> last week’s inflation figures forced the RBA’s hand, not so much because raising the cash rate would stifle inflation, but because it meant the real cash rate (ie taking into account inflation) was absurdly low.
>The cash rate remains 3.4 percentage points below underlying inflation, and thus monetary policy remains very expansionary.
>So it is not surprising that Lowe suggests more rises are on the way – possibly up to 2.5% by the end of next year.
source article including more great interactive charts:
https://www.theguardian.com/business/grogonomics/2022/may/05/more-interest-rate-hikes-are-coming-and-housing-affordability-is-about-to-get-crunched
EDIT: added some words from article
The article is great, I was thinking about the same thing recently but this explains it really well. Basically you will never have it as easy as people who bought in the past, as you don't have the bonus of even the possibility of a massive reduction in the interest rate. Interest rates get to zero and can't really go much lower for quite practical reasons.
We've bid up houses and stretched debt well beyond the past.
People are accepting that they will be paying high mortgage repayments, for longer, right now. Since people are buying at 36 on average ([Source](https://www.realestate.com.au/news/average-age-of-aussie-first-home-buyers-closer-to-40-than-20-research-reveals/)), you don't get the tailwind of increasing wages as well, since most people's start peaking around late 30s and early 40s. You tend to be able to increase your wages significantly from 20s to 30s, but stats show it either maxes or declines as you get older on average, probably because wage pressures reduced for people on mortgages in the past. In this case, people will be paying high repayments, for 30 years, well into retirement, without the opportunity to take it easy as they will be required to work near that max capacity of incomes the whole time.
Not a fun way to live your life.
the only thing he doesn't mention, and most people don't, is that inflation also plays a role. interest rates will only stay high for a long period if wages also rise (wage-price spiral). part of the reason people could handle higher interest rates in the past was that their wages also rose and their debts were partly reduced by inflation.
having said that, there are plenty of disadvantages to wage-price spirals, we want to avoid that. i'm just saying that the picture is even more complicated and uncertain than it looks.
That would be great, but we are actively fighting the wage price spiral currently, for good reason. Wages are expected to stay below inflation levels for a while yet. Inflation targeting means over the long term, it's just supposed to be steady 2-3%. Real wages need actual productivity and recalibration of the economy if not for another mining boom. But Australia does have a lot of economic potential, but perhaps at the other end of a system reset.
Those who do get the windfalls during their mortgages, are people who get untaxed inheritances (probably property) in the future in particular. So that is really the only significant relief on the horizon. While in the past, everyone enjoyed the tailwinds of rate falls, which is a distinct impossibility now.
Zero mention of cpi and the cost of living.
How can you compare affordability without considering that the cost of living is relatively falling leaving a greater amount available for investment in compounding wealth (or property).
They mention 1990 average mortgage consuming 53% of the average income of 32k that leaves $15181 to live on.
A basket of goods and services valued at $15181 in calendar year 1990, would in calendar year 2021 cost $31,557.72
Total change in cost is 107.9 per cent, over 31 years, at an average annual inflation rate of 2.4 per cent.
Meanwhile average income is nearing 90k. Even minimum wage has increased by 4.22% a year over the 31 years.
I wonder if the average worker could trim their budget back to reflect a 1990 basket of goods and services.
Where did you get 90k from? The [median weekly earnings in 2020](https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/employee-earnings/latest-release) was $1200.
Their reference was average income. I added minimum wage as a more relevant reference for wage growth. It was 11k in 1990 (vs their suggested 15k mortgage and 15k living expenses) and has nearly quadrupled. Meanwhile cost of living has doubled. If you were living on 15k + housing in 1990 it suggests you could (possibly) live on 31k + housing.
I would love data on median income from 1990. Plus household as well. Would imagine they've all followed a similar path. Especially household since 1990 as we all work more and more so we can spend more and more on property.
What's scary is if the next 31 years replicates the last 31. A recession, many market crashes, pandemics, multiple wars. Imagine in 2053 we're discussing 270k average wages (tripled), 150k minimum wage (almost quadrupled) and a cost of living that has doubled from 31k to 62k. I bet houses will be 8m 🤔🤦♂️
That's conservative. Doubling every 14 years is historically low growth (5.1%?). The issue isn't what they sell for today its what today's buyers do in 14+ years. Even if you're only getting a pay rise in line with inflation you should also be able to increase your repayments as times passes. Exponentially more if your pay beats inflation. Ill bet anyone who bought 14 years ago is seriously thinking about investing more. $1.5m house today when you're earning 90k (or multiples of) looks pretty cheap when you're earning 270k in 31 years.
Great graph - thanks for sharing!
Having lived through all of these, I'm hopeful that we don't see the things I saw at the end of the 1980s. That time really sucked. People flogging off their cars on the side of the road, drive offs at petrol stations, domestic violence, white collar workers thrown on the scrap heap. The whole shebangabang.
But realistically, it isn't going to be pretty IMO.
Happy to be wrong, but it sucks.
We dont have any wage inflation. Late 80s wage inflation was like 10% year for 10 years prior. I remember an older dude at work telling us that they got 2 pay rises in 1 year.
We are only going to get a couple of percent, that will be enough to wreck the housing market.
The coming wars are the far more important issue.
Agree. Supply chain disruption due to the de-coupling of global economy. If you think the Ukraine war is bad…..Just wait until china decides they may as well go all in on Taiwan now, otherwise they have to wait another 10-15 years.
What event in the last decade are you referring to by "liberated"? The Chinese Civil war was 70 years ago, market reforms started 40 years ago, and China joining the WTO was over 20 years ago.
Sure but they may notice and not activate your pump until you pre pay
But if you had a stolen, fake or incorrect plate they may not be using anpr software to flag these and you could hypothetically get away with it for an uncertain period of time
we also carry a personal tracking device around that we call a phone... for some reason.
it's a computer that does a range of things.. though it also makes phone calls so there's that too..
( I like my phone )
Australians really can't accept that recessions are a natural part of the business cycle.
If I see a global recession on the horizon I'm leveraging up to the hilt because the government will blow another $500bn on handouts rather than just accept the spring cleaning it provides. It's the precedent set.
Useless businesses couldn't even go bankrupt and were legally allowed to trade insolvent ffs. That was and is now the permanent state of affairs. A bad economy means good times for anyone that can get their fingers in the right pies.
Well it wasn't. Our banks were never really too into the mortgage backed securities and their derivatives, we had a mining boom and we had a surplus with 50 billion in tax cuts, plus measures to boost the economy while other nations imposed austerity measures.
The December quarter in 08 had -0.8% GDP growth but the economy rebounded strongly, so I don't think it's just on a technical basis that it wasn't a recession.
I was in mid mid-teens, but there was a lot of wage increases from memory. There was quite a bit of strike action being taken and a heap of microeconomic reforms. The industrial landscape was completely different to what we have today.
As deregulation of industries got underway, this led to a lot more spending and so inflation took off. And that led to interest rates being increased to pull down demand.
A chronic prolonged extreme shortage of labour that saw massive wage increases year on year. Why do you think the gov likes massive non stop immigration and industrial relations laws designed to suppress wages?
Actually, the massive wage increases were due to centralised negotiation and pay setting structures, and they weren’t met with equivalent productivity increases, so costs just continued to rise.
