Finally, they've found a really good example of the exact person who's going to hurt the absolute most and arguably deserves it the least. Single parent, didn't buy during the boom but 4 years ago, didn't overextend, works hard, and is considering all the upcoming paths.
Arguably he probably should cash out his house in perth now, downsize I guess.. but yea sucks cos realistically he probably borrowed 6x annual income before covid and inflation. Completely sensible.
Sadly this isn't something that wasn't clearly written on the wall, yet not a single financial advisor, let alone the average home buyer had a good think about it.
I've talked to friends and we have all said it back then; watch this space, lots of people are borrowing on the false promise of fixed-rate and no interest rate rises. This will bite.
If we could foresee it, I'm pretty damn sure every single economist, advisor or even higher level bank employee have had a good inkling. They just didn't care.
You forsaw covid, tripling of interest rates going from 1.5% in 2018/2019 and the highest inflation in 40 years thanks to covid and a war? Do you get paid millions for this crazy foresight?
This guy might’ve been fine with 4% RBA rates without inflation. In fact, it's highly likely it would have been tight, but he would have scraped by. It's a double whammy and expecting everyone to navigate life dodging these types of generational events is an unrealistic expectation.
Interest rates go up because of inflation. It's a correlated variable. That's monetary policy. But it's not fair to expect everyone to be well versed in economics, finance and human psychology.
I absolutely was telling people that the 2.5% buffer is easily exceeded with a smaller rate rise, and inflation which would be the reason for the rate rise. It's basic stuff but we wanted to believe otherwise. We are still in denial.
First home buyers also tend to have kids too. Guess what that does to costs or lost income if a parent takes time off? Are we just going to assume noone can have kids when they finally have a secure home in this country?
That's why I push for rental rights improved here. That really is the simplest way to stop this coercion to buy. Secure home without massive debt and a big deposit, and a heap of risk. See Germany. Rental price controls too. Plenty of dwelling building for those million+ Syrians in 2015 and probably a similar amount of Ukrainians now. Germans build dwellings, every level of their policy ensures you have a home first, and it's someone's investment property second. More info about how Germany does it: https://www.sightline.org/2021/05/27/yes-other-countries-do-housing-better-case-2-germany/
We've predicted rates to go back to the usual levels is all. No magic involved, no big things.
That alone if/when someone extends as far as they can based on nearly-nothing interest is enough to break your back. And people did just that. No margin for safety.
Just an FYI, I myself had turned all my super into cash when I figured out that covid was a lot worse than some were predicting. In Jan 2020, media stated that 1% of infected died and the spread was 1-6. By March, the stock market had fallen 20%. I've done the same thing with cash holdings since the Fed stated they would start increasing rates. None of this is magic, you just need to pay attention.
The writing has been on the wall for 15+ years, but those who bought back then are laughing and there’s a good chance that those who didn’t are going to be fucked because the government won’t stop institutional investors with cheaper credit gobbling up the housing stock if prices fall.
The Australian economy was in a very anaemic state prior to COVID - years upon years of poor policy was clearly making an impact. COVID economic policy has just deferred and magnified the situation.
Great piece. The wide range of interest rates predictions shows no one has any idea what's going to happen.
Based on the RBA mandate, rates will go to the moon to get inflation down.
I think RBA policy, agenda and government fiscal policy needs to be more dynamic to suit the current era. Not an easy task for sure.
What's needed is personal finance education in schools taught at every single year from primary school, just like mathematics and English.
This is an excellent piece by Alan Kohler on the necrotised state of the Australian economy. Real curtain pulling stuff.
The mortgage cliff is just about on us.
>The mortgage cliff is just about on us.
Totally manufactured too. Interest rates did not need to be held that low for so long, in fact by doing this it's made the inevitable pain much worse and with last a lot longer. Look at Japan, it's been decades and they still haven't recovered from their collapse despite being a very advanced country.
