Many property owners are scared by the 18 per cent interest rates they were repaying in the 8o’s and are worried that those days will return. Happily, there is little chance of this in the foreseeable future.
And there are sound economic reasons why interest rates will remain at ultra-low levels.
One of the biggest determinant of interest rates is inflation, and at 1 per cent interest rates are way below the Reserve Bank’s inflation target of 2-3 per cent. As a result the RBA keeps dropping rates to stoke the inflation fire.
When you drill down further, you can see that many of the goods that comprise the inflation basket are also running below trend – meaning that there is little imminent likelihood of a rate rise for quite a long time. For example:
- private sector wages are growing at a measly 1.98 per cent per year
- a tsunami of new-built apartments will appear on the property market over the next 12 months – keeping a lid on prices
- uber and Airbnb are revolutionising taxis and hotels – forcing them to keep prices down
- in July we replaced 45,400 full-time jobs with 71,600 part-time jobs (part-timers typically have less income to splash around)
For home buyers and investors, all this means that loan repayments will remain at comfortable levels for a long time to come.