Mortgage Interest Rate. What Is The Situation in General?

webtonmoy on 07/11/2022 - 17:38

RBA has increased the interest rate by 2.75% in just 6 months. Unfortunately, I was just at the end of my fixed-rate period when this started. While I was expecting this rate to rise, it still makes me a bit anxious. Coping with the large increase in repayments and the regular expenses, while still very possible, has started to create a bit of stress (I know that is the intended purpose).

Not many people I personally know own investment property. One of them acknowledged that it is not financially viable anymore for him and has already put the property on market. He seemed a bit ashamed of this and did not mention putting the property on market, till I accidentally noticed the sale advertisement…

So I am curious to know how the ozbargainers feel in general about their mortgages/financials/overall trend in the property market.

Financial

Comments

  • Nugs on 07/11/2022 - 17:41
    +3

    2.75%, pffft
    https://pbs.twimg.com/media/B8487RvCUAA0DXA.png
    .

    • webtonmoy on 07/11/2022 - 17:45
      +7

      Reminded me of this quote, "If you torture the data long enough, it will confess to anything"…

    • Drakesy on 07/11/2022 - 18:09

      "The RBA won't crash the property Market"
      Because when they said rates probably wouldn't rise until 2024 they were totally correct…
      Everyone saw inflation coming, the gullible ignored it. Personally i think it's going to have to at least get within 1-2% of inflation to actually make a difference, yes that means an interest rate of 5-6% which will see many people in Sydney pushed over the limit.

      I was at a home open over the weekend where the owner bought it for $635k back in 2011, they'd be lucky to get $500k now and i was one of 2 people inspecting. Just wait till the market gets stressed and then you'll find out who was just staying afloat.

      The RBA - never let them know your next move.

      • HeWhoKnows on 08/11/2022 - 18:09
        +2

        You are right and wrong.
        Yes interest rates must get within 1-2% of inflation
        But that is ABOVE THE INFLATION RATE!
        And actually maybe at least 2-3 % above the inflation.
        History has dictated over and over again that is the only way to bring inflation down.
        Right now the RBA and the govt is giving us a bit at a time because they dont want to cause a panic.
        Each time they tell us rates must go higher. Each time the bar is raised a little bit more
        But listen to RBA Governor Dr Phillip Lowe's words as well as those of The US Fed.
        They are telling us there are many more interest rate rises to come but the message is falling of death ears right now and the economy is partying on.

        Let me explain in simple maths.
        One needs to focus on REAL interest rates to ascertain the effect on the broader economy.
        REAL interest rates are derived by subtracting the inflation rate.
        Just like you arrive at REAL capital gains by subtracting the inflation rate.

        Positive REAL interest rates slow down the economy and discourage borrowing and investment
        Negative REAL interest rates stimulate the economy and so encourage borrowing and investment.
        During Pandemic in 2020 interest rates were at 0.1% whilst inflaton was running at just 0.85%
        Hence the REAL interest rate was 0.1 - 0.85 = NEGATIVE 0.75%. Hence very mildly stimulating.
        Now look where we are at…
        Interest rates are at 2.85% whereas inflation has run right away at 7.3%
        Hence REAL interest rates right now are:
        2.85 - 7.3 = NEGATIVE 4.45%
        So the maths tells us the RBA is actually PUMP PRIMING the economy right now like never before!

        And the evidence is everywhere……..
        People are spending like crazy - The latest retail sales are up, up and away to new record increases month on month on month!
        The property market is heating up again with clearance rates in Sydney rising from 51% some 5 weeks ago to 67% this week.
        Rents are booming everywhere for the first time in 15 years!
        The airports are chock a block full of people going on overseas holidays.
        New Buildings are still going up everywhere
        Tradesman have so much work on thier books and cant get enough people to work for them.

        Are these signs of an economy slowing down or one that is still on steroids?

