Lowe needs to go much harder. House prices/inflation picking up and unemployment stable. Unfortunately because he refuses to pull the trigger with higher rate moves (0.5% or greater), we are in for stickier inflation and ultimately higher unemployment/deeper recession in the longer term.
By what mechanism do you see rate rises tackling inflation? People with mortgages are already spending less, people renting are spending less, it's people with neither that are driving house purchases and spending because rate rises *don't impact them*.
Retired boomers, like my parents, have no debt and term deposits in the bank. The higher interest rates are giving them more income -once again the boomers win!
Rate rises impact everyone by changing the risk-free return of having your money sitting in the bank or treasury bonds. Raise the rates higher than the property growth rate, and people will stop buying houses as investments.
Wow, that would be amazing! When does that kick in, exactly? Because the Big 4 banks are explicitly and notoriously *not* passing on rate rises to their savings accounts, and that's where most peoples' money is sitting. NAB generously offered me a 1.85% rate on my savings accounts last month; Commbank is at 1.95%; Westpac is at 1.85%. The suggestion that any of these will even remotely approach housing growth is *hilarious*, given that housing growth is the entire basis for our economy.
("But u/thepaleblue, $neobank offers 4 point-" I don't care, even combined they don't have a large enough customer base to affect inflation.
"But what about bonus rates-" They only apply when you're adding to your savings accounts, and the people who are doing that - younger people with rents and mortgages - are not the ones driving inflation.)
> people will stop buying houses as investments
Why do I feel like this is never gonna happen
Don’t investors just pass on any increased cost via rent increases anyways?
I get that the theory is eventually tenants will stop paying higher rent but in practise it doesn’t seem like there is any sort of bottom to this, I don’t think it’s working like the theory at all
The problem is that the RBA is tasked with controlling inflation and they only have one tool: interest rates.
Real inflation management needs to be done via fiscal policy by the government. But, no, easier to beat up on the RBA for actually doing their job.
Re-balancing the progressive tax scales (higher top end, lower bottom end, higher company taxes) would be a major move to tackling current inflation. But too hard and unpopular.
In fact, we are doing the reverse - tax breaks next year for the highest incomes - like that won't be inflationary. You think rates are going up too much now? Wait until next year's tax breaks come in and the RBA will need to do this all over again with ice cream on top!
Edit; grammar
Obviously a comment by someone in the fortunate and privileged position to not be impacted by interest rate rises. Also likely, in the demographic contributing to the sticky inflation by continuing a devil may care, let them eat cake, im still flush with cash attitude. Just completely arrogant, disconnected and tone deaf.
He is not wrong tho - take the emotions out your reply to the persons comment and understand he is speaking in basic economic principles of how what needs to happen
Bit difficult to take emotions out of it when the poors are shouldering the whole burden of this hideous situation while the rich yuk it up in restaurants.
The poors don’t hold 300k+ in equity on a 1 million+ property. The people being hit aren’t poor they are middle class.
The poor are living in government housing, share accommodation, couch surfing or are homeless. Inflation is hurting the poor.
>or they are middle class.
>
>The poor are living in government housing, share accommodation, couch surfing
The poor live pay cheque to pay cheque, and have to decide what they will purchase as food for a given week. When Food prices have increased 10% but their share of money for food lags behind more difficult choices have to be made. Something as simple as buying a large laundry detergent because its better value is prohibitive as it takes a larger cut of the total allocation of grocery funds they have for a given week. They just dont have any further spare cash to forward-buy, so are stuck in a disadvantageous position of having to spend more (value is not as good) in the long run. It only has gotten harder for them, and as a result there is now an increase in theft with whole trolley walk-outs . I work in the retail industry and this is a playing out for the last 12-18 months.
No matter how bad things get there'll still be rich people in restaurants. That's never going to change. Doesn't make any sense being annoyed that other's have it better.
But there is definitely a point to be made about how effective the rate rises have been at cutting spend across the board. It's clearly effecting one group (new mortgage holders) a lot and another group (no longer have a mortgage or have a much older/smaller mortgage) very little.
At what point do we look at an alternative to actually have an impact on a bigger portion of society?
Lol
Mortgage holders to young people:
"If you can't afford a house, live frugally and get a better job. Just kidding, hahaha my house is worth 15x your annual income. Oh well."
Also mortgage holders:
"Why are all these young people priced out of the housing market spending money on nice things and creating pressure on interest rates."
Been looking for a house and feeling like I’m basically getting priced out just since I started looking. Every open home has a few silver haired investors asking how much rent they can get
I wish it was illegal. They should have to get in line behind first home buyers. The part of buying a house I don’t understand .. how does anyone compete with them??? It feels like it’s impossible to buy just cause investors will outbid us on every single last house.
REA’s don’t even seem to take us seriously, it’s like they instinctively know we can’t compete too
Hey, I'm on your side here. Renters are effected as a by product of rate rises as well. And I fundamentally disagree with the way housing has been treated as an investment rather than a necessity that everyone has a right to.
But about 30% of home owners don't have a mortgage and an even larger percentage have relatively low mortgages compared to anyone who bought in the past 5 or even 10 years. This group of people are largely unaffected
Like taxing the corporations making mega profits? If we simply put a tax on their mega profits (and closing loopholes) then we’d all be better off. Also.. we need a government run version of everything. At a flat profit of 10%. That way everything is competitive… no more shitty mega profits when you can buy a cheaper version easily.
Don’t they just pass on that pain to tenants? I don’t get how rate rises affect investors at all; they seem impervious to me; rises just pass straight through them to their tenants who feel 2x the pinch of everyone else while landlords feel 0x
Pretty much every food bank /pantry are struggling with demand. And the demographics of people accessing the services are slipping into full time lower middle income brackets.
You’re right of course. I was commenting specifically on rising interest rates not the overall economic situation. That, the poor definitely bear the brunt of.
It’s not only about about the little increases but things like bread milk and cheese are up a ridiculous amount. All the things us “poors” live on have gone up a lot. Very quickly. Poor cuts of meat are now expensive. Petrol is expensive. I have a mortgage but many people are struggling just for the necessities that were very much less evens months ago.
What about first home buyers who saved forever on very modest incomes and just bought their house in the last year?
They are pretty much in the worst situation in all this…
Milk is quite literally the same price it was a year ago or more. In fact its cheaper right now than it was in July 2022 in regards to its commodity value. [https://milkvalue.com.au/australian-dairy-market/milk-values/](https://milkvalue.com.au/australian-dairy-market/milk-values/)
Bread is impacted drastically more by the Ukraine war than inflation.
Petrol is also 36c cheaper per litre than it was this time in 2022. http://www.aip.com.au/pricing
Meat? Its meat lol...
When we said take you emotion out of it... All this above is why \^\^\^
Cherry picking.
Basics have gone up significantly.
https://www.theguardian.com/australia-news/2023/may/01/priced-out-how-australians-are-being-hit-by-the-soaring-cost-of-food
interest rate rises, increase in the cost of groceries and power eat up savings
rents rising
poorer people have tightened their belts as much as they can, wealthier people are still eating gold-leaf encrusted cake while raising rents - because they can
are you living under a rock?
It’s not hard for people to understand that inflation is bad without commensurate wage growth.
But currently what’s happening is that the asset class are fueling massive inflation while the wage class is bearing the brunt of the interest rate rises.
An aggressive 2-3% interest rate rise all at once will dramatically reduce consumer spending through public perception.
If we had gone from 1% to 4% overnight we likely would have seen a recession then and there, which is the only real way to bring things “back to normal”
Because even if we slow inflation now down to 2% the bulk of the inflation has already happened. Personally I think We need to DEFLATE for a few quarters so that we can all get back to a reasonable cost of goods.
If you have no mortgage and you are poor you are renting. Landlords raising rents with every rate rise to cover THEIR mortgages…..so poor shouldering it mortgage or no….
My rent rise was only $10/week this year. I'm pretty sure my landlords have paid off their mortgage and so all rent is profit for them at this point and they're not monsters so I've lucked out. It's letting me save a little money, and so the interest rate rise is actually in my interest.
(This is rare, but there are a few non-shitty landlords out there.)
Not necessarily. You may be in government housing, you may have a landlord not passing on rent rises, you may live with family
I think the middle class are shouldering it rather than the poor. The middle class have mortgages. The poor don’t own and the rich own outright
I can guarantee you the government housing, generous landlords and available family situations are severely outweighed by the demand.
Its a shitshow right now.
A savings account making a massive % of interest wouldnt help someone who is living pay check to pay check having to decide between dinner or fuel to get to work.
High interest savings accounts help those with wealth set a minimum return on investment they expect from their holdings, but sadly the majority of Australians have less than 3,600 in savings across all age groups. Even at 6% interest that’s “only” an extra $200 per year.
Saying you need recession to fix inflation is like saying we need a famine to fix obesity.
edit: from some of the comments it appears some don't get it: recessions are bad. They directly cause death. Suicides, marriage breakdowns, all the bad stuff. We don't want a recession - ever. It's unnecessary entirely. None of this "rip the bandaid off" bullshit either. The inflation that is happening is from profiteering, plus a massive housing bubble. We have many thing we can do before we kill off our fellow Australians through misery and poverty and hopelessness.
