Australian Reserve Bank lifts interest rates to 3.25 per cent

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maveri's picture
maveri
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Australian Reserve Bank lifts interest rates to 3.25 per cent

Australian Reserve Bank lifts interest rates to 3.25 per cent

Link: http://www.news.com.au/business/money/story/0,28323,26172759-5016110,00.html

Predicted to be the first of a number of rate rises, the Australian Reserve Bank lifts interest rates to 3.25 per cent. (up from 3.0)

Many speculate that this move is to try and stem the rising house price market that to date has not seen a retraction that other countries have experienced.

mrobinson's picture
mrobinson
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Posts: 71
Re: Australian Reserve Bank lifts interest rates to 3.25 ...

Maveri

Is Australia worlds apart due to the China/Japan resource revenue stream and smallish population.

Or is the country suffering from a major lag period with the propertry correction is yet to surface.

Mike

 

 

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Australian Reserve Bank lifts interest rates to 3.25 ...

Goodbye Australian housing market....oops I forgot...the laws of mean reversion don't apply down underCool.

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Amanda V
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Joined: Dec 31 2008
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Re: Australian Reserve Bank lifts interest rates to 3.25 ...

With respect to interest rates in Australia and New Zealand: 

I think floating interest rates will stay lower as they more reflect the OCR whereas the longer term rates will be higher as they reflect the ability to borrow money from places like the US.  This money is getting more expensive.  The floating rate is more dependant on OCR.

OCR refects more accuraely inflation.  The housing market plays a large weight in the inflation calculation.  So I think it will stay lower.

agoodhuman's picture
agoodhuman
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Joined: Feb 8 2009
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Is a housing bubble looming in Australia?

I've put some thoughts together about whether Australia will have it's own housing bubble. Here's the link to the article on my blog.

Is-a-housing-bubble-looming-in-australia

I'd be interested to hear views from others Aussies about what you're seeing. I'm currently living in the USA, so I'm viewing this from afar. I have a vested interest in this because we are hoping to buy sometime after we get back to Australia. Housing prices at the moment are painfully high.

Thanks 

Barrie May's picture
Barrie May
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Joined: Jan 20 2010
Posts: 1
Re: Is a housing bubble looming in Australia?

Thanks aggodhuman

Excellent blog article.  you are pretty much spot on.  Australia is definitely in a housing bubble.  This started to deflate last year after things went bust.  However, the Government and reserve Bank has been busy reinflating it with low interest rates and first home buyers (actually vedors) grants.  Steve Keen our only economist who seems to have a clue about what is happeneing has been making some very pertanent comments on this on U-Tube.  However, of all the people I know, I am the only one who doesn't think that buying a house is a great idea just now.  The reasons given include:

Prices are going up so fast we wont be able to afford it if we wait any longer and don't wan't to miss out

Houses have been a sure fire investment over the past 15 years

I'd rather have my mony in bricks and mortor than the share market

Australia's population is increasing and there is shortage of new houses so prices have to go up

The first 3 reasons all indicate that the housing market is in a speculative bubble while the last indicates that the whole system is based on population growth which may or may not eventuate.  The mere fact that most Australian's don't belive that house prices can ever fall even when most people are struggling already to pay the interest on their huge loans at the bottom of the interest rate cycle is in itself an enormous concern.  This year five of my friends have just gone out and mortgaged themsleves to the hilt to buy "investment" propertie.

As suggested by other bloggers, the big difference for Australia is China and to a lesser extent India and Japan.  Demand for irn ore and coal has stayed firm as a result of the massive stimulous package in China which has maintained its voracious demand for our resources.  It is looking to buy the actual mines with tilts at a range of companies included Rio Tinto, but so far we have managed to avoid selling the goose with the golden eggs.  So Australian unemployment is dropping again as ar esult of the combined effects of Government stimulous and overseas demand for our resources.  There is also massive immigration coming from Asia which has been helping push up house prices.  In fact, in the part of melbourne were I am renting, it seems only the wealthy Chinese and Shri lankens can afford to buy houses with prices ranging from $0.8 to $1.2 million AU for a 5-10 year old 3 bedroom 2 story house on a 500 m2 block.

However, things are changing now.  Interest rates are going up and the home buyer grants are being wound back.  So, in the absence of new money pouring in we could expcet prices to fall.  However, the big unknown is China, both through its effect on employment and economic prosperity and through the effect of wealthy immigrants buying up houses to live in as well as investments.  There are worrying indications that China itself may be in a bubble (certainly there is a property bubble there) in which case the whole house of cards could come tumbling down with devestating consequences to the australian economy and property prices.

Whatever happens this year should prove to be an interesting one!

rowmat's picture
rowmat
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Posts: 358
The catch is...

....we have amongst the highest per capita mortgage debt in the world.

At the present it is still predominantly China that is keeping us going, but China has it's own rapidly expanding housing bubble and when that pops it will spell bad news for us.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Re: Australian Reserve Bank lifts interest rates to 3.25 ...

Do you realise this story is old news...

Reserve Bank lifts interest rates to 3.25 per cent

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