        Yes those people that took out loans at the ultra low 2% rate and did not fix might be hurting a bit.
        But many locked in fixed rates whilst others paid down loans during the pandemic because they had nothing else major in which to spend thier money.
        And wages have actually gone up over the last 3 years. Even more so over the last 12 months. Maybe not hugely but it makes paying off a loan that much easier.

        To put things even more into perspective, in the past RBA rates dropped to about 3.5% during recessions to stimulate the economy.
        And right now we are sitting at 2.85%. What a joke!

        Hence interest rates still have a long way to go up.
        Just read RBA Governor Dr Phillip Lowe's lips and listen to Jerome Powell. head of the US Fed.
        The message is loud and clear but nobody is listening!

        • Drakesy on 08/11/2022 - 18:26

          Yeah i completely agree.
          The RBA is a bit doveish on actually making some sort of impact basically they're a bunch on businesspeople (just look at their board) who would rather the liquidity party go on - as it bolsters their bottom line.

          We really need to continue the o.5%-0.75% increases like Canada, America etc.
          It's too little and quite obviously is doing next to nothing to quell spending.

          • HeWhoKnows on 08/11/2022 - 18:54

            @Drakesy: 100% correct
            They are certainly broadcasting the WRONG message
            You really have to wonder what the RBAs real agenda is?????

    • SnowDragon on 07/11/2022 - 18:57
      +20

      "Back in my day we had 18% interest rates"

      Also back in 1982 the median house price of Sydney was $80k~ and the average full time salary was 17k~
      Whereas now it's 1.4m and 90k respectively

      That was a debt to income ratio of 3.7 and is now 12.3

      • Nugs on 07/11/2022 - 19:18

        It wasn't "my day" and I'm not saying it would have been just as tough then, but no-one should be surprised if rates continue to rise given it has happened before. Personally, if I couldn't afford 10% then I wouldn't buy. We bought well below our means for our first house
        .

      • iNeed2Pee on 07/11/2022 - 19:37
        +2

        It was 18% for like 2 weeks as well 😂

        • SnowDragon on 07/11/2022 - 20:04
          +2

          Yeah I'm certainly sick of hearing how hard they had it.

          "It's all relative" they say.

        • Usedtissue on 08/11/2022 - 19:38
          +3

          We built a new house and had a mortgage at that time. Our rate was capped at 13.5% for the whole of the loan on a purchase price of $35k in the North of Adelaide burbs. All of our friends and relations at our stage of life, that is, with young kids, mortgage etc didn't have too much trouble getting by. I don't remember anyone I knew paying 18% and suffering financially. I was earning around $20,000 pa and my wife was a stay at home mum, no child care fees back then. We certainly had it a lot easier than the young families of today.

          • iNeed2Pee on 08/11/2022 - 21:59

            @Usedtissue: Can I just say thankyou for your honesty.
            I wish I could give you more than 1+.

      • iDroid on 07/11/2022 - 21:12
        +1

        The reason why that ratio increased IS due to the availability of cheap money (low interest rates).

        Increased interest rates will lower that ratio.

        The debt to income ratio is mostly driven by interest rates, not the other way around.

        • HeWhoKnows on 08/11/2022 - 18:21

          Yes and no
          Its also driven by "easy money" and there was lots of that to go around

      • HeWhoKnows on 08/11/2022 - 18:19
        +1

        To put things into perspective…
        The RBA rate was at 15.5% at that time and inflation was only 7.4%
        But thats what it took then to bring inflation down.

        The debt to income ratio might play a big role in preventing rates from increasing that much.
        But we are still a long way from slowing things down.
        As you may recall, inflation is a very difficult beast to tame!

    • SBOB on 08/11/2022 - 07:09
      +3

      Now do one where you overlay the mean house price in capital cities or average debt to income ratio for the same time period :)

  • holdenmg on 07/11/2022 - 17:46
    -1

    Hi,

    Sadly these Investment Properties will probably become owner/occuper, leaving even less Rental Property.
    But, what else can you (and others) do?
    I hope your Friend sells and gets out at or near the top.