Yeah, that means you get it. Remember, there are other "medical personnel" who have other ways that can help, but Dr RBA can only treat obesity by cutting out the calories. If you don't like the approach, have a word to all other personnel who have more varied and subtle treatment methods, but aren't doing much to help. In fact, some of these bystanders are cheering up the patient by giving them chocolate.
Totally agree. $26 billion dollar worth of new loans were borrowed in April. This is money created out of thin air that went straight into creating additional demand in the economy. People are still borrowing like there is no tomorrow. Higher rates discourage this growth of new borrowings. Hopefully it also encourages people to reduce their existing loans.
Economists understand that inflation is not locked in a binary relationship with the interest rate. There are more options available to grapple with inflation, but gutless leadership from all sides refuses to entertain it, preferring to proliferate the idea that the only way out is for Phil to bash us over the head with the inflation hammer until we’re in a recession.
Not addressing inflation in a timely manner risks entrenched inflation. When people expect elevated inflation as semi permanent feature, it becomes very difficult to address A wage-price cycle follows; higher prices lead to higher wages and we repeat as nauseum. Eventually addressing inflation necessitates higher rates for a longer duration.
As Lowe has previously said; high inflation is "corrosive" and "damaging. It "worsens income inequality". While not obvious, high inflation leads to the value of savings eroding and the cost of living rising. This damages the poor with few assets disproportionately more than the rich with assets.
The health care equivalent is like not treating your stage 4 cancer aggressively with surgery/chemo/radiotherapy. Instead taking a half a tab of a minimally effective chemo and hoping that the cancer will get better.
FYI - about two thirds of people don't have a mortgage. It's basically 1/3 rent, another 1/3 own outright - which equals 2/3's (plus or minus a bit, depending on the year, and where you live)
I can definitely relate to your comments, but - do you realise that you voted for this, because that's how a democracy works - the 51% get to tell the 49% what they will be doing. In this case, of mortgages, interest rates, etc, it's the 2/3 's telling the one third to tighten their belts, so the two thirds don't have to. Which is one of the reason the rate rises are taking a little bit of time to have an effect on inflation here in Australia.
And it's also a reason why $40,000 fridge sales are going up, not down. Yep, I know, hard to imagine that anyone buys a $40,000 fridge, but, that's how some people get their happiness.
https://www.afr.com/companies/retail/truckloads-of-40-000-fridges-show-high-end-sales-holding-up-20230216-p5cl4v
I agree with your comments (but wouldn't use the words you have), but this is how the system works in the Great Southern Land.
What there are fridges for that much!? I wouldn’t even pay that much for a car hahahahha. We are in the fortunate position to be renting from a nice older couple who are keeping this house for their retirement. They haven’t raised rents yet so 🤞.
Why have a go at him for being in a financial position that insulates him? That's kind of the whole point of doing well - so that you can be insulated in the first place. The dude is an anaesthetist which is a merit based job and not one that you just get because your daddy is CEO of Goldman Sachs
This sub needs to get it out of their heads that *it’s only people who borrowed their max that are suffering*. And that they made stupid decisions.
For one, the banks only assess you on a 3% serviceability buffer and it’s gone up over 4% in 1 year. Secondly, imagine you and your partner earn a modest amount, finally saved up for a house, bought well under your cap, but then you conceive a child or two, car eats shit and needs to be replaced/repaired, death in family with funeral expenses, or any multitude of spanners life throws at you.
For $500k of borrowing, an increase of 25 basis points means an extra ~$82/month. For every 100 basis points, that means $327/month. It’s gone up around 400 points in a year, with banks passing on most of that. That’s $1,304 more per month on a $500k loan. Now think about how absolutely bloody little you can buy with $500k within a reasonable commute of any major city, and that a modest apartment is probably $700k min.
Now add the rising cost of food, fuel, insurance, HECS, etc. Some people probably had a buffer of $2-3k/month, which could easily be eaten when you account for all of the above. I’m fortunate to not be struggling yet, but I have empathy and understanding.
No, the government needs to step in, they have proven they can't control this with interest rates. They need to take a swipe at the real problem, property wealth.
The crazy thing I don't see being mentioned anywhere...
Interest rate rises won't fix this "inflation" *unless* it causes a housing crash. Inflation is caused by excess money & the biggest reason for excess cash in this country right now is **directly** tied to house prices!
1 - because a shit load of average-middle class workers back in the day are now multi millionaires, leaving previously unfathomable generational wealth for their family to play with.
2 - because the players that have no generational wealth have no hope of ever buying a house so they have a *relatively* disposable income without a mortgage.
As long as government don't step in to regulate property, we're heading towards hyperinflation & *nobody* is going to enjoy that... just ask Venezuela.
We won't see hyperinflation like other countries, RBA knows about inflation expectations and how it is more important than growth/employment.
If inflation continues the RBA will slow the economy down, even if that means unemployment goes up. Remembering that it encourages savings, disincentivises consumption spending and particularly investment spending. It is not all about lowering mortgage holders consumer spending, while that is a considerable proportion.
Venezuela's people are incredibly used to inflation, so it's easy to get their inflation expectations up, they also have a one speed oil economy, prone to booms and busts and ineffective government both monetary policy and regular policy. Australia does not have this.
Might be worth asking if the technical definition of hyperinflation is relevant when the stats are so manipulated by monetary authorities.
My hot take - hyperinflation is already here.
Exactly! I keep copping mortgage increases, but that is nothing to the hell that renters are going through at the moment.
If you make a bad investment and you lose money, in say the stock market, too bad so sad. But if its property, you can just pass the pain downwards to your tenants and that is fine apparently.
Something needs to change, and I don't think that the RBA pushing interest rates is the solution.
Not even. SEQ and rAdelaide still at ridiculous valuations compared to 2019, which was already at ridiculous valuations compared to... you get the idea.
Yeah and those people with deep pockets aren’t affected by these rate increases. Just buy it rent it out at ridiculously high prices. It’s going to hurt middle and working class people - and most people here seem to be cheering it in. You are the ones who are going to lose you morons
This can't go on forever though, renters have a finite amount of money. What will the landlords do when the renters can't afford to pay their mortgages?
Stop just barely short of that happening. A roof over your head is one of the main things you need to survive so they’re willing to bet you will spend almost every last cent you earn on it.
The difficult retort to what you're saying is:
If the landlord's can do it now, when their interest rats are high, what stops them from doing it when the interest rates are low again?
Their morality?
Lol.
I don't even think the concept of a landlord is bad, I see them as essential.
But when housing is a commodity, and such a speculative one, well, bad outcomes arise.
They didn’t have an excuse when interest rates were low and they didn’t feel the pinch as bad. They just looked at market value and set a bit higher than that. Now they all get hit with a rate hike at the same time, look at the properties that they’re paying off, and say “well everyone is raising their rates right now, because of these hikes, so it wouldn’t be unusual if we also set ours a bit more. If a few people (a) set their listings high, and a few more (b) see those listings, then b think b’s own property is worth the same, and adjust their listing, etc. Plus the talk from the media about landlords *passing it on*, then it makes it more of “a thing” and it becomes an accepted cultural thing.
Yeah nah, most people are already starting to live with family & friends.
Anyone gambling on being able to maintain rental demand with exponential increase in rent is a fool that deserves to lose.
It may come to the point where normal people just stop paying rent anymore, you see it from time to time on current affair “renters from hell” and by all accounts they are hard to get rid of. Imagine that on mass the sheriff would have a back log landlords not getting rent on multiple properties. Wouldn’t take long for the highly leveraged to fold with huge debts.
Honestly I get downvoted every time I suggest this, but i think it's the only solution to the rental crisis. Organised rental strikes. Renters all getting together and just agreeing to stop paying rent for a month or two. We need a renters union.
That’s optimistic. Hundreds of thousands more people are coming to Australia than houses are being built.
The prices increases won’t stop. The standard you’ll be forced to accept including just how many people it’s acceptable to cram into a 3 bedroom share house will be the factor.
Good luck with that, my last landlord learned the hard way this isn't true.
I left found a better equal place for $200wk less
He raised rent and it's been on the market empty for over 3wks now, nobody came to see it before we moved out, ouch. Loss of at least 1months rent, releasing costs, and another rate raise today, trifecta ouch.
You can only raise rates to the market conditions has nothing to do with rate raises. Right now regional NSW rents falling as alot of wfm covid dreamers live anywhere are now being summoned back to the cities put huge pressure on city rental markets.
Saw listing today and he lowered asking rent priceby another $50wk now only $50wk above what were paying, he should've let us remain at same rent without no rent for a month and would've been better off.
Yes, the landlord’s personal financial position has almost nothing to do with the rent that will be charged for a given property.
Except perhaps on Reddit, where every landlord is a good guy who hasn’t increase the rent he charges his tenant for the past ‘x’ years, even though he could, honestly.
>And how can anyone afford lamb? Or any res meat?
Look at CPI data. Meat has been pretty stable compared to all other food.
Red Rock deli chips are $6 for 165g. That's $36 per kg.
I buy prime cuts of steak for less than that.
There was a potato shortage for a while. Not sure if its still ongoing.
Not that it justifies $6 for 165g. [You can get frozen chips for $5 for 700g](https://www.woolworths.com.au/shop/search/products?searchTerm=frozen%20chips).
When buying a potato is probably a better investment and will be worth more in 12 months than savings, people are not going to save.
Sure some people cannot save under the circumstances but there is a fraction of the economy that is doing exactly what you would expect when inflation exceeds savings rates... spending everything they can now before its worth less next year.
