continued interest rate increases

[Uncle Fester]

This topic should be 'continued inflation increases', interest rate rises are merely the obvious consequence, like it or not.

How are we addressing the causes of this inflation? From what I have observered, terribly.
Have we even identified these causes? Everybody will say something different and it seems nobody really gets it.


So I will go out on a limb and say one core thing:
Exorbitant realestate price rises in the past decade due to unfettered speculation with housing is the E=mC^2 of our inflation problem.
Not Covid, not the war, those are only temporary issues, the core issue is that today too many people need a full wage to pay for a roof over their head, period

20 and more years ago, 30% of a single wage would normally suffice.


So how it got to this? Hideously low interest rates for way too long and Lowe should have been sacked for this!


Attempts to curb housing speculation by Labor costed them the election from the past period, so nobody dares to talk about neg gearing/CGT rebates on property anymore, measures that could have avoided the tears and I wrote about my predictions with this on this forum back then too.
The real tears are yet to come when the majority of home loan defaults start kicking in 6-12 months from now.
Almost nobody is providing new housing, while the nasty LNP and the Green extremists are blocking Labor's public housing incentive that we so badly need yesterday.
Allowing neg gearing ONLY on new house projects, could be a start but hell no, they wouldn't dare.


Back in the days when you could have a roof over you head for 30% of a single income, the school book economics that Lowe is currently practicing was fine to curb in inflation.
Today it just adds fuel to the fire as we all can see.


Back then you could get away with short term high rate hikes, as there was a buffer in the wage to cost of living ratio, so wage increases could be avoided.
Today everybody is screaming to have their wages/income instantly matched with inflation: the death spiral is unstoppable.
On top of that nobody is going to put money on the bank as banks do not pass on the rate rises to savers like they are supposed to.
Instead banks just enjoy the profits they achieve with that and people keep spending all they have, like there is no tomorrow, more fuel for inflation.


It looks to me that the major retailers are also taking advantage of the situation and are raising food prices, because they can.
Everybody needs the food, so they will see where the pain threshold is. Shopping trolleys look more empty now but the retailers are still recording high profits
So the strategy of selling less for more money seems to pay out.


The only solution is for middle to high earners to tighten their belt for a year and do without wage increases, if only it weren't for the exorbitant high property prices that just won't stop rising because the wealthy can always buy them for a higher price and then sell again with profit.
Maybe a flood of defaults will eventually fix this ...well bring on the rate rises

[bazzy]

This topic should be 'continued inflation increases', interest rate rises are merely the obvious consequence, like it or not.

How are we addressing the causes of this inflation? From what I have observered, terribly.
Have we even identified these causes? Everybody will say something different and it seems nobody really gets it.


So I will go out on a limb and say one core thing:
Exorbitant realestate price rises in the past decade due to unfettered speculation with housing is the E=mC^2 of our inflation problem.
Not Covid, not the war, those are only temporary issues, the core issue is that today too many people need a full wage to pay for a roof over their head, period

20 and more years ago, 30% of a single wage would normally suffice.


So how it got to this? Hideously low interest rates for way too long and Lowe should have been sacked for this!


Attempts to curb housing speculation by Labor costed them the election from the past period, so nobody dares to talk about neg gearing/CGT rebates on property anymore, measures that could have avoided the tears and I wrote about my predictions with this on this forum back then too.
The real tears are yet to come when the majority of home loan defaults start kicking in 6-12 months from now.
Almost nobody is providing new housing, while the nasty LNP and the Green extremists are blocking Labor's public housing incentive that we so badly need yesterday.
Allowing neg gearing ONLY on new house projects, could be a start but hell no, they wouldn't dare.


Back in the days when you could have a roof over you head for 30% of a single income, the school book economics that Lowe is currently practicing was fine to curb in inflation.
Today it just adds fuel to the fire as we all can see.


Back then you could get away with short term high rate hikes, as there was a buffer in the wage to cost of living ratio, so wage increases could be avoided.
Today everybody is screaming to have their wages/income instantly matched with inflation: the death spiral is unstoppable.
On top of that nobody is going to put money on the bank as banks do not pass on the rate rises to savers like they are supposed to.
Instead banks just enjoy the profits they achieve with that and people keep spending all they have, like there is no tomorrow, more fuel for inflation.


It looks to me that the major retailers are also taking advantage of the situation and are raising food prices, because they can.
Everybody needs the food, so they will see where the pain threshold is. Shopping trolleys look more empty now but the retailers are still recording high profits
So the strategy of selling less for more money seems to pay out.