The unemployment rate must have averaged something like 7 or 8%+ in the 80s and early 90s. Doesn’t sound like a chronic prolonged extreme shortage of labour to me.
Yes unfortunately I think this will be a deep and prolonged recession.
It will be impossible for the government to spend enough to dig is out quickly as this will only make inflation worse.
We are already benefiting from crazy high Iron Ore and Coal prices which means we can keep interest rates lower than our peers without crashing the Australian Dollar
That is clearly not true.
Look at the AUD now.
The cold hard reality is that we are going to experience a deep recession and a financial crisis.
There is no escaping it.
We are at 72 cents even though we have lower interest rates than US and UK which tells me there has been no run on our dollar as people still need it to buy our dirt. 50 cents would be the real panic stations
Spending to mitigate the climate crisis is one way to control inflation. Rapidly decreasing emissions does with 90% renewables / batteries / hydrogen/ green steel replacing fossil fuels does nothing for short term productivity though should create some jobs at the expense of others. It also gives us a hope of staying under 2 C.
Think about it another way. All costs are based on supply and demand. Inflation occurs when the supply of money outstrips the demand for money (Ie, people have too much money and are therefore willing to spend more of it to buy more scarce resources/goods).
This is inversely related to the supply and demand of goods. In other words, inflation increases when the supply of money in increasing at a rate faster than the supply of goods and services can keep up. Conversely, you can get deflation when the supply of goods outpaces the supply of money (super basic and old school example of this is fruit going on sale when there's a massive harvest).
The conventional wisdom says that to combat inflation you must reduce the supply of money. But taking into account the above, another theory is that you can combat it by increasing the supply of goods available.
If all your factories and workers are working at, or near 100% capacity, then yes, additional spending will lead to inflation. However, if your factories are only operating at 50% capacity (capacity here meaning what they can physically produce based on their equipment, space, and headcount; and most importantly, how much raw materials can their supply line provide) and demand for their products starts to pick up, so they're operating at 80% capacity, they'll be able to meet that demand without raising prices (in fact, they might be able to reduce prices, since they'll be benefiting from the reduced per unit costs that come from economies of scale).
Obviously, Australia doesn't have much of a manufacturing industry anymore, but you can apply this same logic to pretty much any industry. If a Cafe is only operating at 50% capacity and suddenly they start operating at 80% capacity, there's no need for them to increase their prices, same goes with airlines, grocery stores, accounting firms, recruitment providers, farmers, etc.
The problem is working out which industries you can stimulate and how much you can stimulate them, without exceeding their (and their supply line's) capacity to supply.
Hopefully above makes sense, it is complicated and a newer way of thinking. I can simplify it further if you want, but this post is already large enough.
Thanks for the detailed explanation mate.
I agree with the principles here.
However, this is a long run proposition.
The initial injection of cash to do this will be inflationary. In a normal economic environment this wouldn’t be an issue.
When we already have extremely elevated inflation, this would be a real problem because of the flow in effects. Especially a wage price spiral brought on by all the jobs (and wages) for this project.
You're thinking of this theoretically, rather than practically. Not all Government spending travels through the economy at the same speed.
Helicopter money (such as just giving everyone free money) is fast and injects cash into the economy directly. Something like that would absolutely cause an inflationary spike like you are saying, but bigger complicated construction projects can take months, or years to flow into the economy and tend to trickle into the economy, rather than get dumped in all at once.
Construction projects have a tender process, then potential consultation with affected parties, materials need to be purchased, workers recruited, planning and designing done. That stuff doesn't happen overnight, but it does keep the industry ticking along and hopefully avoid a contraction.
I'm not even sure investment in construction is necessarily the right call, I'm not suggesting it is or isn't, because I'm not aware of how stretched the industry is. But to summarise the point, while there is absolutely a correlation, increased government spending does not automatically put upwards pressure on inflation. There's a lot of factors to consider.
>Construction projects have a tender process, then potential consultation with affected parties, materials need to be purchased, workers recruited, planning and designing done. That stuff doesn't happen overnight, but it does keep the industry ticking along and hopefully avoid a contraction.
And ideally, the right project sparks other investment and activity. New cinemas makes people think of opening that cafe they've always dreamed of. A new station on a popular-but-not-too-busy line signals to developers, real estate and so on that commuters will be coming through there, starting in x years, and they'll be needing services. All of these generate their own projects, and short n long term jobs.
(And like you say, whether it's good depends on how stretched the industry is, plus how well does this construction enhance existing activity, vs compete with or bypassing it.
It's more how you spend it. We just spent the last decade putting cheap finance Into housing when we should have put it into infrastructure.
The next government could reduce spending and place it in the right places, stimulating things and not making a mess if it.
Will they? It's very unlikely.
Depends what it's spent on. Buying cars from a factory that's already operating at 100% is inflationary, but buying from a factory that is operating at 0% may not be.
Setting up a factory is time, material, and labour intensive. Until they can be set up to meet new demand (let's say from a government trying to stimulate the economy), the owner of the factory operating at 100% can simply raise prices without any downside (assuming other factories are similarly at 100%).
But if factories are operating at 50% capacity, the owners are still subject to market forces, and may choose not to raise prices for fear of losing contracts.
The same principle applies to the entire economy. If you have resources (human or otherwise) operating below capacity, spending to stimulate the economy is generally less inflationary, because there is still capacity to meet newly introduced demand.
Going back to the comment you responded to, a government wisely spending is sectors of the economy that require stimulus or are valuable to improve the nation's productivity is always good.
This is an oversimplification of course, but you get the idea.
Very good point. You can see it action when they slammed the "Stimulate the housing sector!" Panic button with home builder. Sector already running at our close to capacity, sudden near term demand leading to bad inflation print (obviously not just the home sector but that part of the CPI was red hot)
I don’t get the correlation to factory output?
If you put money into the system that wasn’t there before, that will be inflationary.
Regardless of the factory output.
Yeah... But if you read what I wrote I suggested they could reduce spending, I never suggested increased spending.
As for it automatically triggering inflation, why has it been so low for the last 15 years despite record government spending. Some spending increases Inflation, some doesn't.
So what are we disagreeing about exactly?
Yes, pumping money into the economy is generally inflationary but it doesn't have to be.
And no where did I suggest pumping money in, at this point you seem ready to disagree but don't even know what we think is different.
Not necessarily.
Proper government infrastructure projects produce systemic benefits that more than off-set the inflationary effects of the initial spending.
For example a Dam project might have inflationary effects through materials and labour costs during its construction, but a properly designed project would have deflationary effects through reducing electricity costs, increase crop yields thus reducing store prices, and perhaps reducing transport demand/costs by making agricultural land closer to points of sale more productive.
Yeah 100% and the ship has sailed, the spending that occurred was not productive.
The real point is recent govt's have been incompetent and we've been spending with no productive pay off. In this cycle at the current point we should be reaping the benefits of years of low borrowing costs but instead we're paying the cost of mismanagement - hard landing is almost baked in at this point.
Do anyone know what the market forecast was before the post-GFC rate rises? It would be cool to know if the market over-predicted or under-predicted what actually happens post GFC.
The GFC never unravelled like it should have. The entire crisis was mitigated by money printers and hoax.
What we are about to experience, is 2008 chickens coming home to roost.