    • filmer on 07/11/2022 - 17:51
      +7

      Do you mind explaining how selling an investment property reduces available rentals?

      It's either going to someone who was renting and will now be an owner-occupier, or to another investor.

      I suppose the only situation is if the rental was housing multiple groups of people, or the buyer was still living at home.

      • holdenmg on 07/11/2022 - 18:02
        -1

        I think for the same reasons the current Investor is selling that it is unlikely in a rising interest rate market that another Investor will buy and rent it out. Because the numbers don't work anymore.

        I wouldn't be marketing it as an Investment Property but if an Investor buys it then well good luck.

        • iDroid on 07/11/2022 - 21:09
          +1

          But the same amount of people are housed, the number of houses didn't change.

          The new owner occupier was:

          • already renting; or
          • already an owner occupier; or
          • are a new owner occupier; or
          • would have been a new renter.

          I see no way this can alter the number of rental properties being available to others.

          • filmer on 08/11/2022 - 11:09
            -1

            @iDroid: Investors like to claim they help out the people by providing rental properties, but in most cases, they buy the properties that would be better for first-home buyers. They buy the older properties and renovate them to flip for 200k more, or rent as is due to higher rental returns.

            The only time an investor actually provides housing for renters is if they build new properties (as long as it doesn't price out current renters wanting to buy) or subdivide.

        • dcep on 08/11/2022 - 00:34
          +1

          bne cbd 1br shoebox 300k … getting 500 p/w rent income

          crunch the number see if IP still work or no more on 5% - 7% interest ?

          no more negative gearing ?

          • webtonmoy on 08/11/2022 - 14:46

            @dcep: Wow, Melbourne is much more affordable at the moment then. If IPs are so profitable, there will not be negative gearing, as the cash flow will be positive.

    • webtonmoy on 07/11/2022 - 17:52

      I have read many discussions on housing (here and in the news media). Unfortunately, there is no 'one solution' or easy solution to housing issues for owners and renters.

    • HeWhoKnows on 08/11/2022 - 18:22

      The top was October 2021.
      So well overdue but not too late

  • Vulgar on 07/11/2022 - 17:46
    +2

    Currently renting at the moment with most of my money in shares but could afford to get a mortgage. Not in any rush to get a property since rents are low relative to property prices.

    I'm surprised that you friend sold his investment property, unless he's in a really tough financial situation. Higher rents and tax deductions should partially offset the increased interest and you generally get more value by holding onto the property for the long run.

    • webtonmoy on 07/11/2022 - 17:49

      Thanks. He has not sold it yet but it's in the market. Unfortunately, I know he is in a tough spot due to some other personal situations.

      • HeWhoKnows on 08/11/2022 - 18:24
        +1

        It will get even toughter when jobs start to go.
        The govt has forecast 140,000 jobs will be lost over the next 12 months and thats probably a very conservative figure

    • freefall101 on 07/11/2022 - 18:15
      +7

      A loss slightly offset by a tax deduction is still a loss. Especially for people who have invested while they still have a mortgage on their principle property, it's a double whammy.

      The only reason not to sell and rebuy later is stamp duty. Otherwise the housing market is probably going to be flat for the next 24 months, might as well cash in and stick the capital in an ING account (or offset a mortgage or whatever) and buy back in later.

      • webtonmoy on 07/11/2022 - 19:25
        +2

        Stamp duty, LMI, and agent fees all often add up to 10% of the property price.

        • freefall101 on 08/11/2022 - 00:09
          +4

          Anyone negatively gearing an investment property while paying LMI should think long and hard about their risk profile.

    • MrMarket on 07/11/2022 - 21:26

      tax deduction is not magic, for you to get higher refund, your loss has to be higher as well

      say you on 40% bracket and you lose $10,000 a year, you get back 4K to get back 8K you have to lose $20,000
      it doesn't make the suitation better it makes it worse.

      which one do you want? get back 4K lose $10,000 or get back 8K lose $20,000?

