Interest Rates RBA
It seems with all the micro managing by the RBA, home loan interest rates are likely to remain in their current band. Keeping rates on hold while the economy wilts is a novel idea. I wonder if we will see any movement in March 2012. I am betting no, but I am rooting for a 50 basis point drop to put some vigor back into the housing market and small business.
Interest Rates and Utility Bills
Another important factor for the RBA to consider is the ballooning cost of electricity, gas, water and council rates. Many property owners are going without food in an attempt to service their fixed overheads. Imagine the fallout if councils start foreclosure action against delinquent rate payers. Most council’s have borrowed to fund their operations and a lower rate would help them manage better in these messy financial times. Conversely, a rate drop may trigger an increase in other utilities, as the private companies in charge of our sovereign Australian resources scramble to improve their meager margins. There was a reason the electricity generation, gas and water supply were government run. The possibility for profit was slim. Now these private companies that are guaranteed a profit, want more, the Government is in a bind to comply even though the vast infrastructure supplied is in decay.
Interest Rates and Rents
If interest rates do not come down, rental property owners will have to consider increasing their asking rents. My opinion is that rents must increase by 25% in 2012 to keep pace with the costs of holding a rental property. The increase in rent, may stimulate construction and provide a lift to building activity and the broader economy as it becomes cheaper to own than rent. Where do people who rent find the extra 25%? They will find it, if they have a good rental property in the area they love and they have good landlords. My opinion is that currently renters are generally better off than owners. They bear little risk.
Historical Interest Rates
From 1959 to 1970 home loan interest rates were consistently below 6%. Australia was by international standards a developing country. Low interest rates fostered manufacturing, agriculture and innovation. We built and we invented and people saved and bought their own homes. Rents were relatively high.
Rental property owners should increase rents by 25%
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