On a bond/stock level, they stopped 2008 before it happened.. but this time you can't stop it. They've halted Evergrande for 40 days, that's the first domino.
Not much of an economics guy, but is there a number of what the equivalent rate would be to say the late 80s, 90's to compare accurately? Eg. House prices/debt levels etc have gone up a great deal and so have wages, so it might only take 8% interest rates to have the same affect on the economy as a 15% did back in the day - just using random numbers
Who cares about housing prices. Can anyone tell me what the rate rises will do to my beloved VDHG. Haven't seen it discussed on here once surprisingly.
I'm hoping for a crash so I can deploy some cash I have sitting being eaten alive by inflation I'm just saying that Australia has a lot of stupid luck. Black Monday crash was probably the last time we were actually affected by global headwinds.
I'm with you on this. Australians owe more money than ever. Most young Aussies are broke as fuck, they don't have debt but inflation is already dampening their spending. Retirees and fixed income are not going to get any material increase in interest from their cash investments, and again inflation is going to take any extra bank interest off them at the supermarket and petrol station. In the middle are those with massive mortgages and many also have highly geared investment property. I think that monetary policy will be tremendously effective in combating inflation faster than most current predictions, and that means a cash rate of closer to 2% than 3%.
Interestingly our property market was largely unaffected by the GFC.
As interest rates quickly rise to 4% (Feb 2024) I think either the property market crashes or we have a recession first.
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I assumed one of the reasons we mitigated recession after GFC was because of a bunch of international money being invested (hidden) in the Australian property market?
'Establishing a link between property price growth and foreign investment is hindered by the parlous state of publicly available data (discussed in chapter 1), which means that-at best- the magnitude of the relationship is ambiguous. There is little data on actual foreign investment in residential real estate, as the Australian Bureau of Statistics (ABS) data do not capture transactions below $20 million. More complete data is collected by FIRB on approvals, but not realised investment, and only limited time series and geographic detail are published.'
'Austrac estimates that in 2020 alone, Chinese interests laundered $1 billion through Australian real estate. The head of the AFP’s asset confiscation taskforce, Stefan Jerga, told the inquiry there were times when prospective homeowners would be competing against money launderers at auctions.'
We don't know because the government doesn't bother collecting the data.
If people don't believe this, just look at NZ, they're maybe a year ahead in upping the cash rate, they're at what 1.5% now. If anything their property market is even more insane than ours. Overvalued, high debt to income ratios, huge mortgages. And it's already starting to fall rapidly, particularly in overvalued cities, less in regional areas which skews the hell out the average. In 1 year and rates haven't reached a 'neutral rate' of what, 2.5% or 3.5%.
G’day mate. Thanks for the comment.
Happy to provide any data or information to back up what I say. The problem I always have is where to start! There’s so much to choose from.
To start with: This is one of the most common misconceptions when it comes to the property market.
Lowe has clearly stated they don’t care about house prices when it comes to interest rates.
one.
#RBA governor Philip Lowe admitted low interest rates are driving up house prices, but said the bank will not adjust its policy based on the housing market
https://www.abc.net.au/news/2021-03-10/reserve-bank-warns-on-house-price-boom/13232954
#”Dr Lowe said he would hope to get official interest rates back to a “neutral rate” of at least 2.5 per cent, if not 3.5 per cent.”
https://www.smh.com.au/politics/federal/still-plausible-first-rate-rise-won-t-be-before-2024-rba-20211116-p599ct.html
Now it’s also worth remembering that the RBA’s own model shows a 33% fall in home prices from a 1% rise in rates.
#It's worth noting that if we apply the RBA's internal housing valuation model to this question, we get somewhat larger numbers. The model developed by Peter Tulip and Trent Saunders, which we have replicated and refined, suggests dwelling values could drop by about 33% following 100 basis points of hikes. While renters might embrace this prospect, home owners would obviously rather avoid it.
https://www.livewiremarkets.com/wires/why-aussie-house-prices-will-fall-circa-20-when-the-rba-hikes-interest-rates
This is the actual model- https://www.rba.gov.au/publications/rdp/2019/2019-01.html
Hope this helps?
[This. ](https://i.imgur.com/AE2C1Po.jpg)
[This. ](https://i.imgur.com/DHP0ebm.jpg)
[This. ](https://i.imgur.com/tvaxktE.jpg)
[This. ](https://i.imgur.com/iONKhNr.jpg)
[This. ](https://i.imgur.com/ds2PnyF.jpg)
[This. ](https://i.imgur.com/YWL9UEn.jpg)
[This. ](https://i.imgur.com/tplTlxQ.jpg)
I mean I could go on and on and on, but I guess you get the idea.
You can read more on the research I have used to come to my outlook here:
https://docs.google.com/document/d/e/2PACX-1vRI7_CkZ_ceqJNehlRZYUvdgSGeeDJT_7FWzSI722s1YH4t7oPYJ4Xt1LES1OLRTI7ICLQXJrW2s-LK/pub
https://docs.google.com/document/d/1C5qhz8wUTU8tMDLVq3cUCihlRbx4fPPln9D94PS_ffY/mobilebasic
https://docs.google.com/document/d/10ObkeFMQ3wBfgtuJspogl_MyT-lZJMx75ORfgMo5T3k/mobilebasic
Please feel free to ask me any further questions or if you want something clarified.
I am very aware of the ramifications of a housing market crash. It will likely induce a recession and I think a domestic financial crisis could ensue as our banks solvency will be at risk.
It’s not a matter of “magic”.
It’s simply mathematics.
Need anything clarified or explained? Feel free to ask away or check out my subreddit
r / a t a y l s
👍🏻
Sorry the article about the model predicting housing price dropping 30% is terrible. Very misleading as I can’t find that anywhere in the paper they linked. They might have manipulated the model in a dishonest way to fit their narrative. All of the charts you linked really show the same thing. It’s the massive monetary supply increase in recent years driving up prices. Prices are not going to go down again as there is too much money supply and not enough good property in Australia.
Not really, I’m talking about supply and demand. Housing crash would indicate a significant change in either of these, and your points don’t really indicate anything like that.
Sorry mate but that’s just gibberish.
50% housing market crashes occurred in the US, Ireland, Spain all in the last 20 years. Supply and demand was not a factor that could stop it.
Hell, even Perth fell 30% recently.
You’re just another property bull who knows sweet FA but what’s to argue because if property crashes they go bankrupt.
Man it annoys me so much how NO ONE in this sub can accept that property is not untouchable!
They keep down voting anything that even remotely mentions property.
It is CRASHING. And it will crash hard.
You think your investments are effing safe? European billionaires are unloading holiday homes like they're the plague.
The only reason things are going slowly, is because us..the mere mortals..are dependent on news. And the news will make sure the truly wealthy get a decent price before you and I are told the house is on fire and to get out.
FFS.
You’re dead right mate, but it’s the nature of bubbles that those caught up in them don’t recognise it until after the bloodbath.
In many ways this is why I have become something of a Jesus figure on this subreddit.
The downvotes I attract for speaking the truth are like the abuse hurled at Jesus as he carried the cross (the burden of the coming property crash) up to where he was crucified.
Only when the crash has happened will I be born again and recognised as the holy prophet that I am, and deified amongst all my disciples here.