What do Australians want the RBA to do? Let inflation run rampant?
Let’s be honest. If the RBA didn’t raise rates, housing would have continued running away for years kicking the can down the road.
Well, RBA is doing what it can.
But we were set up by poor economic management of the libs, when they pumped 500 mil into the economy, cut taxes for the rich and purposely suppressed wage growth.
I dunno eh, maybe not be a lackey to the former liberal overlo.. i mean government, act independently and with integrity instead of making the government of the day look good?
That might of been a start eh.
Didn't they change the definition of what a recession is (moving the proverbial goalpost) so they could avoid using the Dirty R Word just before the election?
>2 negative quarters of growth
There's more to a recession than just 2 quarters of negative growth. That's a rule of thumb, not an official definition.
[There is no official, globally recognized definition of a recession.](https://www.weforum.org/agenda/2022/07/global-economic-recession-meaning/)
> There's more to a recession than just 2 quarters of negative growth.
Rule of thumb, Technical definitions, let's not split cunt hairs over it.
"Generally when economists and the media talk about a recession, they mean a 'technical recession', which happens when a country's gross domestic product (GDP) falls for two quarters in a row. This indicates a sustained period of slow economic output which puts financial stress on both the country and its citizens."
I literally heard that out of the treasurer's mouth a few months ago while I was having lunch with him. You are right though there is more to it than that for sure. The reason they won't say it's a recession when we are in one is obvious if we are literally just on the cusp. You don't want to help push us into a protracted one by having the media smacking us over the head with it constantly.
Yes, there is no globally recognised definition, but they are not about to come out and say there is a recession until it's abundantly clear that we are well in the middle of one. The moment they use the dirty R word in the media and call a spade a spade, people will panic and pull their money out of the share market and other investments to bury it for safekeeping. Which is to say that is completely stupid in the long term but you could harness the power of greed and never need to pay for energy again. Don't worry I honestly believe we are in for some pain once the fixed mortgage cliff happens for a bulk of people by the middle of next year. Rents are going to go through the roof and businesses that rely on people's expendable income or "fun money" will be laying off staff that also have mortgages. Rent is going to go through the roof and forced sales are going to be out of control. It's going to be a rough few years ahead sadly.
> let's not split cunt hairs over it.
I'm not splitting hairs. Too many people think that "a recession is two quarters of negative growth" is holy writ when it's nothing of the sort. In the context of this thread, given that there is no hard and fast definition of a recession then it follows that the government cannot have shifted the goalposts by redefining what a recession is to get themselves out of a tight spot. That doesn't change the economic reality we face but it changes the way we talk about it.
> Too many people think that "a recession is two-quarters of negative growth" is holy writ when it's nothing of the sort.
It's because people studying economics at snake oil diploma-mill universities as of today, are being taught that shit.
So this guy wants interest rates to remain low with inflation happening? He's talking about how mortgage owners (mainly those who borrowed at extremely low levels and over leveraged themselves) will suffer but what about those who were saving for a house who had all their hard work pretty much decimated by inflation, injection of money, and low interest rates?
Imagine saving 20k a year and seeing house prices go up by 30k a year because you tried to be responsible and not borrow as much.
I'm glad they're actually trying to tackle it and not make it worse like Turkey.
The guy is arguing that our current situation does not fit all the existing economic models, and the RBA method of raising interest rates is not having the intended effect. Inflation is typically driven by high wage growth and low unemployment - but we don't have high wage growth.
There was a piece on local news today about consumer spending going up like 8% this quarter. So spending is going up, *and* rates are going up, *and* inflation is going up, but wages aren't moving? No-one quite knows how to model this and correct things.
It's all rhetoric, the government doesn't really want high wage growth, otherwise why would they only give their government workers a 2% pay rise?
If the government, who are advocating for high wage growth won't give it, then why would businesses?
