All things Finance!

[Blackee]

They say money makes the world go round. We certainly live in interesting times when it comes to finance. Key issues such as Interest Rates, Housing affordability, Global Financial Crisis etc etc.

Discuss anything Finance here, from stocks on the rise, to those on the nose, exchange rates, mortgage leaning rates.

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[Blackee]

It is widely tipped that the Reserve Bank of Australia (RBA) will lift interest rates by 0.25%. This will make the cash rate 4%.

Should this rate rise occur, it will be interesting to see if any banks increase their variable rates by more than 0.25%. This occurred late last year when Westpac raised variable rates by 0.45%.

A 0.25% rate rise on a $300,000 variable loan means an extra $60 per month.

One of the few positives from an interest rate rise is the value of the Australian dollar against other currencies. The dollar is currently US90c and into the 60's against both the Pound and Euro. It never has been a better time to travel Europe.

[Lily]

I heard about the Aussie Dollar against the Pound today - unbelievable! Definitely time to pack your suitcase and travel if you've ever considered it.

Well, they've done it, another 25 points on interest rates to 4% - http://www.theaustralian.com.au/busines ... 5836141800

[Blackee]

Despite holding a mortgage myself, the rate rise had to happen.
The way the housing market in travelling, some brakes need to be applied. The only issue is that rules have been relaxed so overseas investors can jump into the market. And some of these investors are able to borrow money as little as 1%.

There was talk of releasing some land around Flemington but that area will be overpriced for first home buyers. Will be interesting what impact this rate rise will have on the market.

[Lily]

The housing market is crazy! We had our home valued last year (around May/June) and in December it was valued at an additional $50K! I would hope that anyone who has committed to a mortgage in the past twelve months or so since rates have gone down have done their homework and can accommodate in their budget a number of rate rises. If they haven't, they'll be in trouble fairly quickly.

I'm no expert, of course, just a mortgage belt mum, but from all I've read and heard about there's a very real likelihood of at least another two quarter percent rate rises to go for this year, particularly if retail spending continues on it's merry way.

[Blackee]

Lily, normally banks will factor in an additional 1.5% to the interest rate when determining loan feasability. This should aslo been done by prospective home buyers. Say the current interest rate is 6%, do the repayment cals on 7.5%. This will give you an idea should things get nasty. Another good option is to pay 5 to 10% more than the minimum payments.

[Anthony Violi]

Expect GFC MKII, but much worse. In any case, within the next 5 - 10 years we will see a crash of biblical proportions. It has no choice, housing prices need to flatten for 10 years like it or not. Just my opinion..

[Bellarine]

I still cannot enter the housing market because of the prices its so frustrating especially as I'm about to hit 39, have worked my guts out solidly since I was 17 ( this break at the moment due to getting the boot is the first proper "break" I've had in that time) and still cant get a deposit happening - cost of living, two kids etc etc. Unless Anthony is right and the market crashes I dont think I will ever own a home...

[Lily]

Bell, that just sucks, it really sucks. I'm similar age to you and lucked out I guess - I'd met my husband to be and he purchased a home in Knoxfield, not long after that I moved in, we were married and that saw us with our foot firmly placed on the property ladder (mid 90's). If not for getting on when we did, I think the market would have leapt too far ahead of us to catch up. We were just fortunate that we got on when we did and have ridden the property wave ever since. Our first home cost $92,500!

[Blackee]

All of the big banks (bar NAB) have passed on the full 0.25% rate rise.
I expect NAB to do same by lunchtime.

[Blackee]

The Government, ASIC & the ACCC are really toothless tigers when it comes to policing the banks and making them accountable.

Billion dollar profits and making life difficult for the average joe is the name of their game. And that isd why I will never bank with them.

Government needs to get off their backside and create their own bank and offer cheaper loans for first home buyers and the like.

[Lily]

Government needs to get off their backside and create their own bank and offer cheaper loans for first home buyers and the like.

Oh absolutely! I often wonder how my children will ever afford to get their foot on the property ladder at this rate. Now it seems not only do you have to put a bit aside to maybe help with their first car, or give them a cool 21st party or help pay for their wedding - we also now have to consider getting ourselves in further debt to help them with a deposit on their home. How else would a kid be able to purchase their own home?

So much for saving for our retirement I can't see us having the same opportunity as Baby Boomers have to spend the kid's inheritance.

[Blackee]

If you are in a position, look at purchasing a small unit or apartment. Rent it for 10,15, even 20 years and then allow the kids to move in when they want to leave home. I know this doesn't help those like Bellarine who are still trying to get a foot in the door. The unhealthy state of the housing market for first home buyers is a real worry for us all.

The way the market is going, generations will live in the same palce, similar to what happens in parts of Europe. The quicker regional business and transport hubs are constructed the better. I wouldn't mind living in Bendigo or Gippsland if employment and business opportunites were as widely available as they are in Melbourne.

[samueliza]

Im like bellarine. Been working for 15 years and am unlikely to be able to afford a house any time soon. had a house in bayswater in 2002, sold it for a good price and rented while we temporarily lived in adelaide. After 2 years renting in SA, couldnt afford to get back in the housing market in Melbourne.so.......... we are now just renting in point cook and will probably do so for some time unless something desperately changes. With 3 kids on the cusp of starting school in the next few years and my income being pretty average (comissions arent taken into account by the banks)we'll just have to keep on renting GRRRRRRRRR. Nice to know there are other people out there in a similar situation.