      • HeWhoKnows on 08/11/2022 - 18:26

        Who is paying 40% tax?
        Thats like ancient history these days
        Most people are paying either 32.5c or 37c.

        • MrMarket on 08/11/2022 - 21:23

          most ozbargainer on here are on 200K plus incase you don't notice

  • ShortyX on 07/11/2022 - 18:00
    +1

    It will be a tough couple of years for most with mortgages and property market pricing will soften.

  • Seraphin7 on 07/11/2022 - 18:05
    +4

    What Is The Situation in General?

    With what exactly?

    Inflation is well above the RBA's target range, maintenance of which is effectively its primary goal. It really only has interest rates at its disposal to achieve that goal so until the inflation rate moderates, interest rate increases will continue.

    The direct effect of this on households is to increase the cost of borrowing which naturally has its most obvious impact on mortgage holders, whether owner occupiers or investors. In both cases, the intent is to leave less money in their pocket such that they consume less, therefore bringing down aggregate demand, and therefore inflation.

    So far as the property market is concerned, this naturally has a downward influence on property prices as either people cannot afford to spend (borrow) what they could have previously and some property owners will be encouraged to sell out as the mortgage is no longer serviceable/profitable. The combined impact here is on both decreased demand and increased supply.

    This then begs the question of what happens to prices?

    As we have already seen, prices have moderated/trended downwards over recent months. But here's the difference with just about every other item that is bought and sold regularly … there is typically, other than in relatively extreme cases, no need for the owner to sell. The properties are not about to "go off" as fresh food might, and nor is there is need to ensure all production is sold even at reduced prices to ensure that operating expenses and overheads can be recovered.

    So generally what happens is that while prices are under pressure, many potential sellers simply don't sell until they get the price they want. For those looking to relocate/upsize, they will defer often defer that decision out of fear they don't get a "good enough" price on their existing holding. Downsizers will defer that decision as they feel they'll be "leaving money on the table" if they sell into a soft market. Others will simply only sell if they get "their price" otherwise they don't bother.

    The net effect of this is that while property prices are generally soft at the moment, and may be for the near term, it's unlikely to cause property "bargains" to suddenly emerge. In the main, mortgage holders will suffer and hang on until prices start to turn around before selling out (which actually then hampers the price recovery, but that's a whole other discussion).

    • webtonmoy on 07/11/2022 - 18:25
      +2

      That's a really good explanation. Thanks.

    • azero on 08/11/2022 - 10:55
      +1

      Nicely explained. But reading this - it felt criminal that RBA can control how much money you will have, on a whim like that and you are supposed to just agree to that.

      Also they only target one group ie. mortgage holders and squeeze them out of their money. With the extra money (ie, interest) paid just goes back to the rich financial institues.

      If it is for the collective good of the society - to prevent it from crumbling down, surely there must be other knobs they can turn. Or are they the knobs :)

      I realized that a while back you either need to get filthy rich or live off-grid. Or risk being in the hamster wheel forever - like most of us here in ozb

      • webtonmoy on 08/11/2022 - 14:43
        +1

        I don't think the extra money goes to the 'rich financial institutes' (Banks). Banks need to finance their money too, and their source interest rate also increases. Overall, I think the bank's profit margin is flat (in the 2-2.5%) range.

        • azero on 08/11/2022 - 16:42

          In that case it means it goes to an even richer bank - and ultimately to the very top of the society

          • webtonmoy on 08/11/2022 - 19:31

            @azero: A lot of 'bank's money' is from what general people have put in their savings accounts. The interest rate on those savings has increased too.