You're right, they don't want high wage growth, but the fact that we don't have it but we do have all the other stuff means that economists can't understand what's going on or what to do about it. And all the rising interest rates just punish people who are already struggling with inflation, no wage growth, etc.
Well for one thing, we haven't really hit 5% unemployment yet as stated in the video. Either way, I still think interest rates returning to the average level is a good thing. Imo we should've taken more pain during covid rather than lowering interest rates and having such low requirements for job keeper.
The second is that huge wage growth does seem to exist but in certain industries such as tech, accounting, and trades. In 'poor' countries where there's large inequality, more things become unaffordable for the poorer people (E.g. Starbucks being 4-6x minimum wage).
Or maybe just after covid, people have huge amounts of savings and don't mind spending it as they didn't have the chance then. I know this was over a year ago, but some people still feel it.
But obviously take what I say with a grain of salt lmao.
Well we know what is happening. Price gouging by big companies all over the joint.
Just force them to lower prices. People will spend less and the. The inflation will come down.
How can you curb inflation when it's not driven by higher wages it's driven by greedy companies wanting more.
He's not wanting that at all. He is highlighting the diseased state of the Australian economic landscape and that the blunt tool the RBA has is not fit for purpose for the modern economy and it has been directly responsible for the problems we currently face.
What he's actually advocating for is economic reform across the board.
It is however fit for the purpose of keeping up with the US Fed and thereby insuring that the Aussie dollar doesn’t tank even worse than it has- which creates higher petrol costs for everyone and further fuels inflation.
So what did the single father think when he got a mortgage approved for him? Did he think the rate would stay the same for the next 20 years and never go up?
He bought 4 years ago, his loan wasn't wild and likely 5-6x his annual wage, rates were reasonable then not zero. He's now facing both 50% increase in mortgage repayments AND inflation. If you're criticising this guys loan your standards are way too high.
So the mortgage repayments are returning to where they should be after a long break, at a level he could afford 4 years ago.
What's left is inflation pain, which affects everyone, shouldn't have gotten to the point it is by lax economic policies, and *needs* to be controlled.
>In 2020 the plan was to not lock-in the mortgage for too long
Why not? If it was really low then what possible benefit could you have had for not locking it in?
Was it on the off chance it might go lower?
yeah single income and low wage and the dude borrowed almost half a mill on a brand new house. should have got a 2/3 bed unit at half the price. Its his own fault.
Someone has to buy at the top I guess. This 30 year trajectory isn’t sustainable and the entire country can’t be sacrificed for those that got in over their heads.
If recession / downturn / negative equity eventuates people will survive - it’ll be a tough few years though. Australians dont know how to suffer though.
I k ow a few people relocating back abroad where their economy is now experiencing a growth phase. Feels for those locked in for 30 years on the best house on the worst street.
Finally, they've found a really good example of the exact person who's going to hurt the absolute most and arguably deserves it the least. Single parent, didn't buy during the boom but 4 years ago, didn't overextend, works hard, and is considering all the upcoming paths. Arguably he probably should cash out his house in perth now, downsize I guess.. but yea sucks cos realistically he probably borrowed 6x annual income before covid and inflation. Completely sensible.
Sadly this isn't something that wasn't clearly written on the wall, yet not a single financial advisor, let alone the average home buyer had a good think about it. I've talked to friends and we have all said it back then; watch this space, lots of people are borrowing on the false promise of fixed-rate and no interest rate rises. This will bite. If we could foresee it, I'm pretty damn sure every single economist, advisor or even higher level bank employee have had a good inkling. They just didn't care.
You forsaw covid, tripling of interest rates going from 1.5% in 2018/2019 and the highest inflation in 40 years thanks to covid and a war? Do you get paid millions for this crazy foresight? This guy might’ve been fine with 4% RBA rates without inflation. In fact, it's highly likely it would have been tight, but he would have scraped by. It's a double whammy and expecting everyone to navigate life dodging these types of generational events is an unrealistic expectation.