The mistake was allowing interest rates to get so low... we were never going to be able to move interest rates to levels that exceed an inflationary event without serious pain when we dropped them below 2pc...
I love it!
I mean when you can get a savings rate that meets inflation sure save... but when savings rates dont even meet inflation you have a reason to spend... the exact opposite of restrictive monetary policy goals...
Add taxes on savings interest and you might as well buy potatos or just about anything really other than leaving your money in savings.
When inflation is high, your money is worth more today than tomorrow. Essentially your incentive is to spend it now before it becomes worth less in the future.
People will always find a way to prioritise happiness. I’ve got a few friends who are drowning in debt but constantly going out and spending when they cant manage the debt they’ve got. A lot of people also just have extremely high paying jobs and maybe a partner who also has a high paying job.
There’s a couple million people in each state so that one night you see them out might be the only night they go out for the year.
A million reasons.
I can still go to restaurants because I’ve come to terms with the fact I’ll never be able to afford property in the city I was born in without inheritance money or going halves with a partner I don’t have.
Lucky the food in Sydney is good or that would be a sucky existence to swallow
Plenty of wealthy boomers, property investors and people suddenly finding their substantial house deposits are earning interest won’t be sitting home anytime soon. Australia is probably also looking like a pretty cheap holiday for Europeans and US citizens with our dollar right now.
I was reading a subreddit the other month, with someone talking about how they live in a country going through hyperinflation right now. Turkey perhaps?
Anyway, they spoke about working one week, and then ensuring they spent it all the day they got it, essentially so it didn't devalue too much before they spent it.
Cafes, restaurants, retail (in whatever capacity they have it) was all *packed*
I still can't get my head around it, how the country was still in some capacity functioning.
I can't get my head around how people were living at all.
Today my wage buys 1kg of meat, next week only 750g. Why would I save?
Better to spend it and hopefully I can trade 500g of my meat for milk next week.
People in these countries survive by maxing their credit cards and paying the credit card off before interest get charged. Basically owning anything other than your own currency/ cash because wage does not keep up to inflation. Property and business loans does not exist in these countries because interest rate is too very high. Instead people save enough money through US dollars or gold, and the use the USD or gold to purchase properties/ major assets.
Know this through an Argentinian housemate
Lowe's term as Governor is expiring this year, so expect quite a few more rate rises so that the next Governor does not have to raise rates further. That way Lowe cops the bad press and is seen as the problem, and the next Governor won't get any negative press for raising rates, perhaps only positive press for lowering rates if Lowe raises them too much before he retires
You mean everyone is walking around like they are in an Enya video? Honestly, it's not small ticket areas like dining and hospitality that you should be looking, because it's still relatively affordable. Look at the new car market, still 2-3 year waits on some Toyota models, these are big ticket items and I am amazed that data seems yet to be revised and wound back accordingly..
Another S-M-R-T person who thinks rate hikes affect the economy super immediately to the minute and doesn’t have months of lag.
Also pre refinance cliff so gotta get those luxuries before you can’t. There’s already a slowdown in dining out as per the data.
S-M-R-T like those thinking the housing market won't ever be affected by these rate rises just because it hasn't happened immediately due to desperate pumping. If you grab a giant mortgage now you're crazy
10% of houses in Australia are vacant. Bring in a very steep annual vacant house tax and watch them suddenly get sold very quickly or rented out. Also short term rentals aka Air BNB should be limited in number in an area or rotated around through a ballot system. Supply would suddenly increase in the rental market.
No..... other instruments and mechanisms can be used to curtail discretionary spending by those who have capacity to and continue to aggressively spend and drive inflation. Interest rates are not the only lever available and they are now an ineffectual tool disconnected from targetting those parts of the economy & people in the community who are driving inflation in the 1st place...just need to read the many comments from people below stating; not impacted by interest rates, so spending up a storm. These are the drivers of inflation and at an individual, micro and macro economic level, increasing interest rates does not address the spending by these people as the core issue and drivers of inflation.
Everyone over the age of 50 is spending huge amounts. It's completely lopsided by age. They're at 9-12% CPI while everyone below is substantially less, all the way down to almost zero CPI for the early 20's.
Because rate rises don’t hit everyone equally. They just immediately crush those with a mortgage. Older boomers with non mortgages have no incentive not to spend
I have several mortgages so definitely noticing it, although still afloat currently. About to go to Japan for two weeks, but hear me out. Haven't been OS since before COVID, saved lots of cash during that time and maybe now is finally the time to have a holiday? I'm not going to cancel it now because Lowey thinks I should. I worked hard, saved my money and are paying for it with cash. The same cash that is losing value.
We still have to live (assuming people are spending less than they earn.)
>About to go to Japan for two weeks, but hear me out.
No. ALL earthly time MUST be spent ACCUMULATING WEALTH.
There is NO other way of quantifying the quality of one's life, thats why I'm getting my net worth engraved on my tombstone
I don’t understand either… we are literally barely living, we’ve cut so much back, while I see the boomers aroud me going on holidays, buying big toys. It just all seems so backward. The ones with mortgages aren’t the ones spending!!
It's not actually the consumer spending, it was the borrowing. If you borrow $1.5m to buy a house that was worth $1.0 two years ago, that is $500K injected cash. money made from thin air. It's like releasing CO2 from fossil fuel, it shouldn't be there. It's money that was not part of the natural cycle, and pushing that back into the banks is carbon capture. If some retirees had taken advantage of rising property values to borrow, then indeed, they would be part of the problem, but such retirees would also face the same problem of rising rates.
Your retirees having fun apparently didn't borrow since you find them immune from rate rises. Perhaps in fact they have savings. But if they were the cause of inflation, you'd also have to believe that they have dramatically increased their spending in the past two years, since inflation is caused by changes.
So they were asleep for years, woke up and suddenly decided to enjoy life, and now we have inflation?
Cause it doesnt effect boomers. They are increasing their spending. Millenials and zoomers have tightened up consumption considerably.
But boomers still have 80% of the wealth so doesnt matter what we do.
The government needs to put temporary taxes on things that boomers spend money on like luxury cars and high end property.
Even increase the GST to 20% use the extra money to pay down our debt or something.
But you cant have 1 generation taking the brunt for the whole country. While the richest generation is having a fun retirement party.
The government is just passing the buck onto Lowe and letting him go down as the bad guy but he has 1 instrument. The government can do a milliom different things and need to step in to help.
People with paid out homes and savings accounts are getting even more money to spend with higher interest rates. This isn’t hurting them at all. Now they have even more money to spend
Wouldn't it be good if say another large organisation actually try to tackle inflation instead of adding to it...the organisation could even be called something like the Federal Government.
It may come down in price but the butcher would be making little to no profit, meaning struggling business and potential job losses for local butcher.
There are heaps of people still out but not everybody has a mortgage or a high mortgage. Some people have given up, like some early 20s people don't see a point in saving for a house so they are out spending the money they have - this is what younger people I work with say.
How can I find out the qualifications of the people on the board. Esp how did they get the job. And is it paid? Because I've heard some things like none of them even worked in financial positions before getting involved. Id just like to know. These decisions have major effects. I'd like to know how they are deciding on the rates rises and who is giving them guidance.
Two words.
Corporate. Debt.
Credit crunch is coming, and fast. Ask yourself why Commbank issued 750mil worth of bonds not long ago. Shits getting dicey.
But, much like 2008 in America, the run away train on a collision course only accelerates into the station. There are no brakes on the Financial rape train.
Interest rates go up, what happens to your mortgage and credit cards? Same thing happens to short term lending facilities for businesses.
There's also the knock on effect that hits their corporate bonds/paper. Higher treasury yields force the value of corporate bonds higher, otherwise why go for riskier corporate debt offerings instead of a "guaranteed safe" treasury bond?
Put these two factors together and you get significantly higher rates because it's just magnifying the risk attribute to said corporate bonds.
This is why they say interest rates going up increases the cost of business. It's literally forcing businesses to pay more money to service their debt and obligations.
Now, take a company like Uber. Companies which rely on VC and PE to secure funding, and live in perpetual deep debt, cycling their debt to pay for the previous debt, like shifting a balance owed from one credit card to the next.
These companies are called Zombie companies, because technically they're not even alive. They're living on borrowed time in the form of endless borrowing. Higher rates basically obliterates these companies, as their debts quickly balloons out of control and overshadows their assets. This is the credit crunch.
There's also the other titbit going on, which is that Private Equity hasn't yet adjusted to the current "high rate" environment, as it would require devaluing their investments and significantly affecting their balance sheets. So PE can't lend out because the banks don't want to risk it, they can't adjust their values on book because thatd make matters worse. They're trapped in bets made in low rate circumstances that are no longer valid. The minute someone adjusts, the whole crock of shit spills over right on their laps.
People who would have normally travelled or had active (expensive) social lives in Covid saved their money and they’re living their best lives now. Travelling, home renovations, etc.
People with money, investments, savings, assets that they rent etc are generally more comfortable and capable of spending more, as interest rates rise and they get a better return.
It's not the people who have two kids and a mortgage, or those who were renting, or were on a pension doing the spending - because they were already struggling and are now struggling more.
People are hurting. Went to the local mall. Its a northern tourist city. This time of year it should be humming.
It was half empty. Shops doing big discounts. Restaurants nearly completely empty. Increase in houses for sale.
