What's Happening With Property And Interest Rates?
If you're looking to build wealth through residential property, no doubt you’ve heard about the amazing fall in the Australian stock market. In fact late last year the Aussie market saw the biggest one-day loss in over a decade with in excess of $100 billion slashed from the market.
Traditionally when the stock market experiences such a significant fall, nervous investors withdraw billions of dollars and turn to ‘bricks and mortar’. It really makes a lot of sense, particularly when you consider that according to the
So what’s currently happening with residential investment property?
· while it’s essential to consider the property cycle on a state by state basis, in my opinion residential property is on the upward trend – in fact in Queensland (my major focus), we are heading into another boom (albeit not as significant as the previous one)
· the gap between supply and demand for rental property is widening – generally demand is outgrowing supply. This is causing rents to soar and vacancy rates to decline
· prices (particularly in certain suburbs) are increasing (almost) on a weekly basis
· there is a good deal of evidence that investors are ready and waiting for the end to the First Home Owners Grant Boost
Where are interest rates heading?
One of the most vexing questions in the minds of property investors is: where are interest rates heading? As usual (of course), no-one has a crystal ball. However I am prepared to offer my our opinion with one caveat . . . it is just that – my opinion
I believe interest rates are extremely close to their bottom. I am not suggesting for a moment that rates will rise to the levels they were in the 1990’s.
I believe there will be a rate rise late 2009 or early 2010 of 0.25 basis points, possibly followed by another 0.25 basis points. HOWEVER, it is my considered opinion that rates will stabilise toward the later stages of 2010. Why do I suggest rates are likely to rise? Well the Central Bank is already talking up the economy by suggesting the Global Financial Crisis (GFC) has not impacted Australia anywhere near the extent originally suggested.
Should you fix your mortgage interest rate?
Bearing in mind everyone has an opinion on this subject, mine is that you should never fix interest rates. The main reasons include:
· you have to be either very smart or extremely lucky with timing. As we all know interest rates rise and fall over time
· there are far too many unanswered questions such as: If you fix your interest rate, when do you fix?; where are interest rates in the (rise and fall) cycle?; will you have to pay ‘break-costs’ if you change your mind and how much will those costs be?; what will you do if you decide to sell?; what if you want to pay additional capital off your (fixed interest) loan?
If you are looking for reinforcement of my opinion on interest rates, the majority of the larger banks are already raising fixed rates (providing a clear indication as to where they see rates heading). Some are also suggesting a rate rise independent of the Central Bank.
So there you have it. Now (and indeed any time) is a great time to invest in residential property – particularly when you know how and where to invest. However always factor into your calculations a 1.0% to 1.5% rise in rates.
