Property Prices – Interest Rates

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Extract from article by Scott Pape “Barefoot Investor” The Sunday Times 15 July 2018

“PROPERTY prices have plunged for the ninth month in a row,” warned the newsreader the other night on the telly.   Well, one man’s “plunge” is another man’s “pffff”.

Across the country, prices are down a “terrifying” 1.3 per cent since the market peaked in September 2017.  But as the old saying in the media goes, if it bleeds (or, in this case, gets a paper cut), it leads.

Yet there was some property research this week that I did take notice of, and it was genuinely terrifying.

Digital Finance Analytics released its Mortgage Stress Report, predicting that if the banks increase their rates by as little as 0.1 per cent to 0.15 per cent, it would cause a million households to be in mortgage stress.   And tens of thousands would be pushed to the edge of defaulting.

And here’s the really interesting thing: Digital Finance Analytics says it’s not just beer-swilling bogans who are feeling the pinch.

The report also calls out “exclusive professionals” — well-to-do working stiffs in Mercedes with homes worth between $2 million and $5 million.

DFA chief analyst Martin North says the reason they’re in trouble is the same as everyone else — they’ve borrowed too much.

So the big question is, when will the banks raise interest rates?

Soon.  While the Reserve Bank has kept interest rates on hold for almost two years, it’s the wholesale funding costs that are increasing.

The cynic in me suggests the banks will wait until the royal commission is over — though that didn’t stop at least one Bank this week from hiking its interest rates 0.17 per cent.

My take-out from the Mortgage Stress Report is that, as an investor, now is a very good time to be sitting and waiting.    Really, who needs the stress?    Tread Your Own Path!

Extract from article by Scott Pape “Barefoot Investor” The Sunday Times 15 July 2018




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