            • daft009 on 16/11/2022 - 21:14

              @webtonmoy: Savings interest rates haven't climbed as quick as mortgage interest rates which means better margins for the banks, which is why their share price is doing so well

    • HeWhoKnows on 08/11/2022 - 18:33

      Both the RBA and Government have more tools if they choose to use them.
      Interest rates are but just one weapon in thier arsenal

      A major fiscal policy tool is to pull money out of the economy (reduce govt spending) but I dont see this Labor government being that fiscally responsible right now. They had their chance in this October mini budget but it was a complete miss!
      Recall RBA Governor Dr Phillip Lowe earlier this year said we were all in this together and we all had to pull in the same direction?
      He was talking to the Governement !!!!

      The RBA could also pull in money from the banks by increasing the amount of SDRs so directly reducing the amount of credit available.
      That would make loans of all sorts harder to get even if you could afford them.

  • Drakesy on 07/11/2022 - 18:07
    +4

    Investment properties were touch and go before the increase in interest rates. The only ones making big money were those who bought in the 90's or mid to late 2000's and paid off their mortgages in a heartbeat, everyone else was a bit late to the party with mortgages rapidly rising in line with house prices.

    ROI on investment properties haven't been great in the likes of Perth, with Sydney and Melbourne now negative, with the majority of it coming from capital growth (which we now know is dead).
    Basically its more financially viable to chuck your money in the bank now and get a return rather than buying a property and gambling with $100's of Thousands of dollars.
    Watch as the investors leave their properties returning 3.5% pa for a bank account guaranteeing the same if not better returns.

    • webtonmoy on 07/11/2022 - 18:24

      True. Rent is disconnected from the property price. And with capital growth being flat (or negative) for foreseeable future, it is a bad time to be a property investor.

    • HeWhoKnows on 08/11/2022 - 18:50
      +1

      100% correct

      Current gross rental yields are still about 3.7%
      That means about 2.4% net after deducting regular expenses (council & water rates, strata levies, land tax, insurances, agents fees) and much less after deducting repairs, maintenance and renovations

      Right now you can get 4.25% (3.45% ongoing) with Macquarie, 4% with Rabo (3.4% ongoing) , 3.85% with UBank and 3.6% with AMP.
      And these are 100% risk free net returns without any expenses.

      With the prospect of interest rates continuing to increase going right in to next year and with potential capital losses on both property and shares you'd be mad to do anything else right now.

      Cash hasnt looked better for decades!

  • Ghost47 on 07/11/2022 - 18:15
    +9

    Some people seem to think that $1 million isn’t really much money these days, considering they’d happily buy a house that costs that much in Sydney or Melbourne that’s like a 40-50 minute train ride to the city.

    I don’t know about others, but $1 million (and that’s not even considering interest over the life of the mortgage) to me isn’t a trivial amount of money. Even if I was approved for that much, and could rely on dual incomes to service a $1 mil mortgage I’d still think it would be extremely idiotic and risky to borrow that much.

    Like holy sh*t some people must think $1 mil is actually “only” $500k or something. And if someone says “it’s the land that’s worth that much”, like is it really? The land is worth possibly sacrificing holidays, possibly getting another second job, possibly sacrificing eating out, possibly sacrificing sending your kids to private school etc.? You have to sacrifice heaps to save a deposit already, but then you also have to sacrifice to pay off the house? Sounds like a crap way to live. The only reason house prices have boomed so much in the past decade is because interest rates have slowly crept downwards and money was cheap. You can bet if COVID hadn’t come along and if China was still open and operating and Russia didn’t invade Ukraine that house prices would have continued to go upwards, because humans will be humans.

    Another example is Epping NSW, two bedroom units in low rise buildings were going for $800k sometime last year I think. I don’t care what the market says, paying that much for a 2 bedroom unit is plain stupid, even if you’re on $130k a year. I liken it to buying apples for $80 a kg, to me that’s just stupid even if it’s what the “market” says.

    There was a good article on the ABC website today called “After being forced to play catch-up in the ‘war on inflation’, Australia’s banking masters have subtly switched course” which I thought was quite good. Aussies have some of the highest debt to income ratios in the world, and it’s no surprise since money is cheap. And now the gov wants to open the immigration flood gates again because of “skill shortages” (aka wage suppression), where the hell are these people gonna live considering tenancy rates are very low? IMO it’s just a way to increase house prices even further.