The only solution is for middle to high earners to tighten their belt for a year and do without wage increases, if only it weren't for the exorbitant high property prices that just won't stop rising because the wealthy can always buy them for a higher price and then sell again with profit.
Maybe a flood of defaults will eventually fix this ...well bring on the rate rises

According to my bank they are already seeing a large number of defaults. they indicated it was in the realm of 15% at the moment.
The other thing is that it used to be that a single income can cover the cost of a mortgage and now your hard pressed to be able to afford it with two people working full time.

Additionally a flood of defaults really isn't good for the market.

1. it doesn't address the lack of housing issue as those people who loose their house flood the rental market and the defaulted houses don't hit the rental market immediately if at all.
2. it shifts more wealth to the rich as they swoop in and buy up all these cheap houses.
3. its high risk for the banks as it crashes the market meaning they wont usually cover the cost of the loan with the sale price for the houses in the cases where the home is in negative equity.
4. in the case of negative equity the borrower is left with unsecured mortgages with no incentive to pay it back as they have already foreclosed on the mortgage that black mark stays on your credit file for 7 years. if your going to have that black mark on your record you may as well declare bankruptcy entirely, liquidate your assets to pay down what you can then the rest gets wiped.

the people taking the brunt of that are going to be the younger generations with low to middle income earners. and i sure hope the older generations with all the money and assets are willing to take up arms when things finally boil over with russia and china because i can sure as hell tell you the younger generations that have lost everything will see nothing worth fighting for here.

[shred]

Exorbitant realestate price rises in the past decade due to unfettered speculation with housing is the E=mC^2 of our inflation problem.
Not Covid, not the war, those are only temporary issues, the core issue is that today too many people need a full wage to pay for a roof over their head, period

20 and more years ago, 30% of a single wage would normally suffice.

All across the Western World, normal house prices have always been around 5-7 times the average wage. Successive Laborial governments have allowed the Australian housing bubble to grow to the point at which our house prices are way outside the norm.

Like all financial bubbles, the good times for home owners will end. We could have had a soft, controlled landing at the hands of a competent government. No Australian government wants to be the one to look like the "bad guy" and damage the Boomers' retirement savings, plus throw lots of hard working young people out of the homes they have worked hard to get via a mortgage. Like all bubbles, this one will burst and the longer it is allowed to fester, the harder the crash will be when it arrives. Until then, each government keeps kicking the can down the road and desperately hoping that they are not the ones in power when the music finally stops.

On lever that could be pulled to start bringing house prices down to reality is to carefully limit immigration numbers and allow development of new housing to create an oversupply - but watch the construction industry scream like a spoiled brat if anyone proposes to do this.

[enf]

.............................

On lever that could be pulled to start bringing house prices down to reality is to carefully limit immigration numbers and allow development of new housing to create an oversupply - but watch the construction industry scream like a spoiled brat if anyone proposes to do this.

Who's going to pay for these new houses? How can the construction industry do it? Construction firms are going broke on a daily basis.

We could build some government funded ghettos I suppose, but thats all they ever turn into ... ghettos. Our governments can't even afford to pay their OWN bills currently let alone fund stuff like this.

They aren't going to stop or slow immigration either (they should IMO). They aren't going to stop foreign interests buying up property, they need the cash.

It's a conundrum we got ourselves into by rigidly sticking to the Australian dream. It doesn't matter whos in power, it's musical chairs as you said....what happens down the track is "not our problem." Votes NOW is all that counts.

[bazzy]

All across the Western World, normal house prices have always been around 5-7 times the average wage. Successive Laborial governments have allowed the Australian housing bubble to grow to the point at which our house prices are way outside the norm.

Like all financial bubbles, the good times for home owners will end. We could have had a soft, controlled landing at the hands of a competent government. No Australian government wants to be the one to look like the "bad guy" and damage the Boomers' retirement savings, plus throw lots of hard working young people out of the homes they have worked hard to get via a mortgage. Like all bubbles, this one will burst and the longer it is allowed to fester, the harder the crash will be when it arrives. Until then, each government keeps kicking the can down the road and desperately hoping that they are not the ones in power when the music finally stops.

