At Solvere, we are fortunate to have a list of high quality brokers that we help place our clients in front of all around Australia.
As a property coach, the most common questions I am getting from my clients in 2016 is ‘where are interest rates headed?’ and ‘should I fix some of my loans?’
Today I am going to focus solely on the first question – ‘Where are interest rates headed?’
Here are some comments made this week from 1300Homeloan managing director John Kolenda.
“We are unlikely to see official interest rates move to pre-global financial crisis (GFC) levels and the standard norm of the future will be lower than historical levels for the next decade,” he said.
“The monetary policy game has changed and the RBA has found cutting its cash rate is not necessarily an instant remedy for economic stimulus”
Mr Kolenda said consumers were now more sensitive to the impact of higher interest rates which meant taking them back to what was once considered normal was unlikely.
Reported in The Age newspaper early last year, ANZ economists could not see any benefit for consumers by lifting rates anytime soon and this sentiment has not changed.
‘Australian households have been coping well with record high household debt but this could swiftly change should the Reserve Bank hike interest rates higher than anticipated by the end of 2016, ANZ economists have predicted.
‘Although household debt is out-stripping household income by 1.7 times, record-low interest rates, as well as growth in household income and cautious household behaviour, have made it manageable, ANZ economists David Cannington and Katie Hill said.
It seems as though many industry experts believe that interest rates are predicted to stay low for the majority of this decade or at least until the Australian economy starts to improve.
One of the key indicators for the RBA in their decision making is unemployment. This currently sits at just under 6% and has been around this figure since the Global Financial Crisis in 2008. When our economy is strong and robust, the unemployment rate will usually drop, which gives the RBA more confidence to increase interest rates. Until the Australian economy improves, it is hard to see unemployment improving or interest rates increasing greatly.
So what does this mean for us property investors?
Since I commenced property investing back in 2001, the cash rate of interest has been as high as 7.5% and as low as 1.75%. Whilst this is one factor that influences our decision making, it definitely doesn’t define our investing or determine when we invest.
When interest rates have risen, so have rental yields and over the past few years when interest rates have decreased, so have most of our property rental yields.
A lot of us Australian’s make key decisions in our life from a place of ‘fear’ or ‘habit’. What do I ‘fear’ into the future or what have I ‘always done’ in the past?
If you are one of these Australians, think strongly about what is mentioned above in order to make quality decisions into the future armed with knowledge and education and without fear or habit. It could be preventing you from making the best long term decisions for you and your family and changing your life for the better.