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ยป Interest rates are truly interesting so be prepared
Date published: 06/06/2011
Interest rates are truly interesting so be prepared!
Some bright spark once said "the only lesson which we learn from history is that we do not learn from history". It's especially true when you look back at things like two world wars in Germany, or two wars in the Gulf, and also true when you look at interest rate patterns.
Interest rates rise and rates fall, which makes property prices fall and rise, just like two ends of the same see-saw. One can simply say that if everyone is buying houses that the government will put up the interest rates to stop house prices rising too far.
When interest rates are too high, many people cannot afford to buy new housing, the property market slows down and suddenly everyone is selling. Real estate agents call this a buyers market and hope to discount a few prices to make a faster sale. House prices will either stay flat or may drop and many tradies could call this hell on earth as they may receive less business from renovations.
Remembering that history will often repeat itself, let us look at the last two decades of interest rates in Australia.
It can be seen from the chart below that for the first few years of the nineties that interest rates were too high and were falling (the rates had risen in response to the large property boom caused by the 1987 sharemarket crash).
Rates then rose for five years, fell in 1998 before rising for another four years and falling again. After the September 11 2001 drop, interest rates rose for seven years and then dropped again, before the most recent rises.
You must remember that the Reserve Bank moves interest rates up when they consider property is too high and then move rates down to encourage buying again. Old-timers will tell you property will double every seven to ten years and it seems that whilst the adage may be true, we have had some four-year (property or interest rate) cycles and some six-year (property or rate) cycles as well!
The sharemarket moves in opposite cycles to the property market and there is always a good time to buy and a good time to sell, depending upon what has just happened, as this will determine what happens next. Markets move in predictable cycles and the Reserve Bank decisions can even be foretold by those with the right knowledge and tools.
Be prepared that the next move in interest rates may actually be upward but this may precede another six-year low cycle. The next big property boom could be just around the corner!
For more information, or to discuss your specific situation, please contact me directly.
Jeremy Britton
24HourWealthCoach
Jeremy Britton is an independent wealth adviser. To learn more about when is the best time to buy property or shares, google the economic clock. Or visit 24HourWealthCoach - Tools.
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