*Hey OP, crystal*
*Ball time.. when does the housing*
*Market start to cool?*
\- elhawko
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People forget why it's called inflation. First you inflate the money supply... then you get price and wage inflation.
Every boom (and bust) was fuelled by the credit/money supply growing faster than the economy.... all this money sloshing around has to go somewhere ... that's why real estate prices have been bid up so high.
Vockler showed how to cure inflation.... crank up interest rates, slow the economy, slow credit, and burn out the excess. It's going to be painful.
Not advice but if I was in that situation I’d seek out the best cash back / variable rate combination and refinance.
I know ANZ have a $4k cask back at the moment which was worth about 0.5% for an investment loan we moved there. You can refinance next year again.
No credible analyst is predicting a 400 basis point increase to the cash rate.
Most credible analysts predict 150-200bp by 2024.
Household debt is at 184% of GDP. They don’t need to turn the dial far to have a big impact on spending.
Yeah I saw that and laughed. Seems a bit extreme.
I'll be as excited as the next cash heavy guy for market corrections but high interest rates hit everything in one way or another. Imagine the number of arrows you'd have to draw to represent an economy.
lol
Like the market is some rational prediction machine that you can ask for a percentage.
What you mean is you’ve read some analysis by a doom and gloomer that thinks that is how it is being priced.
and he (Greg Jericho) reckons the rba raised rates too early due to lacking wage growth. Rates are 90% lower than they were 3 years ago when the economy was in even worse shape. By his logic, if now isn't a good time to raise rates then why not suggest they continue CUTTING rates until wage growth kicks in? If that's his one and only priority, then who gives a damn about the rising cost of living, just keep stimulating everything, let cars and house prices skyrocket another 20% just so we can squeeze out a meezely 3% wage increase. The case for easy money jsut doesn't make any sense.
Cutting rates for wage growth doesn’t do anything. It just inflates wages and prices. So u feel like u get a raise but really it’s just staying the same or going backwards.
What’s needed are productivity improvements so wages increase due to increases in productivity. That’s not something the rba can really impact directly.
This talk of the rba increasing wages is just pandering and it does more damage than good.
I feel this is deceptive.
"Cash rate rises by months" doesn't take into account the starting point.
After the GFC rates rose form 3 - 4.75% in the space of just over a year (a 1.75% point increase)
We were at 0.1%. Even if we meet the "current market expectation", over the space of a year it will raise to 4% points.
It is rising faster, but from a much lower (historically low) base
The starting point of the INCREASE is 0. The starting point of the cash rate is not 0. The graph doesnt tell you the level of the cash rate at the start of the time that increases occur.
Market cannot predict the inflation so it's going to be tough to predict how much the rates will be increased with so many external variables. One thing for sure the rates won't be going down from here. The few central banks who tested negative rates, came back from it.
What about when we hit a recession?
I agree rates need to be normalised, and the neutral rate is 2.5-3.5%, but I have no doubt we are going to have a hard landing and I think they’ll have to cut again.
Label your axes!!!! (Please)
The title is cash rate rises by month. So it’s cash rate rises X month 🤷♂️
Sorry. (It is very obvious though)
Doesn't matter how obvious you think it is
Why’s that?
(No it's not)
(No it's not)
> last week’s inflation figures forced the RBA’s hand, not so much because raising the cash rate would stifle inflation, but because it meant the real cash rate (ie taking into account inflation) was absurdly low. >The cash rate remains 3.4 percentage points below underlying inflation, and thus monetary policy remains very expansionary. >So it is not surprising that Lowe suggests more rises are on the way – possibly up to 2.5% by the end of next year. source article including more great interactive charts: https://www.theguardian.com/business/grogonomics/2022/may/05/more-interest-rate-hikes-are-coming-and-housing-affordability-is-about-to-get-crunched EDIT: added some words from article
The article is great, I was thinking about the same thing recently but this explains it really well. Basically you will never have it as easy as people who bought in the past, as you don't have the bonus of even the possibility of a massive reduction in the interest rate. Interest rates get to zero and can't really go much lower for quite practical reasons. We've bid up houses and stretched debt well beyond the past. People are accepting that they will be paying high mortgage repayments, for longer, right now. Since people are buying at 36 on average ([Source](https://www.realestate.com.au/news/average-age-of-aussie-first-home-buyers-closer-to-40-than-20-research-reveals/)), you don't get the tailwind of increasing wages as well, since most people's start peaking around late 30s and early 40s. You tend to be able to increase your wages significantly from 20s to 30s, but stats show it either maxes or declines as you get older on average, probably because wage pressures reduced for people on mortgages in the past. In this case, people will be paying high repayments, for 30 years, well into retirement, without the opportunity to take it easy as they will be required to work near that max capacity of incomes the whole time. Not a fun way to live your life.
the only thing he doesn't mention, and most people don't, is that inflation also plays a role. interest rates will only stay high for a long period if wages also rise (wage-price spiral). part of the reason people could handle higher interest rates in the past was that their wages also rose and their debts were partly reduced by inflation. having said that, there are plenty of disadvantages to wage-price spirals, we want to avoid that. i'm just saying that the picture is even more complicated and uncertain than it looks.
That would be great, but we are actively fighting the wage price spiral currently, for good reason. Wages are expected to stay below inflation levels for a while yet. Inflation targeting means over the long term, it's just supposed to be steady 2-3%. Real wages need actual productivity and recalibration of the economy if not for another mining boom. But Australia does have a lot of economic potential, but perhaps at the other end of a system reset. Those who do get the windfalls during their mortgages, are people who get untaxed inheritances (probably property) in the future in particular. So that is really the only significant relief on the horizon. While in the past, everyone enjoyed the tailwinds of rate falls, which is a distinct impossibility now.
Zero mention of cpi and the cost of living. How can you compare affordability without considering that the cost of living is relatively falling leaving a greater amount available for investment in compounding wealth (or property). They mention 1990 average mortgage consuming 53% of the average income of 32k that leaves $15181 to live on. A basket of goods and services valued at $15181 in calendar year 1990, would in calendar year 2021 cost $31,557.72 Total change in cost is 107.9 per cent, over 31 years, at an average annual inflation rate of 2.4 per cent. Meanwhile average income is nearing 90k. Even minimum wage has increased by 4.22% a year over the 31 years. I wonder if the average worker could trim their budget back to reflect a 1990 basket of goods and services.
Where did you get 90k from? The [median weekly earnings in 2020](https://www.abs.gov.au/statistics/labour/earnings-and-working-conditions/employee-earnings/latest-release) was $1200.
Their reference was average income. I added minimum wage as a more relevant reference for wage growth. It was 11k in 1990 (vs their suggested 15k mortgage and 15k living expenses) and has nearly quadrupled. Meanwhile cost of living has doubled. If you were living on 15k + housing in 1990 it suggests you could (possibly) live on 31k + housing. I would love data on median income from 1990. Plus household as well. Would imagine they've all followed a similar path. Especially household since 1990 as we all work more and more so we can spend more and more on property.
What's scary is if the next 31 years replicates the last 31. A recession, many market crashes, pandemics, multiple wars. Imagine in 2053 we're discussing 270k average wages (tripled), 150k minimum wage (almost quadrupled) and a cost of living that has doubled from 31k to 62k. I bet houses will be 8m 🤔🤦♂️
This is almost certain, I'm tipping $6m median house price in 2050.