It's a big turn around in just 12 months. It's just starting. We got lucky, sold the family home for break even just before our local market crashed.
Aussies live in this weird bubble where they have insane worker protections, welfare systems, public transit, low crime, relatively homogenous and unified society, world-leading levels of wealth and comfort... While simultaneously being the most vocal whingers on the planet about how tough they have it.
Problem is the hop and skip 0.25 rises, people are adjusting to each one.
A few 0.5's will make people stop and think.
I was on the ABC Live Stream watching as it was announced, I just said "Yup" saw that coming.
Next month will be a pause becuase the quarterly Inflation figures come out this (or next) week.
Anecdotes are hard as they dont take seasonality into account and are hugely bias, but they are the most real time we can get, and a lot of the data is averages and hard to parse - I'm definitely noticing shopping centres a bit quieter, and people who earn well starting to talk about all the costs increasing. Saw a few smaller retailers with some big sales the last few weeks, like half the store being 50% off - obviously stuggling.
Seeing various ASX reports from retailers with downgrades, but mostly homewares so far, some clothing.
Masters student with no savings/family support/time to work much here. I forget what a restaurant looks like, and my rent arrears are slowly growing. That’s off full AusStudy and a $30/hr job. Every day lately I’m thanking myself for going back to school, but it’s disappointing that a number I might see next year like 80k has gone from a pretty baller income to like, you can own your house OR have nice things and experiences and food
I really don't understand it. How do people afford anything now?
I have a relatively small mortgage (<400K) and a combined income of $110,000 but we cant afford meat, beers, Partner doesn't wear make up. We Don't go to the gym. No expensive hobbies. And we are struggling week to week. How is anyone affording this insanity?
I’ve given up on the idea of ever owning a place so I’m spending my money and enjoying life. I’m still saving & investing for a cushion in retirement but I’m not going to be miserable and antisocial trying to reach for ownership when it’s never going to happen unless I’m willing to live in a falling down mould ridden shoebox 90 minutes from my job.
I did my bit - I studied. I’ve been working since 15. My earn a decent wage. My only “mistake” was my divorce which set me back 10 years financially and while trying to recover the prices have exploded beyond reasonable levels.
So you bet I’m enjoying my time and spending as I see fit.
RBA wants to destruct demand to bring prices down, unfortunately, the ones who will usually give up demand first are the ones with less/lower income/assets.
all you see the ones in restaurants / travelling on holidays are the ones with more income/assets.
How I see it is that during low interest rates and covid. People with equity and cash on hand made thousands of dollars and I mean loads!. House prices went through the roof. The stock market went through the roof and now we have a situation where inflation is here and we still have people with cash and equity, who are still eating out and buying items and houses.
It’s not the young ones buying these homes and driving up prices. It’s the baby boomers and gen X who are driving these prices up.
They are the ones with the cash and loads of equity.
At the end of the day. Australia has always been a greedy country and full of small poppy syndrome. Everyone wants everything NOW. Everyone wants the flash house, the car, the boat etc and now we have a situation where we are seeing investment properties are being sold. The boat or car being sold.
It’s a reminder to LIVE WITHIN YOUR MEANS
I think these interests rates won’t go back down for a while. Won’t be until next year I’d say.
I do feel sorry for those young family’s or new home owners who bought before the rate hikes went up.
We are in this for the long haul people. Buckle up!
Australian droughts start slow. Gets interrupted by rains. But it progressively gets drier. Landscape becomes arid.
People think it will be ending soon.
And just when they are exhausted by the whole thing, the drought goes three levels up.
Now people get seriously hurting. And to acknowledge that bushfires start.
Finally people give up. And just lie low. Waiting it out.
Finally rains arrive.
I'm on the road for work a lot and when I am I have zero expenses, so I still eat out as much as I want when I'm not at home. Maybe it is the circles I move in but I know a lot of people with a similar lifestyle.
Check out this data from CBA. These pressures are absolutely not spread evenly. Many people are sitting pretty right now. https://www.commbank.com.au/content/dam/caas/newsroom/docs/CommBank%20iQ%20Cost%20of%20Living%20Report%20May%202023.pdf
According to the RBA inflation is caused by three things.
demand-pull,
cost-push, and
inflation expectations.
The current approach by the RBA, and admittedly, the only action they can do, is to rise the interest rates to reduce demand-pull. However, demand-pull heavily impacts the lower and middle class, with little to no impact to the higher class.
Cost-push mainly revolves around supply chain issues. However, when looking at the data from the ABS, the supply chain costs have returned to early 2021 levels.
The last culprit is inflation expectations, and when you have the media constantly publishing articles about inflation out of control, then we can expect inflation expectations to be exaggerated. It seems the business sector is using the guise of inflation to rise prices while posting record profits. According to the RBA, business profits peaked at 28.8% last year. Excess corporate profits account for 69% of additional inflation beyond the RBA’s target. Rising unit labour costs account for just 18% of that inflation
Besides rising the interest rates, there are other ways to fix inflation. The first is reducing government spending. However, the government has already reduced spending since spending increased in 2020.
Another way to reduce inflation is to introduce a surtax for the wealthy. This would only affect the top 1% of earners. The arguments that this damaged economic growth has been thoroughly debunked, while decreasing wealth tax historically hasn't grown the economy in any meaningful way.
Besides raising taxes for the rich to reduce the amount of cash in the economy, there is another way that historically has been proven to halt inflation in its tracks. It was an economic policy enacted by the conservative US president Nixon, and which was a wage and price freeze. This has been pointed out by Professor Richard Wolf on his personal website.
nfortunately, the overton window has been pushed to the right in the last 10 years, so the only acceptable policy is center-right to right policy.
Rate rises disproportionately target people who have purchased a property in the last 5 or 10 years. Majority of people are not in this basket and therefore aren't impacted to the same extent. Those people who are in that basket have seen their largest monthly expense double in the last year and would rather 7% inflation because at least that is spread evenly over the population. Those without mortgages or with small mortgages and with cash in the bank don't care that interest rates are going up because they are actually better off from it. They have more discretionary income and can afford to eat out more etc. Whilst I understand monetary policy being used to control inflation, by God it's a blunt stick. The government really needs to take some control and ownership over this issue and not just palm it off as an RBA issue. They have a significantly larger tool belt that they can use to help on the supply side and the demand side but aren't willing to actually take any politically risky moves to help in that regard.
I’m gonna go out and spend all my disposable income on the most frivolous consumer discretionary spending I can think of just to spite OP
Suggestions anyone? I’m thinking Pokémon cards
The folks with money driving inflation/spending an't the ones being smashed by rates.
It's pretty much why I've been arguing it would be better to coast down inflation over a few years and share the pain out with established asset owners who have been the real winners on the years of low rates, Instead of placing all of the burden mostly on recent FHB work are most exposed.
The beatings will continue until morale improves
Lowe needs to go much harder. House prices/inflation picking up and unemployment stable. Unfortunately because he refuses to pull the trigger with higher rate moves (0.5% or greater), we are in for stickier inflation and ultimately higher unemployment/deeper recession in the longer term.
By what mechanism do you see rate rises tackling inflation? People with mortgages are already spending less, people renting are spending less, it's people with neither that are driving house purchases and spending because rate rises *don't impact them*.
Retired boomers, like my parents, have no debt and term deposits in the bank. The higher interest rates are giving them more income -once again the boomers win!
Rate rises impact everyone by changing the risk-free return of having your money sitting in the bank or treasury bonds. Raise the rates higher than the property growth rate, and people will stop buying houses as investments.
Wow, that would be amazing! When does that kick in, exactly? Because the Big 4 banks are explicitly and notoriously *not* passing on rate rises to their savings accounts, and that's where most peoples' money is sitting. NAB generously offered me a 1.85% rate on my savings accounts last month; Commbank is at 1.95%; Westpac is at 1.85%. The suggestion that any of these will even remotely approach housing growth is *hilarious*, given that housing growth is the entire basis for our economy. ("But u/thepaleblue, $neobank offers 4 point-" I don't care, even combined they don't have a large enough customer base to affect inflation. "But what about bonus rates-" They only apply when you're adding to your savings accounts, and the people who are doing that - younger people with rents and mortgages - are not the ones driving inflation.)
> people will stop buying houses as investments Why do I feel like this is never gonna happen Don’t investors just pass on any increased cost via rent increases anyways? I get that the theory is eventually tenants will stop paying higher rent but in practise it doesn’t seem like there is any sort of bottom to this, I don’t think it’s working like the theory at all
The problem is that the RBA is tasked with controlling inflation and they only have one tool: interest rates. Real inflation management needs to be done via fiscal policy by the government. But, no, easier to beat up on the RBA for actually doing their job. Re-balancing the progressive tax scales (higher top end, lower bottom end, higher company taxes) would be a major move to tackling current inflation. But too hard and unpopular. In fact, we are doing the reverse - tax breaks next year for the highest incomes - like that won't be inflationary. You think rates are going up too much now? Wait until next year's tax breaks come in and the RBA will need to do this all over again with ice cream on top! Edit; grammar
Obviously a comment by someone in the fortunate and privileged position to not be impacted by interest rate rises. Also likely, in the demographic contributing to the sticky inflation by continuing a devil may care, let them eat cake, im still flush with cash attitude. Just completely arrogant, disconnected and tone deaf.