    • webtonmoy on 07/11/2022 - 18:22
      +2

      Sometimes people do not have many options. A standard 3-bedroom house in many suburbs of Melbourne/Sydney is close to 1 million dollars.

  • AustriaBargain on 07/11/2022 - 18:22
    +9

    has already put the property on market. He seemed a bit ashamed of this and did not mention putting the property on market, till I accidentally noticed the sale advertisement

    This is everything wrong with housing in Australia. People should invest in coffee shops or corporations or something instead of people's homes. I know a lot of people who call themselves "property investors" who own "investment properties", but I've never met anyone who has called themselves a "landlord".

    Japan well and truly solved their housing bubble and Australia will too, as soon as Rupert Murdoch dies and his sons carve up his media empire for sale and the Coalition fractures. One day we'll look back at this property investment mania with shame and regret. People will be ashamed to admit that they bought into the scheme, instead of being ashamed that they were priced out of it after borrowing too much to get in.

    You should sell your investment properties and buy a profit sharing share of a real business instead.

    • azero on 08/11/2022 - 11:01
      +1

      Couldn't agree more, investing in property shouldn't be a thing. Specially in a country like australia which still has millions of km2 of habitable land.

  • Richmond Tigers on 07/11/2022 - 18:24
    +1

    The situation is that are Boomers are smug pricks constantly trotting out the "we had to pay a squillion % interest, what are you complaining about" while ignoring the fact that they basically had bugger all cost of living expenses, free uni, free bloody everything, cheap durries, cheap booze, avocados were considered pig food, etc etc.

  • Meho2026 on 07/11/2022 - 18:54
    +5

    Interest rates have increased rapidly but the current loan rate is around a 30 year average.

    When you applied for the loan the bank wouldve assessed your ability to repay on a higher interest rate. You shouldve budgeted for it too because we were told repeatedly for 2 years that we had historically low rates and the only way was up.

    The general economic outlook isnt good but its too early to panic. If you have job security then you are going to be OK.

    Have a look how your loan rate compares with other lenders. Theres incentives out there to refinance, you can calculate if that would be worthwhile.
    In the meantime ask your current lender for a rate review, tell them you can get a lower rate elsewhere and you want to know what they can do for you.

    Look at your loan product, do you have an offset facility? if so put all your savings in to reduce your interest repayments.

    Make sure you are getting market rent for your investment property.

    Get a depreciation schedule done on your property if you havent already, that will improve your overall cashflow.

    Have a personal budget for your own expenses.

    Have a spreadsheet with all your property incomes and expenses, recalculate the expenses every time your rates go up.
    Have a weekly/fortnightly or monthly calculation so you know exactly what your gain or shortfall is at any one time. You will be able to see clearly if you can afford to keep it up.

    There is an ongoing housing shortage in Australia, we havent been building enough homes and now with construction costs soaring and other factors, its preventing us fixing that.
    There are plans to increase migration numbers, that will further boost the underlying demand for rental properties.

    We have just had a massive property boom and its normal to have a period of stagnation or decline in property values afterwards.

    The increased rates might not cause the property collapse that some predict.

    All the financial regulations that were introduced over the last 10 years were designed to force the banks to lend responsibly and it has worked because it has become much more difficult to get a loan approved.
    It means that when rates rise people can still afford their mortgage, if we all keep our jobs.

    You might have to wait a few years now for some decent capital growth in your property but if you bought well, in the right location and have a sound property it will pay off.

    If you bought a dud, then you might have to rethink.

    • webtonmoy on 07/11/2022 - 19:24

      All very sound advice, thanks for your comment.

  • WreckTangle on 07/11/2022 - 19:48
    +3

    In my part of Sydney prices dont seem to be falling at all.