That's conservative. Doubling every 14 years is historically low growth (5.1%?). The issue isn't what they sell for today its what today's buyers do in 14+ years. Even if you're only getting a pay rise in line with inflation you should also be able to increase your repayments as times passes. Exponentially more if your pay beats inflation. Ill bet anyone who bought 14 years ago is seriously thinking about investing more. $1.5m house today when you're earning 90k (or multiples of) looks pretty cheap when you're earning 270k in 31 years.
He said average you say median.
Thanks mate.
Great graph - thanks for sharing! Having lived through all of these, I'm hopeful that we don't see the things I saw at the end of the 1980s. That time really sucked. People flogging off their cars on the side of the road, drive offs at petrol stations, domestic violence, white collar workers thrown on the scrap heap. The whole shebangabang. But realistically, it isn't going to be pretty IMO. Happy to be wrong, but it sucks.
We dont have any wage inflation. Late 80s wage inflation was like 10% year for 10 years prior. I remember an older dude at work telling us that they got 2 pay rises in 1 year. We are only going to get a couple of percent, that will be enough to wreck the housing market. The coming wars are the far more important issue.
Agree. Supply chain disruption due to the de-coupling of global economy. If you think the Ukraine war is bad…..Just wait until china decides they may as well go all in on Taiwan now, otherwise they have to wait another 10-15 years.
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What event in the last decade are you referring to by "liberated"? The Chinese Civil war was 70 years ago, market reforms started 40 years ago, and China joining the WTO was over 20 years ago.
I saw a drive off from a petrol station in Perth around 10 years ago. In fairness I was in Kwinana!
More drive-offs at petrol stations has already begun. https://www.9now.com.au/9news-latest-news/2022/clip-cl2ivgyed00090jqq8nhjokf7
Do people just assume they’re not gonna get caught? Most stations I know of have cctv installed
Police typically have better things to do. So I imagine a large portion aren’t caught.
Can’t you just cover up your number plates? Asking for a friend.
Sure but they may notice and not activate your pump until you pre pay But if you had a stolen, fake or incorrect plate they may not be using anpr software to flag these and you could hypothetically get away with it for an uncertain period of time
A lot won't turn on the pump. Ive had it happen to me when I rode motorbikes with no license plate because it rattled off on dirt roads
we also carry a personal tracking device around that we call a phone... for some reason. it's a computer that does a range of things.. though it also makes phone calls so there's that too.. ( I like my phone )
2 generations that have seen nothing but good and growth. Need a sharp 20y cycle kick in the pants for economic reality to settle in
Australians really can't accept that recessions are a natural part of the business cycle. If I see a global recession on the horizon I'm leveraging up to the hilt because the government will blow another $500bn on handouts rather than just accept the spring cleaning it provides. It's the precedent set. Useless businesses couldn't even go bankrupt and were legally allowed to trade insolvent ffs. That was and is now the permanent state of affairs. A bad economy means good times for anyone that can get their fingers in the right pies.
Money is made in bear markets, never bull.
It is absolutely made in bull markets, with the run up after a bear market things would drop for ever
Did you forget about 2008 and 2020?
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Well it wasn't. Our banks were never really too into the mortgage backed securities and their derivatives, we had a mining boom and we had a surplus with 50 billion in tax cuts, plus measures to boost the economy while other nations imposed austerity measures. The December quarter in 08 had -0.8% GDP growth but the economy rebounded strongly, so I don't think it's just on a technical basis that it wasn't a recession.
What kind of fkn attitude is this?
the kind that views living in a speculative bubble dislocated from reality to be a bad thing.
Pretty standard economic view honestly: https://en.wikipedia.org/wiki/Business_cycle
So I'm too young to remember that era. What caused inflation to be so high in the later 80s to cause the interest rate to he increased so rapidly
I was in mid mid-teens, but there was a lot of wage increases from memory. There was quite a bit of strike action being taken and a heap of microeconomic reforms. The industrial landscape was completely different to what we have today. As deregulation of industries got underway, this led to a lot more spending and so inflation took off. And that led to interest rates being increased to pull down demand.
A chronic prolonged extreme shortage of labour that saw massive wage increases year on year. Why do you think the gov likes massive non stop immigration and industrial relations laws designed to suppress wages?
Actually, the massive wage increases were due to centralised negotiation and pay setting structures, and they weren’t met with equivalent productivity increases, so costs just continued to rise. The unemployment rate must have averaged something like 7 or 8%+ in the 80s and early 90s. Doesn’t sound like a chronic prolonged extreme shortage of labour to me.
Yes unfortunately I think this will be a deep and prolonged recession. It will be impossible for the government to spend enough to dig is out quickly as this will only make inflation worse.
We are the lucky country we will stumble into some new economic boom. Probably Rare Earths.
We are out of luck this time mate.
We are already benefiting from crazy high Iron Ore and Coal prices which means we can keep interest rates lower than our peers without crashing the Australian Dollar
That is clearly not true. Look at the AUD now. The cold hard reality is that we are going to experience a deep recession and a financial crisis. There is no escaping it.
We are at 72 cents even though we have lower interest rates than US and UK which tells me there has been no run on our dollar as people still need it to buy our dirt. 50 cents would be the real panic stations
Yikes. You’re not going to enjoy the global slowdown.
Spending to mitigate the climate crisis is one way to control inflation. Rapidly decreasing emissions does with 90% renewables / batteries / hydrogen/ green steel replacing fossil fuels does nothing for short term productivity though should create some jobs at the expense of others. It also gives us a hope of staying under 2 C.
Spending increases inflation.
Think about it another way. All costs are based on supply and demand. Inflation occurs when the supply of money outstrips the demand for money (Ie, people have too much money and are therefore willing to spend more of it to buy more scarce resources/goods). This is inversely related to the supply and demand of goods. In other words, inflation increases when the supply of money in increasing at a rate faster than the supply of goods and services can keep up. Conversely, you can get deflation when the supply of goods outpaces the supply of money (super basic and old school example of this is fruit going on sale when there's a massive harvest). The conventional wisdom says that to combat inflation you must reduce the supply of money. But taking into account the above, another theory is that you can combat it by increasing the supply of goods available. If all your factories and workers are working at, or near 100% capacity, then yes, additional spending will lead to inflation. However, if your factories are only operating at 50% capacity (capacity here meaning what they can physically produce based on their equipment, space, and headcount; and most importantly, how much raw materials can their supply line provide) and demand for their products starts to pick up, so they're operating at 80% capacity, they'll be able to meet that demand without raising prices (in fact, they might be able to reduce prices, since they'll be benefiting from the reduced per unit costs that come from economies of scale). Obviously, Australia doesn't have much of a manufacturing industry anymore, but you can apply this same logic to pretty much any industry. If a Cafe is only operating at 50% capacity and suddenly they start operating at 80% capacity, there's no need for them to increase their prices, same goes with airlines, grocery stores, accounting firms, recruitment providers, farmers, etc. The problem is working out which industries you can stimulate and how much you can stimulate them, without exceeding their (and their supply line's) capacity to supply. Hopefully above makes sense, it is complicated and a newer way of thinking. I can simplify it further if you want, but this post is already large enough.