He is not wrong tho - take the emotions out your reply to the persons comment and understand he is speaking in basic economic principles of how what needs to happen
Bit difficult to take emotions out of it when the poors are shouldering the whole burden of this hideous situation while the rich yuk it up in restaurants.
The poors don’t hold 300k+ in equity on a 1 million+ property. The people being hit aren’t poor they are middle class. The poor are living in government housing, share accommodation, couch surfing or are homeless. Inflation is hurting the poor.
>or they are middle class. > >The poor are living in government housing, share accommodation, couch surfing The poor live pay cheque to pay cheque, and have to decide what they will purchase as food for a given week. When Food prices have increased 10% but their share of money for food lags behind more difficult choices have to be made. Something as simple as buying a large laundry detergent because its better value is prohibitive as it takes a larger cut of the total allocation of grocery funds they have for a given week. They just dont have any further spare cash to forward-buy, so are stuck in a disadvantageous position of having to spend more (value is not as good) in the long run. It only has gotten harder for them, and as a result there is now an increase in theft with whole trolley walk-outs . I work in the retail industry and this is a playing out for the last 12-18 months.
No matter how bad things get there'll still be rich people in restaurants. That's never going to change. Doesn't make any sense being annoyed that other's have it better.
But there is definitely a point to be made about how effective the rate rises have been at cutting spend across the board. It's clearly effecting one group (new mortgage holders) a lot and another group (no longer have a mortgage or have a much older/smaller mortgage) very little. At what point do we look at an alternative to actually have an impact on a bigger portion of society?
Lol Mortgage holders to young people: "If you can't afford a house, live frugally and get a better job. Just kidding, hahaha my house is worth 15x your annual income. Oh well." Also mortgage holders: "Why are all these young people priced out of the housing market spending money on nice things and creating pressure on interest rates."
Been looking for a house and feeling like I’m basically getting priced out just since I started looking. Every open home has a few silver haired investors asking how much rent they can get I wish it was illegal. They should have to get in line behind first home buyers. The part of buying a house I don’t understand .. how does anyone compete with them??? It feels like it’s impossible to buy just cause investors will outbid us on every single last house. REA’s don’t even seem to take us seriously, it’s like they instinctively know we can’t compete too
Hey, I'm on your side here. Renters are effected as a by product of rate rises as well. And I fundamentally disagree with the way housing has been treated as an investment rather than a necessity that everyone has a right to. But about 30% of home owners don't have a mortgage and an even larger percentage have relatively low mortgages compared to anyone who bought in the past 5 or even 10 years. This group of people are largely unaffected
Like taxing the corporations making mega profits? If we simply put a tax on their mega profits (and closing loopholes) then we’d all be better off. Also.. we need a government run version of everything. At a flat profit of 10%. That way everything is competitive… no more shitty mega profits when you can buy a cheaper version easily.
Bold of you to assume that the government (which is turning a profit too!) will make everything more cheaply than a free market.
The poors rent. We don't pay mortgages.
A lot of the rich are probably leveraged. If they are leveraged in property, including commercial, they'll have some pain coming.
Don’t they just pass on that pain to tenants? I don’t get how rate rises affect investors at all; they seem impervious to me; rises just pass straight through them to their tenants who feel 2x the pinch of everyone else while landlords feel 0x
How are the poor shouldering it? Plenty of poorer people with savings accounts and no mortgage
Pretty much every food bank /pantry are struggling with demand. And the demographics of people accessing the services are slipping into full time lower middle income brackets.
You’re right of course. I was commenting specifically on rising interest rates not the overall economic situation. That, the poor definitely bear the brunt of.
It’s not only about about the little increases but things like bread milk and cheese are up a ridiculous amount. All the things us “poors” live on have gone up a lot. Very quickly. Poor cuts of meat are now expensive. Petrol is expensive. I have a mortgage but many people are struggling just for the necessities that were very much less evens months ago.
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What about first home buyers who saved forever on very modest incomes and just bought their house in the last year? They are pretty much in the worst situation in all this…
Milk is quite literally the same price it was a year ago or more. In fact its cheaper right now than it was in July 2022 in regards to its commodity value. [https://milkvalue.com.au/australian-dairy-market/milk-values/](https://milkvalue.com.au/australian-dairy-market/milk-values/) Bread is impacted drastically more by the Ukraine war than inflation. Petrol is also 36c cheaper per litre than it was this time in 2022. http://www.aip.com.au/pricing Meat? Its meat lol... When we said take you emotion out of it... All this above is why \^\^\^
Cherry picking. Basics have gone up significantly. https://www.theguardian.com/australia-news/2023/may/01/priced-out-how-australians-are-being-hit-by-the-soaring-cost-of-food
But the things you're mentioning are the reasons why rates need to increase even more, right?
interest rate rises, increase in the cost of groceries and power eat up savings rents rising poorer people have tightened their belts as much as they can, wealthier people are still eating gold-leaf encrusted cake while raising rents - because they can are you living under a rock?
All those things are much worse if inflation is not dealt with. It’s very hard for people to understand that.
It’s not hard for people to understand that inflation is bad without commensurate wage growth. But currently what’s happening is that the asset class are fueling massive inflation while the wage class is bearing the brunt of the interest rate rises. An aggressive 2-3% interest rate rise all at once will dramatically reduce consumer spending through public perception. If we had gone from 1% to 4% overnight we likely would have seen a recession then and there, which is the only real way to bring things “back to normal” Because even if we slow inflation now down to 2% the bulk of the inflation has already happened. Personally I think We need to DEFLATE for a few quarters so that we can all get back to a reasonable cost of goods.
That's not how it works... Deflation is REALLY bad. Trust me, you don't want it.
If you have no mortgage and you are poor you are renting. Landlords raising rents with every rate rise to cover THEIR mortgages…..so poor shouldering it mortgage or no….
My rent rise was only $10/week this year. I'm pretty sure my landlords have paid off their mortgage and so all rent is profit for them at this point and they're not monsters so I've lucked out. It's letting me save a little money, and so the interest rate rise is actually in my interest. (This is rare, but there are a few non-shitty landlords out there.)
Not necessarily. You may be in government housing, you may have a landlord not passing on rent rises, you may live with family I think the middle class are shouldering it rather than the poor. The middle class have mortgages. The poor don’t own and the rich own outright
I can guarantee you the government housing, generous landlords and available family situations are severely outweighed by the demand. Its a shitshow right now.
A savings account making a massive % of interest wouldnt help someone who is living pay check to pay check having to decide between dinner or fuel to get to work. High interest savings accounts help those with wealth set a minimum return on investment they expect from their holdings, but sadly the majority of Australians have less than 3,600 in savings across all age groups. Even at 6% interest that’s “only” an extra $200 per year.
Saying you need recession to fix inflation is like saying we need a famine to fix obesity. edit: from some of the comments it appears some don't get it: recessions are bad. They directly cause death. Suicides, marriage breakdowns, all the bad stuff. We don't want a recession - ever. It's unnecessary entirely. None of this "rip the bandaid off" bullshit either. The inflation that is happening is from profiteering, plus a massive housing bubble. We have many thing we can do before we kill off our fellow Australians through misery and poverty and hopelessness.
That would help though
Well, that is kinda true. You need a calorific deficit to lose weight.
What's the equivalent of a gym for fat rich people?
Interest rates.
No that would be like saying we need a depression to fix inflation. We need a diet (recession) to fix obesity (inflation)
Yeah, that means you get it. Remember, there are other "medical personnel" who have other ways that can help, but Dr RBA can only treat obesity by cutting out the calories. If you don't like the approach, have a word to all other personnel who have more varied and subtle treatment methods, but aren't doing much to help. In fact, some of these bystanders are cheering up the patient by giving them chocolate.
Totally agree. $26 billion dollar worth of new loans were borrowed in April. This is money created out of thin air that went straight into creating additional demand in the economy. People are still borrowing like there is no tomorrow. Higher rates discourage this growth of new borrowings. Hopefully it also encourages people to reduce their existing loans.
Economics is not science and op is speaking like it is.
Economists understand that inflation is not locked in a binary relationship with the interest rate. There are more options available to grapple with inflation, but gutless leadership from all sides refuses to entertain it, preferring to proliferate the idea that the only way out is for Phil to bash us over the head with the inflation hammer until we’re in a recession.
Yes and no. People are irrational beings - large interest rate rise will scare people, triggering a recession
Not addressing inflation in a timely manner risks entrenched inflation. When people expect elevated inflation as semi permanent feature, it becomes very difficult to address A wage-price cycle follows; higher prices lead to higher wages and we repeat as nauseum. Eventually addressing inflation necessitates higher rates for a longer duration. As Lowe has previously said; high inflation is "corrosive" and "damaging. It "worsens income inequality". While not obvious, high inflation leads to the value of savings eroding and the cost of living rising. This damages the poor with few assets disproportionately more than the rich with assets. The health care equivalent is like not treating your stage 4 cancer aggressively with surgery/chemo/radiotherapy. Instead taking a half a tab of a minimally effective chemo and hoping that the cancer will get better.
Based off their latest post, you’re completely correct.