On lever that could be pulled to start bringing house prices down to reality is to carefully limit immigration numbers and allow development of new housing to create an oversupply - but watch the construction industry scream like a spoiled brat if anyone proposes to do this.

the issue with bringing down house prices is there is always going to be a rung of people who have taken out mortgages at the higher prices and not yet had time to pay down the principal enough for their to be enough equity in the home to withstand that crash. if the house price drops before there is equity in the property they go into negative equity and that prevents them from refinancing with any other lender because the risk is too high meaning they are trapped in that potentially more expensive mortgage. i cant imagine having to save up another deposit just to be able to refinance my home.

If the government is going to take some action like that then they need to have a plan to compensate those people that they are screwing. for example if they wipe 100k off the value of the your house putting you lets say 60k into negative equity then they need to have a plan where you can apply to them to bring the negative equity down to 0 so the house is at least valued at the mortgage.

additionally taking action to intentionally crash the housing market is materially no different to going into peoples bank accounts and pulling money out. eroding the value of a families primary asset is a bad idea.

one thing they can do to reduce the supply issue to a degree is while we are in a rental crisis is to temporarily make it a lot more difficult to run air b&b houses. freeing up the houses people turned into air b&bs for renters. IMO these shouldn't be allowed anyway because a residential house is not zoned for commercial offering.

[lsemmens]

I have yet to turn on any form of heating here as I need money to have wood delivered for the fire place and I'm too lazy (yep) to go and get it for myself. That said, I am by myself, so have no one else to worry about and I'm heading to Darwin for the winter, so won't really need it, anyway. However, of my pension, time I've paid all my bills I'm left with about $120.00 a fortnight to buy food and petrol! However! I have not starved yet, and I've always been able to drive/ride wherever I've needed to go. I trust in GOD to supply my every need, and he has not let me down yet! This has been the pattern of our lives, even when my wife was alive. Her meds alone were costing us $150 a week over and above the medicare rebates. One year we hit the "free list" in February! OF course, since she passed away, those costs are no longer there, but, her pension is no longer there, either.

[wotnot]

I have yet to turn on any form of heating here as I need money to have wood delivered for the fire place and I'm too lazy (yep) to go and get it for myself. That said, I am by myself, so have no one else to worry about and I'm heading to Darwin for the winter, so won't really need it, anyway. However, of my pension, time I've paid all my bills I'm left with about $120.00 a fortnight to buy food and petrol! However! I have not starved yet, and I've always been able to drive/ride wherever I've needed to go. I trust in GOD to supply my every need, and he has not let me down yet! This has been the pattern of our lives, even when my wife was alive. Her meds alone were costing us $150 a week over and above the medicare rebates. One year we hit the "free list" in February! OF course, since she passed away, those costs are no longer there, but, her pension is no longer there, either.

I had a friend tip out 5 cubic meters of old fence posts from a re-fencing job ; I used his stihl 039 chainsaw to cut them up ....cost = a few litres of 2-stroke fuel. Our electricity bill has plateaued at about $200/quarter (would be $70-odd more than that, is not for govt. subsidy). My housemate is on aged-pension, myself on disability pension .... our rent (3brm house on 20ha, aircon, fireplace) is $600/fortnight ; this reduces to $320/fortnight after govt. rent-allowance subsidy. The medications each of of us have to take are on the PBS (example only - 1 medication I'm on is $34 for 4 tablets...I pay $9 for the same prescription). As we're both on govt. benefits, we each only pay 50% for yearly vehicle rego..ie; half price rego. And are we roughing it or finding times hard? Here's a view from our front verandah...



In the foreground you see our mowing crew ~ this is a free service (owner of the cattle pays agistment to our landlord for the beasts to be here) ; we open the gates to the house yard every now and then to mow the yard...they even do the fence line, so no whippersnipping or hand-mowing required). We have a 10,000l house tank, and enough roof area to keep it filled ; haven't needed to guy/truck in (town...yuk) water for over 5 years....we also have a bore and 5000l tank for holding.

Interest rates serve the interest of bankers, money lenders ~ we got to this position not by wealth, borrowing money or paying mortgages....because there's still an age old adage we adhere to ..."it's not what you know, but who you know" ...we have a lot of good friends =)

[enf]

The government to the rescue..........

[bazzy]

I had a friend tip out 5 cubic meters of old fence posts from a re-fencing job ; I used his stihl 039 chainsaw to cut them up ....cost = a few litres of 2-stroke fuel. Our electricity bill has plateaued at about $200/quarter (would be $70-odd more than that, is not for govt. subsidy). My housemate is on aged-pension, myself on disability pension .... our rent (3brm house on 20ha, aircon, fireplace) is $600/fortnight ; this reduces to $320/fortnight after govt. rent-allowance subsidy. The medications each of of us have to take are on the PBS (example only - 1 medication I'm on is $34 for 4 tablets...I pay $9 for the same prescription). As we're both on govt. benefits, we each only pay 50% for yearly vehicle rego..ie; half price rego. And are we roughing it or finding times hard? Here's a view from our front verandah...