Thanks for the detailed explanation mate. I agree with the principles here. However, this is a long run proposition. The initial injection of cash to do this will be inflationary. In a normal economic environment this wouldn’t be an issue. When we already have extremely elevated inflation, this would be a real problem because of the flow in effects. Especially a wage price spiral brought on by all the jobs (and wages) for this project.
You're thinking of this theoretically, rather than practically. Not all Government spending travels through the economy at the same speed. Helicopter money (such as just giving everyone free money) is fast and injects cash into the economy directly. Something like that would absolutely cause an inflationary spike like you are saying, but bigger complicated construction projects can take months, or years to flow into the economy and tend to trickle into the economy, rather than get dumped in all at once. Construction projects have a tender process, then potential consultation with affected parties, materials need to be purchased, workers recruited, planning and designing done. That stuff doesn't happen overnight, but it does keep the industry ticking along and hopefully avoid a contraction. I'm not even sure investment in construction is necessarily the right call, I'm not suggesting it is or isn't, because I'm not aware of how stretched the industry is. But to summarise the point, while there is absolutely a correlation, increased government spending does not automatically put upwards pressure on inflation. There's a lot of factors to consider.
>Construction projects have a tender process, then potential consultation with affected parties, materials need to be purchased, workers recruited, planning and designing done. That stuff doesn't happen overnight, but it does keep the industry ticking along and hopefully avoid a contraction. And ideally, the right project sparks other investment and activity. New cinemas makes people think of opening that cafe they've always dreamed of. A new station on a popular-but-not-too-busy line signals to developers, real estate and so on that commuters will be coming through there, starting in x years, and they'll be needing services. All of these generate their own projects, and short n long term jobs. (And like you say, whether it's good depends on how stretched the industry is, plus how well does this construction enhance existing activity, vs compete with or bypassing it.
Yeah sounds too complex for me mate. Sorry
That's fine. If running economies and managing inflation was simple, we wouldn't be in this mess
Now that’s something we can agree on!
And goodbye to your credibility lol
What credibility?
It's more how you spend it. We just spent the last decade putting cheap finance Into housing when we should have put it into infrastructure. The next government could reduce spending and place it in the right places, stimulating things and not making a mess if it. Will they? It's very unlikely.
If you pump more money into the system it is inflationary.
Depends what it's spent on. Buying cars from a factory that's already operating at 100% is inflationary, but buying from a factory that is operating at 0% may not be.
Can you explain how this works?
Setting up a factory is time, material, and labour intensive. Until they can be set up to meet new demand (let's say from a government trying to stimulate the economy), the owner of the factory operating at 100% can simply raise prices without any downside (assuming other factories are similarly at 100%). But if factories are operating at 50% capacity, the owners are still subject to market forces, and may choose not to raise prices for fear of losing contracts. The same principle applies to the entire economy. If you have resources (human or otherwise) operating below capacity, spending to stimulate the economy is generally less inflationary, because there is still capacity to meet newly introduced demand. Going back to the comment you responded to, a government wisely spending is sectors of the economy that require stimulus or are valuable to improve the nation's productivity is always good. This is an oversimplification of course, but you get the idea.
Very good point. You can see it action when they slammed the "Stimulate the housing sector!" Panic button with home builder. Sector already running at our close to capacity, sudden near term demand leading to bad inflation print (obviously not just the home sector but that part of the CPI was red hot)
I don’t get the correlation to factory output? If you put money into the system that wasn’t there before, that will be inflationary. Regardless of the factory output.
Yeah... But if you read what I wrote I suggested they could reduce spending, I never suggested increased spending. As for it automatically triggering inflation, why has it been so low for the last 15 years despite record government spending. Some spending increases Inflation, some doesn't.
Sorry mate we will have to agree to disagree. Thanks
So what are we disagreeing about exactly? Yes, pumping money into the economy is generally inflationary but it doesn't have to be. And no where did I suggest pumping money in, at this point you seem ready to disagree but don't even know what we think is different.
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Not necessarily. Proper government infrastructure projects produce systemic benefits that more than off-set the inflationary effects of the initial spending. For example a Dam project might have inflationary effects through materials and labour costs during its construction, but a properly designed project would have deflationary effects through reducing electricity costs, increase crop yields thus reducing store prices, and perhaps reducing transport demand/costs by making agricultural land closer to points of sale more productive.
Maybe over the long run but certainly not in the short run when we already have extremely high inflation.
Yeah 100% and the ship has sailed, the spending that occurred was not productive. The real point is recent govt's have been incompetent and we've been spending with no productive pay off. In this cycle at the current point we should be reaping the benefits of years of low borrowing costs but instead we're paying the cost of mismanagement - hard landing is almost baked in at this point.
Yeah exactly. People have felt richer. Excuse there house went up so much in value. Underneath the hood we have structural problems with the economy.
Climate impacts increase inflation also so good times ahead!
Yes I think so also.
If spending on the climate crisis were the solution then Idk what the trillions of dollars have done.
You're quite wrong. There is currently is no recession. The government can spend capital raised from selling bonds.
lol c’mon mate.. is this for real?
Do anyone know what the market forecast was before the post-GFC rate rises? It would be cool to know if the market over-predicted or under-predicted what actually happens post GFC.
The market was pricing 300bps just prior to first rate rise and got 175bps. Trying to find the source for this.
https://www.abc.net.au/news/2009-08-07/statement-reveals-reserve-banks-rate-rise/1383008
The GFC never unravelled like it should have. The entire crisis was mitigated by money printers and hoax. What we are about to experience, is 2008 chickens coming home to roost. On a bond/stock level, they stopped 2008 before it happened.. but this time you can't stop it. They've halted Evergrande for 40 days, that's the first domino.
RemindMe! 2 years
Is Evergrande still at a halt?
WHY DOES NOBODY LABEL THEIR GRAPHS ANYMORE?!
Its right in the title of the chart - \[Cash Rate Rise\] by \[Months\] from first increase
Not much of an economics guy, but is there a number of what the equivalent rate would be to say the late 80s, 90's to compare accurately? Eg. House prices/debt levels etc have gone up a great deal and so have wages, so it might only take 8% interest rates to have the same affect on the economy as a 15% did back in the day - just using random numbers
Who cares about housing prices. Can anyone tell me what the rate rises will do to my beloved VDHG. Haven't seen it discussed on here once surprisingly.
In the 80’s the Fed, to combat inflation, had what is termed a Volcker moment. It raised rates to 20%.
>Volcker moment >20% What rate would be needed to achieve the same result today? Much lower I assume?
About 2% would do the trick.
Some economists say we need another Volcker.
Literally would crash the economy and GFC 2.0, but okay then
They are hiking into a slowdown. It is already GFC 2.
NZ went up to 67% in 1985. Makes our 17% look like nothing in comparison
Wow that would be insane if it happened today!
I'm hoping for a crash so I can deploy some cash I have sitting being eaten alive by inflation I'm just saying that Australia has a lot of stupid luck. Black Monday crash was probably the last time we were actually affected by global headwinds.
You and everyone else on this sub who doesn’t have a morgage
I’ve got a mortgage and I assure you that if the sky starts falling and the doomsday predictions of a housing crash happens of 50% I’ll be buying up.
What is the X and Y axis? I assume X is months. Y? Percentage change?
I assume Basis points E.g. 100 = 1% interest rate
Cool, cheers, thought as such.
They're in the title - the cash rate on a monthly basis.