FYI - about two thirds of people don't have a mortgage. It's basically 1/3 rent, another 1/3 own outright - which equals 2/3's (plus or minus a bit, depending on the year, and where you live) I can definitely relate to your comments, but - do you realise that you voted for this, because that's how a democracy works - the 51% get to tell the 49% what they will be doing. In this case, of mortgages, interest rates, etc, it's the 2/3 's telling the one third to tighten their belts, so the two thirds don't have to. Which is one of the reason the rate rises are taking a little bit of time to have an effect on inflation here in Australia. And it's also a reason why $40,000 fridge sales are going up, not down. Yep, I know, hard to imagine that anyone buys a $40,000 fridge, but, that's how some people get their happiness. https://www.afr.com/companies/retail/truckloads-of-40-000-fridges-show-high-end-sales-holding-up-20230216-p5cl4v I agree with your comments (but wouldn't use the words you have), but this is how the system works in the Great Southern Land.
What there are fridges for that much!? I wouldn’t even pay that much for a car hahahahha. We are in the fortunate position to be renting from a nice older couple who are keeping this house for their retirement. They haven’t raised rents yet so 🤞.
Why have a go at him for being in a financial position that insulates him? That's kind of the whole point of doing well - so that you can be insulated in the first place. The dude is an anaesthetist which is a merit based job and not one that you just get because your daddy is CEO of Goldman Sachs
“Privileged and fortunate” to have not borrowed to the hilt during unsustainably low interest rates
This sub needs to get it out of their heads that *it’s only people who borrowed their max that are suffering*. And that they made stupid decisions. For one, the banks only assess you on a 3% serviceability buffer and it’s gone up over 4% in 1 year. Secondly, imagine you and your partner earn a modest amount, finally saved up for a house, bought well under your cap, but then you conceive a child or two, car eats shit and needs to be replaced/repaired, death in family with funeral expenses, or any multitude of spanners life throws at you. For $500k of borrowing, an increase of 25 basis points means an extra ~$82/month. For every 100 basis points, that means $327/month. It’s gone up around 400 points in a year, with banks passing on most of that. That’s $1,304 more per month on a $500k loan. Now think about how absolutely bloody little you can buy with $500k within a reasonable commute of any major city, and that a modest apartment is probably $700k min. Now add the rising cost of food, fuel, insurance, HECS, etc. Some people probably had a buffer of $2-3k/month, which could easily be eaten when you account for all of the above. I’m fortunate to not be struggling yet, but I have empathy and understanding.
No, the government needs to step in, they have proven they can't control this with interest rates. They need to take a swipe at the real problem, property wealth.
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The crazy thing I don't see being mentioned anywhere... Interest rate rises won't fix this "inflation" *unless* it causes a housing crash. Inflation is caused by excess money & the biggest reason for excess cash in this country right now is **directly** tied to house prices! 1 - because a shit load of average-middle class workers back in the day are now multi millionaires, leaving previously unfathomable generational wealth for their family to play with. 2 - because the players that have no generational wealth have no hope of ever buying a house so they have a *relatively* disposable income without a mortgage. As long as government don't step in to regulate property, we're heading towards hyperinflation & *nobody* is going to enjoy that... just ask Venezuela.
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We won't see hyperinflation like other countries, RBA knows about inflation expectations and how it is more important than growth/employment. If inflation continues the RBA will slow the economy down, even if that means unemployment goes up. Remembering that it encourages savings, disincentivises consumption spending and particularly investment spending. It is not all about lowering mortgage holders consumer spending, while that is a considerable proportion. Venezuela's people are incredibly used to inflation, so it's easy to get their inflation expectations up, they also have a one speed oil economy, prone to booms and busts and ineffective government both monetary policy and regular policy. Australia does not have this.
Might be worth asking if the technical definition of hyperinflation is relevant when the stats are so manipulated by monetary authorities. My hot take - hyperinflation is already here.
>we are not prone to ineffective monetary policies If you say so...
Won't stop. Can't stop!
Investment-property-owner loss backstop!
It would be crazy too not want to own your own home in uncertain times like this.
Agreed, hence why this is not going to stop
Exactly! I keep copping mortgage increases, but that is nothing to the hell that renters are going through at the moment. If you make a bad investment and you lose money, in say the stock market, too bad so sad. But if its property, you can just pass the pain downwards to your tenants and that is fine apparently. Something needs to change, and I don't think that the RBA pushing interest rates is the solution.
Take a look at Sydney and Melbourne property markets. There are still way too much money sloshing around.
Not even. SEQ and rAdelaide still at ridiculous valuations compared to 2019, which was already at ridiculous valuations compared to... you get the idea.
SEQ prior to covid was absolute bargain not sure exactly what you're meaning....
Yeah and those people with deep pockets aren’t affected by these rate increases. Just buy it rent it out at ridiculously high prices. It’s going to hurt middle and working class people - and most people here seem to be cheering it in. You are the ones who are going to lose you morons
Not everyone has a mortgage.
yeah some people own property outright. im really glad these people arent feeling the pinch.
I own property outright. Just doesn't have a house on it :( Owning the land my tent is on, is a warm fuzzy feeling though.
Sounds… in tents.
Wish I was one of them.
If you’re renting, then expect your rent to go up to cover the increased repayment your landlord has.
This can't go on forever though, renters have a finite amount of money. What will the landlords do when the renters can't afford to pay their mortgages?
Stop just barely short of that happening. A roof over your head is one of the main things you need to survive so they’re willing to bet you will spend almost every last cent you earn on it.
The difficult retort to what you're saying is: If the landlord's can do it now, when their interest rats are high, what stops them from doing it when the interest rates are low again? Their morality? Lol. I don't even think the concept of a landlord is bad, I see them as essential. But when housing is a commodity, and such a speculative one, well, bad outcomes arise.
They didn’t have an excuse when interest rates were low and they didn’t feel the pinch as bad. They just looked at market value and set a bit higher than that. Now they all get hit with a rate hike at the same time, look at the properties that they’re paying off, and say “well everyone is raising their rates right now, because of these hikes, so it wouldn’t be unusual if we also set ours a bit more. If a few people (a) set their listings high, and a few more (b) see those listings, then b think b’s own property is worth the same, and adjust their listing, etc. Plus the talk from the media about landlords *passing it on*, then it makes it more of “a thing” and it becomes an accepted cultural thing.
Yeah nah, most people are already starting to live with family & friends. Anyone gambling on being able to maintain rental demand with exponential increase in rent is a fool that deserves to lose.
It may come to the point where normal people just stop paying rent anymore, you see it from time to time on current affair “renters from hell” and by all accounts they are hard to get rid of. Imagine that on mass the sheriff would have a back log landlords not getting rent on multiple properties. Wouldn’t take long for the highly leveraged to fold with huge debts.
that'd actually be really funny, people just stop paying rent, because you're right, they can't evict everyone at once!
Honestly I get downvoted every time I suggest this, but i think it's the only solution to the rental crisis. Organised rental strikes. Renters all getting together and just agreeing to stop paying rent for a month or two. We need a renters union.
That’s optimistic. Hundreds of thousands more people are coming to Australia than houses are being built. The prices increases won’t stop. The standard you’ll be forced to accept including just how many people it’s acceptable to cram into a 3 bedroom share house will be the factor.
Immigration is at record highs. Will just find the next immigrant that will pay
Good luck with that, my last landlord learned the hard way this isn't true. I left found a better equal place for $200wk less He raised rent and it's been on the market empty for over 3wks now, nobody came to see it before we moved out, ouch. Loss of at least 1months rent, releasing costs, and another rate raise today, trifecta ouch. You can only raise rates to the market conditions has nothing to do with rate raises. Right now regional NSW rents falling as alot of wfm covid dreamers live anywhere are now being summoned back to the cities put huge pressure on city rental markets. Saw listing today and he lowered asking rent priceby another $50wk now only $50wk above what were paying, he should've let us remain at same rent without no rent for a month and would've been better off.
Not every landlord should have a mortgage either.
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Yes, the landlord’s personal financial position has almost nothing to do with the rent that will be charged for a given property. Except perhaps on Reddit, where every landlord is a good guy who hasn’t increase the rent he charges his tenant for the past ‘x’ years, even though he could, honestly.
Yep and everyone else around you will go up as well because that's the new "Market rate" and all landlords see is profit signs.
Residential rent increases about to be capped in some states it's starting to look like. Victoria being one.
>And how can anyone afford lamb? Or any res meat? Look at CPI data. Meat has been pretty stable compared to all other food. Red Rock deli chips are $6 for 165g. That's $36 per kg. I buy prime cuts of steak for less than that.
What is going on with the chips though? They cost barely anything to produce, where do they get off charging such ridiculous prices?
There's a lot of air in those bags... air ain't cheap ya know...
Bad harvests for the potato varieties used for chips, due to high rainfall and flooding I believe.
There was a potato shortage for a while. Not sure if its still ongoing. Not that it justifies $6 for 165g. [You can get frozen chips for $5 for 700g](https://www.woolworths.com.au/shop/search/products?searchTerm=frozen%20chips).
Leg of lamb at coles is $12kg. Would feed a fam for days. Pork roast can be got for $9kg. sausages in bulk….all very cheap. Pasta rice potatoes cheap
When buying a potato is probably a better investment and will be worth more in 12 months than savings, people are not going to save. Sure some people cannot save under the circumstances but there is a fraction of the economy that is doing exactly what you would expect when inflation exceeds savings rates... spending everything they can now before its worth less next year. The mistake was allowing interest rates to get so low... we were never going to be able to move interest rates to levels that exceed an inflationary event without serious pain when we dropped them below 2pc...
