Pages

Tuesday, December 20, 2016

RBA balanced weaker jobs, strong housing in decision to hold rates

Post to Facebook on 20/12/2016 at 2:11 PM - unable to post comment to The Age on the news item (20/12/2016)
Commenting on “RBA balanced weaker jobs, strong housing in decision to hold rates”
http://www.theage.com.au/business/the-economy/rba-balanced-weaker-jobs-strong-housing-in-decision-to-hold-rates-20161220-gtesju.html

I was invited to appraise a lakeside house yesterday evening. Although I do not know the owners well, they were very relaxed when we had our conversation at the kitchen.

They were unsure whether they should sell their house now because of the fear of housing bubble burst and rising interest rate.

The housing bubble has already burst in some areas. In fact some of the high end market properties have no interested buyers, or potential buyers to be precise. If young buyers with the parents' financially backing are not careful, they will be paying too much and may not be able to keep their properties when interest rate starts to climb and their employment becomes unstable. In fact, in my opinion, many buyers have paid well above the worth of the properties.

So what will the interest be in 2017? Well, don't ever use the cash rate announced by the Reserved Bank of Australia RBA as your benchmark. Tell me which bank lends you money at 1.5% for housing loan, and I am going to buy 10 properties tomorrow.

I am not a gypsy with a crystal ball, but I suspect interest rate will not go up to more than between 1% and 1.25% by the end of next year. It is more like 1%. Even so, it is 80% more than the existing rate.

Remember, RBA increases rate by a 0.25% or 0.5% only at a time, so the pain is gradual. Your bank's interest charge may just touch on 5%.

The employment and general economic outlooks are not very promising for 2017. Free trade across nations is shaky and questionable. The US will become very aggressive in their exports, and China may suffer setback which has a direct impact on Australia.

Don't' start packing up and shift into a panic mode gear yet. Do factor this in your mortgage payment to work out whether you can afford to keep your house. Unfortunately, you must also factor in Council rate, water rate, water usage and utility charges. They are more scary in terms of price hike.

I advised the owners the same way as I am writing here. Obviously they have other considerations on top of the two questions asked. I left their house 2 hours and 15 minutes later feeing really good.

They are now a bit wiser than before and their decisions will be based on facts and figures rather than just guess work.