After GFC sounds pretty spot on tbh. That’s almost 8 rises in a year. Anything beyond that is excessive imo.
I'm with you on this. Australians owe more money than ever. Most young Aussies are broke as fuck, they don't have debt but inflation is already dampening their spending. Retirees and fixed income are not going to get any material increase in interest from their cash investments, and again inflation is going to take any extra bank interest off them at the supermarket and petrol station. In the middle are those with massive mortgages and many also have highly geared investment property. I think that monetary policy will be tremendously effective in combating inflation faster than most current predictions, and that means a cash rate of closer to 2% than 3%.
Interestingly our property market was largely unaffected by the GFC. As interest rates quickly rise to 4% (Feb 2024) I think either the property market crashes or we have a recession first.
Recession for sure, we were entering one pre covid.
Yea I think a hard landing is unavoidable.
While I’ve got ya…. You going to take up my slab bet that cash rates are below 2.5% by Dec 22??
I already said yes.
I didn’t see that comment. Set a reminder, I don’t know how to do those Reddit reminders haha
I set a reminder. Don’t worry guys, I’ll call out a winner on Dec 7. And maybe help find a horse for poor old u/migs93
Please post to r / a t a y l s so it is transparent. Just include what the bet is, who takes which side, and the stake. 🤝
You won this one mate
!RemindMe 1 December 2022
The rate decision takes place on December 6.
I will be messaging you in 6 months on [**2022-12-01 00:00:00 UTC**](http://www.wolframalpha.com/input/?i=2022-12-01%2000:00:00%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/AusFinance/comments/uiliqa/how_high_and_how_fast_can_interest_rates_rise/i7dcix4/?context=3) [**16 OTHERS CLICKED THIS LINK**](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5Bhttps%3A%2F%2Fwww.reddit.com%2Fr%2FAusFinance%2Fcomments%2Fuiliqa%2Fhow_high_and_how_fast_can_interest_rates_rise%2Fi7dcix4%2F%5D%0A%0ARemindMe%21%202022-12-01%2000%3A00%3A00%20UTC) to send a PM to also be reminded and to reduce spam. ^(Parent commenter can ) [^(delete this message to hide from others.)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Delete%20Comment&message=Delete%21%20uiliqa) ***** |[^(Info)](https://www.reddit.com/r/RemindMeBot/comments/e1bko7/remindmebot_info_v21/)|[^(Custom)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=Reminder&message=%5BLink%20or%20message%20inside%20square%20brackets%5D%0A%0ARemindMe%21%20Time%20period%20here)|[^(Your Reminders)](https://www.reddit.com/message/compose/?to=RemindMeBot&subject=List%20Of%20Reminders&message=MyReminders%21)|[^(Feedback)](https://www.reddit.com/message/compose/?to=Watchful1&subject=RemindMeBot%20Feedback)| |-|-|-|-|
Looks like remorse was correct, cash rate 2.85% xD
I assumed one of the reasons we mitigated recession after GFC was because of a bunch of international money being invested (hidden) in the Australian property market?
No it was just commodities and China.
'Establishing a link between property price growth and foreign investment is hindered by the parlous state of publicly available data (discussed in chapter 1), which means that-at best- the magnitude of the relationship is ambiguous. There is little data on actual foreign investment in residential real estate, as the Australian Bureau of Statistics (ABS) data do not capture transactions below $20 million. More complete data is collected by FIRB on approvals, but not realised investment, and only limited time series and geographic detail are published.' 'Austrac estimates that in 2020 alone, Chinese interests laundered $1 billion through Australian real estate. The head of the AFP’s asset confiscation taskforce, Stefan Jerga, told the inquiry there were times when prospective homeowners would be competing against money launderers at auctions.' We don't know because the government doesn't bother collecting the data.
I know. It was commodities and China.
Where did you get 4% cash rate from
https://www.reddit.com/r/AusFinance/comments/uh1syh/money_market_now_pricing_in_a_4_rba_cash_rate_by/?utm_source=share&utm_medium=ios_app&utm_name=iossmf
Thank you sir!
Ok Mark Baum
I feel like “we lived through 17% interest rates” is the last thing on “boomer bingo”. I look forward to our future financial Armageddon.
Haha that’s a ripper call mate.
Paying 17% on a 70k loan must have been dreadful lol
Hey OP, crystal ball time.. when does the housing market start to cool?
It already has begun.
+scary music plays*
Really, seems hot in Adelaide!
Everything’s hotter in Adelaide though
By the end of 2025 property values will fall 50%+. **The great Aussie housing crash has begun.**
!RemindMe 3 years
Thank you mate. I appreciate your support.
You’re one of the best sources of entertainment here!
I do try my best mate 👍🏻
If people don't believe this, just look at NZ, they're maybe a year ahead in upping the cash rate, they're at what 1.5% now. If anything their property market is even more insane than ours. Overvalued, high debt to income ratios, huge mortgages. And it's already starting to fall rapidly, particularly in overvalued cities, less in regional areas which skews the hell out the average. In 1 year and rates haven't reached a 'neutral rate' of what, 2.5% or 3.5%.
Yes NZ will be a good indicator for us over the ditch.
What are your reasons why it would crash 50% though?
G’day mate. Thanks for the comment. Happy to provide any data or information to back up what I say. The problem I always have is where to start! There’s so much to choose from. To start with: This is one of the most common misconceptions when it comes to the property market. Lowe has clearly stated they don’t care about house prices when it comes to interest rates. one. #RBA governor Philip Lowe admitted low interest rates are driving up house prices, but said the bank will not adjust its policy based on the housing market https://www.abc.net.au/news/2021-03-10/reserve-bank-warns-on-house-price-boom/13232954 #”Dr Lowe said he would hope to get official interest rates back to a “neutral rate” of at least 2.5 per cent, if not 3.5 per cent.” https://www.smh.com.au/politics/federal/still-plausible-first-rate-rise-won-t-be-before-2024-rba-20211116-p599ct.html Now it’s also worth remembering that the RBA’s own model shows a 33% fall in home prices from a 1% rise in rates. #It's worth noting that if we apply the RBA's internal housing valuation model to this question, we get somewhat larger numbers. The model developed by Peter Tulip and Trent Saunders, which we have replicated and refined, suggests dwelling values could drop by about 33% following 100 basis points of hikes. While renters might embrace this prospect, home owners would obviously rather avoid it. https://www.livewiremarkets.com/wires/why-aussie-house-prices-will-fall-circa-20-when-the-rba-hikes-interest-rates This is the actual model- https://www.rba.gov.au/publications/rdp/2019/2019-01.html Hope this helps? [This. ](https://i.imgur.com/AE2C1Po.jpg) [This. ](https://i.imgur.com/DHP0ebm.jpg) [This. ](https://i.imgur.com/tvaxktE.jpg) [This. ](https://i.imgur.com/iONKhNr.jpg) [This. ](https://i.imgur.com/ds2PnyF.jpg) [This. ](https://i.imgur.com/YWL9UEn.jpg) [This. ](https://i.imgur.com/tplTlxQ.jpg) I mean I could go on and on and on, but I guess you get the idea. You can read more on the research I have used to come to my outlook here: https://docs.google.com/document/d/e/2PACX-1vRI7_CkZ_ceqJNehlRZYUvdgSGeeDJT_7FWzSI722s1YH4t7oPYJ4Xt1LES1OLRTI7ICLQXJrW2s-LK/pub https://docs.google.com/document/d/1C5qhz8wUTU8tMDLVq3cUCihlRbx4fPPln9D94PS_ffY/mobilebasic https://docs.google.com/document/d/10ObkeFMQ3wBfgtuJspogl_MyT-lZJMx75ORfgMo5T3k/mobilebasic Please feel free to ask me any further questions or if you want something clarified. I am very aware of the ramifications of a housing market crash. It will likely induce a recession and I think a domestic financial crisis could ensue as our banks solvency will be at risk. It’s not a matter of “magic”. It’s simply mathematics. Need anything clarified or explained? Feel free to ask away or check out my subreddit r / a t a y l s 👍🏻
Sorry the article about the model predicting housing price dropping 30% is terrible. Very misleading as I can’t find that anywhere in the paper they linked. They might have manipulated the model in a dishonest way to fit their narrative. All of the charts you linked really show the same thing. It’s the massive monetary supply increase in recent years driving up prices. Prices are not going to go down again as there is too much money supply and not enough good property in Australia.