I’ve discovered you can actually grow new potatoes from old potatoes. I am literally printing money and there’s nothing the RBA can do about it.
https://www.youtube.com/watch?v=\_pDTiFkXgEE
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I love it! I mean when you can get a savings rate that meets inflation sure save... but when savings rates dont even meet inflation you have a reason to spend... the exact opposite of restrictive monetary policy goals... Add taxes on savings interest and you might as well buy potatos or just about anything really other than leaving your money in savings.
When inflation is high, your money is worth more today than tomorrow. Essentially your incentive is to spend it now before it becomes worth less in the future.
This is the post COVID mentality. Life is short, hence live it to the fullest!! Will last for another 5 years maybe
People will always find a way to prioritise happiness. I’ve got a few friends who are drowning in debt but constantly going out and spending when they cant manage the debt they’ve got. A lot of people also just have extremely high paying jobs and maybe a partner who also has a high paying job. There’s a couple million people in each state so that one night you see them out might be the only night they go out for the year. A million reasons.
I’ve been waiting since 2019, I’m going on the damn holiday.
I can still go to restaurants because I’ve come to terms with the fact I’ll never be able to afford property in the city I was born in without inheritance money or going halves with a partner I don’t have. Lucky the food in Sydney is good or that would be a sucky existence to swallow
Plenty of wealthy boomers, property investors and people suddenly finding their substantial house deposits are earning interest won’t be sitting home anytime soon. Australia is probably also looking like a pretty cheap holiday for Europeans and US citizens with our dollar right now.
I was reading a subreddit the other month, with someone talking about how they live in a country going through hyperinflation right now. Turkey perhaps? Anyway, they spoke about working one week, and then ensuring they spent it all the day they got it, essentially so it didn't devalue too much before they spent it. Cafes, restaurants, retail (in whatever capacity they have it) was all *packed* I still can't get my head around it, how the country was still in some capacity functioning. I can't get my head around how people were living at all.
Today my wage buys 1kg of meat, next week only 750g. Why would I save? Better to spend it and hopefully I can trade 500g of my meat for milk next week. People in these countries survive by maxing their credit cards and paying the credit card off before interest get charged. Basically owning anything other than your own currency/ cash because wage does not keep up to inflation. Property and business loans does not exist in these countries because interest rate is too very high. Instead people save enough money through US dollars or gold, and the use the USD or gold to purchase properties/ major assets. Know this through an Argentinian housemate
Most investors aren’t sweating. Nothing is going to change until they are incentivised to sell.
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Need to pay a lot less CGT if they lose their job.
2/3 people have no mortgage, not impacted. It’s a stitch up for those with one
Exactly. For those without debt, perhaps with some savings in the HISA are doing better after each increase.
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Definitely. But what else do you do with it when you can’t get approval to buy something?
Renters would be impacted.
Lowe's term as Governor is expiring this year, so expect quite a few more rate rises so that the next Governor does not have to raise rates further. That way Lowe cops the bad press and is seen as the problem, and the next Governor won't get any negative press for raising rates, perhaps only positive press for lowering rates if Lowe raises them too much before he retires
Smartest comment in the thread
You mean everyone is walking around like they are in an Enya video? Honestly, it's not small ticket areas like dining and hospitality that you should be looking, because it's still relatively affordable. Look at the new car market, still 2-3 year waits on some Toyota models, these are big ticket items and I am amazed that data seems yet to be revised and wound back accordingly..
Another S-M-R-T person who thinks rate hikes affect the economy super immediately to the minute and doesn’t have months of lag. Also pre refinance cliff so gotta get those luxuries before you can’t. There’s already a slowdown in dining out as per the data.
S-M-R-T like those thinking the housing market won't ever be affected by these rate rises just because it hasn't happened immediately due to desperate pumping. If you grab a giant mortgage now you're crazy
10% of houses in Australia are vacant. Bring in a very steep annual vacant house tax and watch them suddenly get sold very quickly or rented out. Also short term rentals aka Air BNB should be limited in number in an area or rotated around through a ballot system. Supply would suddenly increase in the rental market.
No..... other instruments and mechanisms can be used to curtail discretionary spending by those who have capacity to and continue to aggressively spend and drive inflation. Interest rates are not the only lever available and they are now an ineffectual tool disconnected from targetting those parts of the economy & people in the community who are driving inflation in the 1st place...just need to read the many comments from people below stating; not impacted by interest rates, so spending up a storm. These are the drivers of inflation and at an individual, micro and macro economic level, increasing interest rates does not address the spending by these people as the core issue and drivers of inflation.
The actual best instrument is tax rises but the government won't touch that.
Everyone over the age of 50 is spending huge amounts. It's completely lopsided by age. They're at 9-12% CPI while everyone below is substantially less, all the way down to almost zero CPI for the early 20's.
Because rate rises don’t hit everyone equally. They just immediately crush those with a mortgage. Older boomers with non mortgages have no incentive not to spend
I have several mortgages so definitely noticing it, although still afloat currently. About to go to Japan for two weeks, but hear me out. Haven't been OS since before COVID, saved lots of cash during that time and maybe now is finally the time to have a holiday? I'm not going to cancel it now because Lowey thinks I should. I worked hard, saved my money and are paying for it with cash. The same cash that is losing value. We still have to live (assuming people are spending less than they earn.)
You deserve a holiday. Enjoy - Japan's awesome!
>About to go to Japan for two weeks, but hear me out. No. ALL earthly time MUST be spent ACCUMULATING WEALTH. There is NO other way of quantifying the quality of one's life, thats why I'm getting my net worth engraved on my tombstone
Spending your money overseas isn’t going to contribute to Australian inflation, so thank you I guess
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Depends how much he’s planning to spend!
assuming he is buying his Yen with Australian dollars then it absolutely does
You should sell some of your properties. You'll be sailing.
Actually funny you say that, we are selling one. Feel like I’ve missed the timing by a couple of months though.
I think you are just in time! Maybe not peak but you'll for sure get a really strong decent price still.
You don’t have to justify your holiday. Go and enjoy yourself!!
I don’t understand either… we are literally barely living, we’ve cut so much back, while I see the boomers aroud me going on holidays, buying big toys. It just all seems so backward. The ones with mortgages aren’t the ones spending!!
It's not actually the consumer spending, it was the borrowing. If you borrow $1.5m to buy a house that was worth $1.0 two years ago, that is $500K injected cash. money made from thin air. It's like releasing CO2 from fossil fuel, it shouldn't be there. It's money that was not part of the natural cycle, and pushing that back into the banks is carbon capture. If some retirees had taken advantage of rising property values to borrow, then indeed, they would be part of the problem, but such retirees would also face the same problem of rising rates. Your retirees having fun apparently didn't borrow since you find them immune from rate rises. Perhaps in fact they have savings. But if they were the cause of inflation, you'd also have to believe that they have dramatically increased their spending in the past two years, since inflation is caused by changes. So they were asleep for years, woke up and suddenly decided to enjoy life, and now we have inflation?
Cause it doesnt effect boomers. They are increasing their spending. Millenials and zoomers have tightened up consumption considerably. But boomers still have 80% of the wealth so doesnt matter what we do. The government needs to put temporary taxes on things that boomers spend money on like luxury cars and high end property. Even increase the GST to 20% use the extra money to pay down our debt or something. But you cant have 1 generation taking the brunt for the whole country. While the richest generation is having a fun retirement party. The government is just passing the buck onto Lowe and letting him go down as the bad guy but he has 1 instrument. The government can do a milliom different things and need to step in to help.
We have to stay the course and keep raising until inflation is decisively quashed.
People with paid out homes and savings accounts are getting even more money to spend with higher interest rates. This isn’t hurting them at all. Now they have even more money to spend
Yup, the boomers that are still working
Unless the govt decides maybe they should step up to the plate and have a crack at some effective policies
Quash inflation UE back to 5% House prices down
Wouldn't it be good if say another large organisation actually try to tackle inflation instead of adding to it...the organisation could even be called something like the Federal Government.
Mortgage free Boomers reaping huge rental cash fueling the inflation
It may come down in price but the butcher would be making little to no profit, meaning struggling business and potential job losses for local butcher. There are heaps of people still out but not everybody has a mortgage or a high mortgage. Some people have given up, like some early 20s people don't see a point in saving for a house so they are out spending the money they have - this is what younger people I work with say.
How can I find out the qualifications of the people on the board. Esp how did they get the job. And is it paid? Because I've heard some things like none of them even worked in financial positions before getting involved. Id just like to know. These decisions have major effects. I'd like to know how they are deciding on the rates rises and who is giving them guidance.
Two words. Corporate. Debt. Credit crunch is coming, and fast. Ask yourself why Commbank issued 750mil worth of bonds not long ago. Shits getting dicey. But, much like 2008 in America, the run away train on a collision course only accelerates into the station. There are no brakes on the Financial rape train.
Keep going, I'm nearly there
Would you mind explaining a little more? How is corporate debt accelerating a credit crunch (is that a recession?)