  • TheMindsetTraveller on 07/11/2022 - 20:30
    +2

    People have saved plenty in 2.5years under harsh lockdowns, which some say upwards of $300billion collectively. Now, that is being released back into the community, and Sydney city is buzzing right now, almost like on steroids, and not many are scared of anything let alone a 2.75% official rate rise.

    • webtonmoy on 07/11/2022 - 20:54

      I notice this too…

    • daft009 on 16/11/2022 - 21:18

      Very true. I also think it's because most people are still on fixed mortgages.

      Early-mid 2023 when these fixed terms finish I think we'll see spending dry up

  • Donaldhump on 07/11/2022 - 21:20

    interest rates of 9-10% on home loans coming

    • webtonmoy on 08/11/2022 - 14:39

      I don't think that will happen.

      • Donaldhump on 08/11/2022 - 14:41

        maybe not but either did i in 2009. doesn't bother me one bit

  • MrMarket on 07/11/2022 - 21:35
    +5

    factor in mortgage rate around 6-7%, it definitely heading that way, there is a chance it may go higher but at this stage
    most agree RBA will top out at 4-5% that translate to 6-7% mortgage rate.

    use that as a guide and start stacking away your cash and build a buffer.

    When I bought my PPOR some years ago it was 7%, I factor in 10%, Paid 10% from day one and never reduce
    interest rate never went to 10% but keep heading south so I end up owning my house a lot sooner
    I do the same for subsequent properties, I always factor in 3% more than the going rate

    • webtonmoy on 08/11/2022 - 14:38

      With the current house prices compared to income levels, it may be quite difficult for many people to pay more than the minimum required amount.

  • ForkSnorter on 08/11/2022 - 08:55
    +3

    What is far more stressful than the relatively low interest rates are the overinflated house prices, especially in desirable areas.

    Interest rates most significantly affect people who want to live a good lifestyle, only pay the minimum required monthly mortgage repayments, and pay off their loan slowly over decades. Interest rates have less of an effect on people who take on less risk, live extremely frugally, and prefer to supercharge their repayments to pay off their mortgage early.

    But house prices affect everyone. Not only are house prices ridiculously high, but due to a slight drop in prices, owners are very reluctant to sell, which means there are not enough houses on the market, making it difficult for the higher interest rates to create a proper balance between rates and prices. Also, it's overwhelmingly duds that are on the market at the moment, properties with something majorly wrong with them. The houses with nothing majorly wrong with them are still super expensive.

    The inflated house prices means people have fewer options. We're all stuck between a rock and a hard place.

    • MrMarket on 08/11/2022 - 11:49
      +2

      not really things go in cycles, for some they can afford to list when they want but for many properties sale is force upon them through divorce, inheritances, financial stress and thousands of other reasons.

      If you have intention to sell price does get factor it but it not going to stop the sale, they can delay it but eventually they have to meet the market price if they want that money

      If you have no intention to sell it doesn't matter where the price is at you still won't sell.
      I got mail all the time asking me to sell the properties, I know it gone up 3-4-fold but I have no intention to sell, if it drops 30-40% I won't sell it either

      Maybe one day I sell and when that day comes, I will meet the market price, weather it up 20% or down 20% I still sell because I have the need to access that capital and money

      • ForkSnorter on 08/11/2022 - 16:48

        Regardless of your understanding of the psychology of sellers, there are currently fewer properties on the market than there were 6 months ago. And my experience suggests many are duds, whereas the prices of desirable properties have barely budged.

        • MrMarket on 08/11/2022 - 17:13

          yeah boom bust cycle there are more activities in boom cycle, people flipped house, reno, sell for profit
          we are in down cycle, less house flipping less house listing

          it no different from any other previous down turn
          this cycle goes with all asset not just properties

          same goes with stock market, boom time volume are up more people trades shares
          recession people keep cash and tend to trades less

  • DarkOz on 08/11/2022 - 11:47
    +3

    The current 2.85% cash rate is extremely low historically. People who are already stressed about it shouldn't be investing in properties.