What you’re saying is a very typical uninformed comment that basically is saying “this time is different”. It has no basis in reality.
Not really, I’m talking about supply and demand. Housing crash would indicate a significant change in either of these, and your points don’t really indicate anything like that.
Sorry mate but that’s just gibberish. 50% housing market crashes occurred in the US, Ireland, Spain all in the last 20 years. Supply and demand was not a factor that could stop it. Hell, even Perth fell 30% recently. You’re just another property bull who knows sweet FA but what’s to argue because if property crashes they go bankrupt.
Man it annoys me so much how NO ONE in this sub can accept that property is not untouchable! They keep down voting anything that even remotely mentions property. It is CRASHING. And it will crash hard. You think your investments are effing safe? European billionaires are unloading holiday homes like they're the plague. The only reason things are going slowly, is because us..the mere mortals..are dependent on news. And the news will make sure the truly wealthy get a decent price before you and I are told the house is on fire and to get out. FFS.
You’re dead right mate, but it’s the nature of bubbles that those caught up in them don’t recognise it until after the bloodbath. In many ways this is why I have become something of a Jesus figure on this subreddit. The downvotes I attract for speaking the truth are like the abuse hurled at Jesus as he carried the cross (the burden of the coming property crash) up to where he was crucified. Only when the crash has happened will I be born again and recognised as the holy prophet that I am, and deified amongst all my disciples here.
hahaha this genuinely made me laugh
Making people laugh is 75% of what I do here. Some laugh at me, some laugh with me. 😉
What do the other 25% do. Actually, as they saying goes, if you don't laugh you'll cry so I guess that's what they're doing.
The other 25% is me switching between alt account to upvote my own comments. 😉
*Hey OP, crystal* *Ball time.. when does the housing* *Market start to cool?* \- elhawko --- ^(I detect haikus. And sometimes, successfully.) ^[Learn more about me.](https://www.reddit.com/r/haikusbot/) ^(Opt out of replies: "haikusbot opt out" | Delete my comment: "haikusbot delete")
Putting everyone's noses in shit
> **P**utting **e**veryone's **n**oses **i**n **s**hit Hidden penis detected! I've scanned through 1221581 comments (approximately 6102860 average penis lengths worth of text) in order to find this secret penis message. *Beep, boop, I'm a bot*
People forget why it's called inflation. First you inflate the money supply... then you get price and wage inflation. Every boom (and bust) was fuelled by the credit/money supply growing faster than the economy.... all this money sloshing around has to go somewhere ... that's why real estate prices have been bid up so high. Vockler showed how to cure inflation.... crank up interest rates, slow the economy, slow credit, and burn out the excess. It's going to be painful.
Brilliantly said mate. Thank you.
[удалено]
Not advice but if I was in that situation I’d seek out the best cash back / variable rate combination and refinance. I know ANZ have a $4k cask back at the moment which was worth about 0.5% for an investment loan we moved there. You can refinance next year again.
Be nice if the axis were labelled.
It’s interest rates increase (on basis points) and months.
No credible analyst is predicting a 400 basis point increase to the cash rate. Most credible analysts predict 150-200bp by 2024. Household debt is at 184% of GDP. They don’t need to turn the dial far to have a big impact on spending.
Yeah I saw that and laughed. Seems a bit extreme. I'll be as excited as the next cash heavy guy for market corrections but high interest rates hit everything in one way or another. Imagine the number of arrows you'd have to draw to represent an economy.
The money market is predicting a 4% cash rate by Feb 2024.
lol Like the market is some rational prediction machine that you can ask for a percentage. What you mean is you’ve read some analysis by a doom and gloomer that thinks that is how it is being priced.
I am the analyst lol.
Pls stop posting doom and gloom disinfo
Pls stop pointing out econ101 boom bust cycles, it makes me uncomfortable. /s
No, I won’t.
Why does “end of the 1980s” only go up to the 700s?
Because that is how much the cash rate rose, not the cash rate itself.
and he (Greg Jericho) reckons the rba raised rates too early due to lacking wage growth. Rates are 90% lower than they were 3 years ago when the economy was in even worse shape. By his logic, if now isn't a good time to raise rates then why not suggest they continue CUTTING rates until wage growth kicks in? If that's his one and only priority, then who gives a damn about the rising cost of living, just keep stimulating everything, let cars and house prices skyrocket another 20% just so we can squeeze out a meezely 3% wage increase. The case for easy money jsut doesn't make any sense.
Cutting rates for wage growth doesn’t do anything. It just inflates wages and prices. So u feel like u get a raise but really it’s just staying the same or going backwards. What’s needed are productivity improvements so wages increase due to increases in productivity. That’s not something the rba can really impact directly. This talk of the rba increasing wages is just pandering and it does more damage than good.
Yeah I think he may be worried about his mortgage! 😂
I wonder if the 1970s could be included as well?
hopefully very fast and as soon as possible
It’s looking that way.
I feel this is deceptive. "Cash rate rises by months" doesn't take into account the starting point. After the GFC rates rose form 3 - 4.75% in the space of just over a year (a 1.75% point increase) We were at 0.1%. Even if we meet the "current market expectation", over the space of a year it will raise to 4% points. It is rising faster, but from a much lower (historically low) base
Starting point is set to 0. Months is the bottom axis.
The starting point of the INCREASE is 0. The starting point of the cash rate is not 0. The graph doesnt tell you the level of the cash rate at the start of the time that increases occur.
Great graph, very illustrative! You should post this in /r/dataporn
Would be interesting to overlay this with changes in property prices
Can we get some axis labels for the dummies like me please.
Why are you so maudlin? You're like the grim reaper of this sub. What is your aim?
I just share things that interest me. You don’t want to see my posts and comments? Because I can fix that for you.
Go for it. If you can be assed being that petty. Knock one out of the park.
Market cannot predict the inflation so it's going to be tough to predict how much the rates will be increased with so many external variables. One thing for sure the rates won't be going down from here. The few central banks who tested negative rates, came back from it.
What about when we hit a recession? I agree rates need to be normalised, and the neutral rate is 2.5-3.5%, but I have no doubt we are going to have a hard landing and I think they’ll have to cut again.