In the foreground you see our mowing crew ~ this is a free service (owner of the cattle pays agistment to our landlord for the beasts to be here) ; we open the gates to the house yard every now and then to mow the yard...they even do the fence line, so no whippersnipping or hand-mowing required). We have a 10,000l house tank, and enough roof area to keep it filled ; haven't needed to guy/truck in (town...yuk) water for over 5 years....we also have a bore and 5000l tank for holding.

Interest rates serve the interest of bankers, money lenders ~ we got to this position not by wealth, borrowing money or paying mortgages....because there's still an age old adage we adhere to ..."it's not what you know, but who you know" ...we have a lot of good friends =)

Your electricity bill wouldn't even cover the line fee on my bill (looking at your lovely scenery i am a little surprised your line fees would be that much different to mine)

[B52]

Its a cycle that comes and goes every 15 or so years. I remember back in the late 80th cash management account earning 22% interest, mortgages as high as 18%, average mortgage at around 100K, lots of corporate collapses, and then the recession we had to have.
I don't remember the reason at that time but each time its some other excuse riding on some world event in a faraway land. All I know is that the remedies used to fix something which in reality is not a problem and for no good reason cause a allot of pain to the citizen of this country. In current scenario if you paint an economy at 2% mortgage rate, the pain could be confined to increase costs of food, utilities.. The interest rate hike did nothing to stop or reduce it.

The only way to immune ourselves is to be 100% self sufficient. we were nearly there in the 60th and 70th Buckley's Hope nowadays. The only relief from the banks is that borrowers can be put on interest only payment, extending the life of the mortgage. If that is not enough you'll start seeing mortgagee sales leading to a collapse of the property market. in 2009 GFC you could buy a house in Detroit for 20k,

[shred]

I remember back in the late 80th cash management account earning 22% interest, mortgages as high as 18%, average mortgage at around 100K, lots of corporate collapses, and then the recession we had to have.

...If that is not enough you'll start seeing mortgagee sales leading to a collapse of the property market. in 2009 GFC you could buy a house in Detroit for 20k,

Yes - we've been here before and unfortunately, the government won't step in to help people when the current housing bubble burst. That's part of the point I was trying to make above. All bubbles eventually burst, no matter how unjust or hurtful to good people it might be.

The best outcome I can see from this is that housing prices stagnate for two or three decades, but that would be a disaster for developers and landlords. I just can't see any good outcome and the longer it is left, the harder the crash will be when it inevitably comes.

[peteramjet]

Its a cycle that comes and goes every 15 or so years. I remember back in the late 80th cash management account earning 22% interest, mortgages as high as 18%, average mortgage at around 100K, lots of corporate collapses, and then the recession we had to have.

Inflationary cycles come and go, but this cycle is made significantly worse by the staggering cost of living and housing increases.

18% on a $100k mortgage? Well that could still be covered by one median wage earner relatively ‘easily’.

7% on a $900k mortgage? People would now struggle to service that with two above median incomes. The interest rate isn’t the entire issue, it’s the cost of living and housing expenses that have significantly increased that are causing financial stress.

[shred]

18% on a $100k mortgage? Well that could still be covered by one median wage earner relatively ‘easily’.

I was on about $20k per year back then, but I accept that the loan could be serviced in a dual income household, whereas now you would struggle to pay an average mortgage even with two incomes.

[peteramjet]

I was on about $20k per year back then, but I accept that the loan could be serviced in a dual income household, whereas now you would struggle to pay an average mortgage even with two incomes.

The income v mortgage is only the half of the picture. It’s the significant increase in everyday costs now v then that are increasing the financial stress. Fuel, electricity, rates, child care (now almost mandatory because both parents need to work), groceries, registrations, general living expenses - all increased well, well beyond the rate of inflation.

Couple that with the lack of available housing (leading to sky rocking house costs) and out of control Government spending (leading to unplayable levels of debt) and it’s not hard to see that we are not from off a depression.

[fromaron]

It’s the significant increase in everyday costs now v then that are increasing the financial stress.

Dementia is a good solution to the problem. Can't remember a thing and the life is good again.