    Personally I hope it goes up to 4-5% quicker than at the current snail pace so that inflation is kept in check. The inflation rate is still creeping up and not down all because the RBA wants a soft landing.

  • tsunamisurfer on 08/11/2022 - 12:11
    +1

    I think Australia's approach to Monetary Policy is 'more' on the money.

    We had a period of bigger increases causing the shock value, and now taper it off with .025% increases (with a thinly veiled threat of more if inflation continues to increase). I think they want the decrease in economic activity without going into contraction.

    The US model is .075% which is more blunt and has caused 2 consecutive quarters of contraction.

    People on mortgages should have really accounted for this and these increases being ' off a duck's back', we have had rock bottom rates since the GFC so thats been a huge bonus of 14 years of a typical 25 year mortgage. Who else can say that they have enjoyed record low interest rates over 60% of the term of their loan?

    • webtonmoy on 08/11/2022 - 14:34

      The USA Federal Reserve meets 8 times per year compared to 11 times for RBA. That may be a reason for their larger increase in steps.

  • HelpMeiCantSee on 08/11/2022 - 13:32
    +3

    This scenario playing out is why I did my math based on interest rates of 10%. It’s also why I had 2 toddlers in a tiny place so not big enough for them, because it was far more important to know that (almost) whatever may happen, I will always have my house, even if it’s “not good enough”- it doesn’t have to be the forever home, but it’s still a home.

    Sure, I probably missed out on some fast “money” but I am where I wanted to be, and secure in that fact. This would not have been the case if I stretched to my limit 5 years ago.

    • tsunamisurfer on 08/11/2022 - 15:42
      +1

      I am with you.

      I prefer to bite off what I can comfortably chew, I too was offered much more in terms of a loan but decided to temper my expectations.

      Living in a 3 x 1 with 2 kids was not ideal but the ability to pay it off easier then be able to save for the next one is a fantastic feeling of security.

    • Mr Krinkle on 18/11/2022 - 11:13
      +1

      It’s also why I had 2 toddlers in a tiny place so not big enough for them

      That's a smart move to Bonsai your kids. Lower food and clothing costs.

  • Stargazer5 on 16/11/2022 - 01:07
    +1

    I think it’s crazy some people have a high amount of mortgage. If it’s a low amount, people can spend on living expenses and have more saving as low payments. If high mortgage with the same income, after spending on living expenses and large payments because of high interests, people will have less money to save, therefore might be house poor. They will take many more years to payoff house, total overall payment will be high. If for 30 year loan, the amount to pay back is nearly double. This makes the house total cost a lot more.

    • azero on 16/11/2022 - 14:27

      I used to think the same way until I built a house. 95% LVR 18 months ago.

      12 months after moving in the valuation had gone up and refinanced it to be 80% LVR and got half the LMI back.

      After the valuation last week, I now have a 200K equity on the house. There is no way that I would have saved that much since it is even higher than my post tax income.

      I rented for 5 years before that and paid off 100K from the landlord's mortgate. I do have less disposable income now. But if things get so bad that I can't pay the mortgage, I still can sell and move to a cheaper rental. Also I guess it is rare for someone to finish a 30 year mortgage now. At least where I live, houses get sold at least every 5 - 10 years.

      • Stargazer5 on 18/11/2022 - 01:33

        That’s great, you probably caught the last wave of increase house boom.

        Some people will buy a cheaper house to a point where they earn a certain amount to be able to spend on living and save money to put it in offset, hence paying less interest and have a buffer for emergency or held cash. In the end, those won’t need to pay 30 years, they might pay it off like 10-20 years. But houses are so expensive it’s hard to find cheap good houses and likely need two peoples income to save a lot.

        But since you have increased equity through boom, it is like you had two job incomes :)
        At times, paying off mortgage is cheaper than renting and yes, good point, you could always sell the house again and still have the increased cash from boom.

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