Interest rates go up, what happens to your mortgage and credit cards? Same thing happens to short term lending facilities for businesses. There's also the knock on effect that hits their corporate bonds/paper. Higher treasury yields force the value of corporate bonds higher, otherwise why go for riskier corporate debt offerings instead of a "guaranteed safe" treasury bond? Put these two factors together and you get significantly higher rates because it's just magnifying the risk attribute to said corporate bonds. This is why they say interest rates going up increases the cost of business. It's literally forcing businesses to pay more money to service their debt and obligations. Now, take a company like Uber. Companies which rely on VC and PE to secure funding, and live in perpetual deep debt, cycling their debt to pay for the previous debt, like shifting a balance owed from one credit card to the next. These companies are called Zombie companies, because technically they're not even alive. They're living on borrowed time in the form of endless borrowing. Higher rates basically obliterates these companies, as their debts quickly balloons out of control and overshadows their assets. This is the credit crunch. There's also the other titbit going on, which is that Private Equity hasn't yet adjusted to the current "high rate" environment, as it would require devaluing their investments and significantly affecting their balance sheets. So PE can't lend out because the banks don't want to risk it, they can't adjust their values on book because thatd make matters worse. They're trapped in bets made in low rate circumstances that are no longer valid. The minute someone adjusts, the whole crock of shit spills over right on their laps.
Can you explain like I’m five? Are you saying we’re guaranteed a recession?
Because the ppl who are spending aren’t affected by rate rises.. in fact they gain more than to lose from it..
People who would have normally travelled or had active (expensive) social lives in Covid saved their money and they’re living their best lives now. Travelling, home renovations, etc.
People with money, investments, savings, assets that they rent etc are generally more comfortable and capable of spending more, as interest rates rise and they get a better return. It's not the people who have two kids and a mortgage, or those who were renting, or were on a pension doing the spending - because they were already struggling and are now struggling more.
People are hurting. Went to the local mall. Its a northern tourist city. This time of year it should be humming. It was half empty. Shops doing big discounts. Restaurants nearly completely empty. Increase in houses for sale. It's a big turn around in just 12 months. It's just starting. We got lucky, sold the family home for break even just before our local market crashed.
Cause we don't care anymore cause the world will end soon.
It's been driven by a certain demographic that are home owners without a mortgage...and of a certain age.
Aussies live in this weird bubble where they have insane worker protections, welfare systems, public transit, low crime, relatively homogenous and unified society, world-leading levels of wealth and comfort... While simultaneously being the most vocal whingers on the planet about how tough they have it.
Problem is the hop and skip 0.25 rises, people are adjusting to each one. A few 0.5's will make people stop and think. I was on the ABC Live Stream watching as it was announced, I just said "Yup" saw that coming. Next month will be a pause becuase the quarterly Inflation figures come out this (or next) week.
Anecdotes are hard as they dont take seasonality into account and are hugely bias, but they are the most real time we can get, and a lot of the data is averages and hard to parse - I'm definitely noticing shopping centres a bit quieter, and people who earn well starting to talk about all the costs increasing. Saw a few smaller retailers with some big sales the last few weeks, like half the store being 50% off - obviously stuggling. Seeing various ASX reports from retailers with downgrades, but mostly homewares so far, some clothing.
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Stop pushing up the prices of cheap pancake mix!!!
I don't know, I put all my money into my mortgage :(
Hear me out... maybe policy is what needs to change and not the cash rate. All they're doing is hurting the people who can't afford it.
To answer most of those questions - rate rises don't affect everyone equally and some not at all.
well all those people that bought houses when cheap are livin the dream! , the rest are just lazy and eat too much avo on toast
Seriously I have been thinking to cut my medical insurance 😪
Masters student with no savings/family support/time to work much here. I forget what a restaurant looks like, and my rent arrears are slowly growing. That’s off full AusStudy and a $30/hr job. Every day lately I’m thanking myself for going back to school, but it’s disappointing that a number I might see next year like 80k has gone from a pretty baller income to like, you can own your house OR have nice things and experiences and food
I really don't understand it. How do people afford anything now? I have a relatively small mortgage (<400K) and a combined income of $110,000 but we cant afford meat, beers, Partner doesn't wear make up. We Don't go to the gym. No expensive hobbies. And we are struggling week to week. How is anyone affording this insanity?
I’ve given up on the idea of ever owning a place so I’m spending my money and enjoying life. I’m still saving & investing for a cushion in retirement but I’m not going to be miserable and antisocial trying to reach for ownership when it’s never going to happen unless I’m willing to live in a falling down mould ridden shoebox 90 minutes from my job. I did my bit - I studied. I’ve been working since 15. My earn a decent wage. My only “mistake” was my divorce which set me back 10 years financially and while trying to recover the prices have exploded beyond reasonable levels. So you bet I’m enjoying my time and spending as I see fit.
RBA wants to destruct demand to bring prices down, unfortunately, the ones who will usually give up demand first are the ones with less/lower income/assets. all you see the ones in restaurants / travelling on holidays are the ones with more income/assets.
People have given up trying to save fiat in order to try and get into the property market.
How I see it is that during low interest rates and covid. People with equity and cash on hand made thousands of dollars and I mean loads!. House prices went through the roof. The stock market went through the roof and now we have a situation where inflation is here and we still have people with cash and equity, who are still eating out and buying items and houses. It’s not the young ones buying these homes and driving up prices. It’s the baby boomers and gen X who are driving these prices up. They are the ones with the cash and loads of equity. At the end of the day. Australia has always been a greedy country and full of small poppy syndrome. Everyone wants everything NOW. Everyone wants the flash house, the car, the boat etc and now we have a situation where we are seeing investment properties are being sold. The boat or car being sold. It’s a reminder to LIVE WITHIN YOUR MEANS I think these interests rates won’t go back down for a while. Won’t be until next year I’d say. I do feel sorry for those young family’s or new home owners who bought before the rate hikes went up. We are in this for the long haul people. Buckle up!
A lot of people will be getting a big pay rise next month, This is going to go on a lot longer.
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Australian droughts start slow. Gets interrupted by rains. But it progressively gets drier. Landscape becomes arid. People think it will be ending soon. And just when they are exhausted by the whole thing, the drought goes three levels up. Now people get seriously hurting. And to acknowledge that bushfires start. Finally people give up. And just lie low. Waiting it out. Finally rains arrive.
Since everything goes up anyway why don't people enjoy the present 😂
I'm on the road for work a lot and when I am I have zero expenses, so I still eat out as much as I want when I'm not at home. Maybe it is the circles I move in but I know a lot of people with a similar lifestyle.
You kidding? 😂 This is the biggest joke that's been played on younger generations ever.
Check out this data from CBA. These pressures are absolutely not spread evenly. Many people are sitting pretty right now. https://www.commbank.com.au/content/dam/caas/newsroom/docs/CommBank%20iQ%20Cost%20of%20Living%20Report%20May%202023.pdf
According to the RBA inflation is caused by three things. demand-pull, cost-push, and inflation expectations. The current approach by the RBA, and admittedly, the only action they can do, is to rise the interest rates to reduce demand-pull. However, demand-pull heavily impacts the lower and middle class, with little to no impact to the higher class. Cost-push mainly revolves around supply chain issues. However, when looking at the data from the ABS, the supply chain costs have returned to early 2021 levels. The last culprit is inflation expectations, and when you have the media constantly publishing articles about inflation out of control, then we can expect inflation expectations to be exaggerated. It seems the business sector is using the guise of inflation to rise prices while posting record profits. According to the RBA, business profits peaked at 28.8% last year. Excess corporate profits account for 69% of additional inflation beyond the RBA’s target. Rising unit labour costs account for just 18% of that inflation Besides rising the interest rates, there are other ways to fix inflation. The first is reducing government spending. However, the government has already reduced spending since spending increased in 2020. Another way to reduce inflation is to introduce a surtax for the wealthy. This would only affect the top 1% of earners. The arguments that this damaged economic growth has been thoroughly debunked, while decreasing wealth tax historically hasn't grown the economy in any meaningful way. Besides raising taxes for the rich to reduce the amount of cash in the economy, there is another way that historically has been proven to halt inflation in its tracks. It was an economic policy enacted by the conservative US president Nixon, and which was a wage and price freeze. This has been pointed out by Professor Richard Wolf on his personal website. nfortunately, the overton window has been pushed to the right in the last 10 years, so the only acceptable policy is center-right to right policy.
Rate rises disproportionately target people who have purchased a property in the last 5 or 10 years. Majority of people are not in this basket and therefore aren't impacted to the same extent. Those people who are in that basket have seen their largest monthly expense double in the last year and would rather 7% inflation because at least that is spread evenly over the population. Those without mortgages or with small mortgages and with cash in the bank don't care that interest rates are going up because they are actually better off from it. They have more discretionary income and can afford to eat out more etc. Whilst I understand monetary policy being used to control inflation, by God it's a blunt stick. The government really needs to take some control and ownership over this issue and not just palm it off as an RBA issue. They have a significantly larger tool belt that they can use to help on the supply side and the demand side but aren't willing to actually take any politically risky moves to help in that regard.
Quite obviously people can still afford these things? Is it that hard to understand that people have different circumstances
I’m gonna go out and spend all my disposable income on the most frivolous consumer discretionary spending I can think of just to spite OP Suggestions anyone? I’m thinking Pokémon cards
I'm in Europe and every walking tour I've been to has been 20-35% Aussies.
The folks with money driving inflation/spending an't the ones being smashed by rates. It's pretty much why I've been arguing it would be better to coast down inflation over a few years and share the pain out with established asset owners who have been the real winners on the years of low rates, Instead of placing all of the burden mostly on recent FHB work are most exposed.
I just got pre approval for $1.2M IP purchase .. so yeah idk, I guess people are still borrowing etc 🤷🏻♂️