[Bellarine]

What I'm still staggered by is just how many people are prepared to go up to their eyeballs in debt and live off credit....maybe I'm being too naive or old fashioned but if I dont have the money I dont spend it ! Yes I have a credit card and the bank hates me for it - the limit is $500 and that was set in 1990 - they keep hassling me to increase it to $3000 but I'm not interested - it pays for my internet bill and thats all

[AUSSKY]

The best thing I ever did was to buy a house for $123K in Bayswater in 1991...a couple of relatives leaving me some money also helped - when I sold it in 2005 I got $264K for it ($220K net) Built the house in Woodend for $342K, sold it in 2008 for $420K!!!!! and built the house Trentham - I've just moved further and further out, but each time I have I've got better value for money...nothing wrong with living up here and working in Melbourne - half of Woodend and 1/3 of Trentham either drive or catch the train in every day.

[Lily]

Looks like we're going to keep going up.

Full story: http://news.smh.com.au/breaking-news-bu ... -qce0.html

Rate rise is '50/50 call each month'
COLIN BRINSDEN
March 16, 2010 - 7:09PM
AAP

Borrowers should fear the worst at each of the Reserve Bank of Australia's (RBA) board meetings this year.

An economist at the nation's biggest home lender says a rate rise will be a "50/50 call" every month, and predicts the cash rate will be a 100 basis points higher by the end of the year.

While financial markets are yet to price a rate move next month, an upbeat report on the economic outlook by the central bank suggests that an another increase cannot be totally discounted.

"Domestically, most economic indicators continued to point to a strengthening in economic activity," minutes from the RBA March board meeting released on Wednesday said.

The RBA raised the official cash rate by 25 basis points to 4.0 per cent at the March meeting, having unexpectedly left policy unchanged the previous month.

"On balance, members concluded that the evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction," the minutes said.

At this stage, financial markets are pricing in a low risk of a further rate increase in April, but a 72 per cent chance of a rise in May.

[Blackee]

The US Federal Reserve has kept interest rates at between 0% & 0.25%, thus boosting the US stock market.
I think this decision will give the RBA a reason to not increase rates here in April.

I still think we are due another rise before End of Financial Year, but I think it would be too hasty to see successive rate rises given unemployment increased slightly as well as other factors. The main reason for an increase would be the housing market (which is a pretty key factor).

[Blackee]

Interesting to see the RBA Governor, Glenn Stevens, speaking on the Sunrise program. This is a very strong move by a person who is concerned about the economy over-heating. Remember before the GFC, our interest rates were high and inflation over 4%. Whilst the GFC did apply the brakes in certain secotrs (namely employment and the stock market) it has not dampened the bullish run of our property market.

We had an auction in our area on Saturday. A nicely present place with all the trimmings; a pool, deck, etc etc. The selling agent applied their ESR (Estimated Selling Range) at $600k & $660k. I was dumbfounded on Monday morning when I saw it had sold for $836k. that is 26% above the top end of the ESR. It really is madness and something that the RBA and govenments (both state & federal) need to serious look at. The State Government is laughing with the amount of stamp duty being paid (Vic Stamp duty for houses over $550k is a flat fee of $28,070, plus 6% in excess of 550k) Therefore the purchaser of this property has to pay $45,230 in stamp duty. now we are getting closer to $900,000 after all costs and improvements are made once living on the property.

The property bubble is inflating every weekend given the issues with supply and demand. The State Government is sitting on their hands when it comes to allocating land for new development, whilst the Federal Government is not acting on the fact that housing affordability is at its worst since the early 1970's (big spike in land prices, which forced an Inquiry and subsequent Royal Commission).

IMO, 3 things need to be done.

1. The RBA needs to raise interest rates up by between 0.5% & 1% next week. I know this will hurt many, but the air in the bubble needs to be released.

2. First home owners be given cheaper (in terms of interest rate) loans to allow entry into the market. I know this is not the right thing to do, however unless the market goes pop by 30% I can't see how our kids can enter the market. The first home owners grant was not managed well and often rorted by investors, so another way to tackle this is offering a better deal for first home owners.

3. Rules on super funds investing directly into property need to be changed. I have noticed that given the woes of the stock market some 12 -18 months ago, a strong shift into property investment by self managed super funds has increased sharply. This has placed a false ceiling in median house prices and making it un-affordable for first home buyers. There was talk about the option of scrapping negative-gearing, however that would be disasterous to the property market. There needs to be some tightening in the super rules about purchasing property via super funds, maybe capping it to a certain amount.

We live in intersting times. I for one will be very keen to see what the RBA does next week and look forward to reading their comments soon after.

Before I get jumped on, I have a $300k mortgage, so I'd prefer lower rates. However I cannot see how my kids will be able to enter the property market in 2030.

[Lily]

However I cannot see how my kids will be able to enter the property market in 2030.

Exactly my concerns too, as I have mentioned previously.

You know, I wonder if our generation has got the raw end of the deal here - baby boomers are spending up the kid's inheritance, so we get nothing there. Now, the baby boomers when raising their children would have traditionally taken into consideration that they might have to help their offspring in purchasing their first car, or put money towards their wedding, etc.

Parents these days are still having to consider helping out with a car or a wedding, etc., but we're also having to consider putting up considerable dollars to help our children into their first homes. Assuming that homes double in value every ten years and my children are looking to buy in approx. ten year's time, that means with two kids I will probably have to help fund them in the vicinity of $80,000 each to help them with their deposit on their homes.

And we have to do all of this with no benefit of inheritances from our dearly departed. Feels like we've been burnt both ways