    But I do know that it's certainly provided real relief for some, particularly those vendors who've now decided not to sell in the current market.
     
  7. AsxBroker

    AsxBroker Well-Known Member

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    Hi Voigstr,

    I'd be watching term deposit rates as a leading indicator.
    Draw the yield curve that these rates give you.

    Ie at the moment we have an inverse yield curve "\" which means you get a better rate for locking your funds up for a short period of time as people are expecting rates to drop.

    When you see a flat yield curve "-" you get the same rate of interest for locking funds up for different periods of time. When this happens, curves are going to move fast! I'm sure I made the gag of flat yield curve being an oxymoron???

    Normal yield curves "/" will return after the flat yield curve.

    Cheers,

    Dan
     
  8. crc_error

    crc_error The Rule of 72

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  9. voigtstr

    voigtstr Well-Known Member

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    My thought was that if you could pick the bottom of the interest rates, and fix there for a few years, you would be saving a pretty penny if the rates went back up towards 8 or 9 again. Then again if we have the capacity to cover the payments if it goes higher, we can risk that for the chance the rates stay low or drop lower and keep everything variable instead of fixing.
     
  10. crc_error

    crc_error The Rule of 72

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    yeh but from what I can see, you wont be able to fix at the bottom, as the longer fixed rates will be significantly higher than the current variable low rate.

    The banks will calculate that they think will be the average rate over that period plus a premium.

    Look at today, its predicted rates will fall to 3.75% but the banks longer term rates are heaps higher than todays variable rate.

    As research shows, you need to be very lucky to fix and actually win.
     
  11. lorrimer

    lorrimer Well-Known Member

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    Historically, what normally happens to rents in times of falling interest rates.
    Are us landlords able to enjoy some long awaited relief, or do tenants expect the savings to be passed on to them in the form of reduced rents?
    Thanks
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Rents work on supply and demand. If there is a shortage of housing, there will be upwards pressure on rents.

    Interest rates don't directly affect rents.

    However, what lower interest rates does is encourage more people to build or buy their own property (or investment properties), and this increases the supply of rental property. If this new supply is more than adequate to fulfil the housing demands for the area, then rents will start to fall.

    This isn't an instantaneous thing and the lack of supply can take a while (years) to correct.

    It's all just part of the rental cycle ... right now we have a shortage of housing due to a lack of development and high interest rates. Eventually we will see more of an equilibrium and then probably an oversupply - at which point vacancy rates will be much higher (and rents will ease). And then people will stop building/buying investment properties and the housing market will tighten again ... it's very cyclical.

    I've been renting in Sydney for 10 years now ... I've seen two very tight rental markets ... when we first moved here there were queues to view a property - we're seeing that again now. I've also seen a very weak rental market where landlords will offer 6 weeks+ rent free or even free holidays to prospective tenants. The cycle continues.
     
  13. Chris C

    Chris C Well-Known Member

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    Can I ask what changed between those periods, as in what prompted the oversupply of housing?
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Real estate boom ... lots of construction and lots of people buying property.

    In the area where I live there was a lot of in-fill development (unused blocks or old houses bulldozed to make way for large apartment blocks ... some of them highrise) ... a lot of new land releases in the outer suburbs.