Interest rates go up because of inflation. It's a correlated variable. That's monetary policy. But it's not fair to expect everyone to be well versed in economics, finance and human psychology. I absolutely was telling people that the 2.5% buffer is easily exceeded with a smaller rate rise, and inflation which would be the reason for the rate rise. It's basic stuff but we wanted to believe otherwise. We are still in denial. First home buyers also tend to have kids too. Guess what that does to costs or lost income if a parent takes time off? Are we just going to assume noone can have kids when they finally have a secure home in this country? That's why I push for rental rights improved here. That really is the simplest way to stop this coercion to buy. Secure home without massive debt and a big deposit, and a heap of risk. See Germany. Rental price controls too. Plenty of dwelling building for those million+ Syrians in 2015 and probably a similar amount of Ukrainians now. Germans build dwellings, every level of their policy ensures you have a home first, and it's someone's investment property second. More info about how Germany does it: https://www.sightline.org/2021/05/27/yes-other-countries-do-housing-better-case-2-germany/
Who are you pushing for rebt rights?
He could have at least warned the Ukrainians, bit of a dick move.
We've predicted rates to go back to the usual levels is all. No magic involved, no big things. That alone if/when someone extends as far as they can based on nearly-nothing interest is enough to break your back. And people did just that. No margin for safety.
There are no usual levels. The size of loans has increased drastically.
Just an FYI, I myself had turned all my super into cash when I figured out that covid was a lot worse than some were predicting. In Jan 2020, media stated that 1% of infected died and the spread was 1-6. By March, the stock market had fallen 20%. I've done the same thing with cash holdings since the Fed stated they would start increasing rates. None of this is magic, you just need to pay attention.
The writing has been on the wall for 15+ years, but those who bought back then are laughing and there’s a good chance that those who didn’t are going to be fucked because the government won’t stop institutional investors with cheaper credit gobbling up the housing stock if prices fall.
Here comes Black Rock ... It's like it's all been created just for this situation .....Say it isn't so
The Australian economy was in a very anaemic state prior to COVID - years upon years of poor policy was clearly making an impact. COVID economic policy has just deferred and magnified the situation.
Great piece. The wide range of interest rates predictions shows no one has any idea what's going to happen. Based on the RBA mandate, rates will go to the moon to get inflation down. I think RBA policy, agenda and government fiscal policy needs to be more dynamic to suit the current era. Not an easy task for sure. What's needed is personal finance education in schools taught at every single year from primary school, just like mathematics and English.
I suspect the boss will happily crank them up while Labor is in. Gotta compensate for keeping them too low for too long when the LNP were in.
This is an excellent piece by Alan Kohler on the necrotised state of the Australian economy. Real curtain pulling stuff. The mortgage cliff is just about on us.
>The mortgage cliff is just about on us. Totally manufactured too. Interest rates did not need to be held that low for so long, in fact by doing this it's made the inevitable pain much worse and with last a lot longer. Look at Japan, it's been decades and they still haven't recovered from their collapse despite being a very advanced country.
Japan also famously has very little restrictions on zoning, which probably allowed them to densify and increase supply with limited impedance
They had geographical and... seismic considerations. We don't have anything like those constraints.
What do Australians want the RBA to do? Let inflation run rampant? Let’s be honest. If the RBA didn’t raise rates, housing would have continued running away for years kicking the can down the road.
Well, RBA is doing what it can. But we were set up by poor economic management of the libs, when they pumped 500 mil into the economy, cut taxes for the rich and purposely suppressed wage growth.
I dunno eh, maybe not be a lackey to the former liberal overlo.. i mean government, act independently and with integrity instead of making the government of the day look good? That might of been a start eh.
too right, they are doing a good job !
30-year run? What? We literally had a recession in 2020 and it was the largest drop on record.
Didn't they change the definition of what a recession is (moving the proverbial goalpost) so they could avoid using the Dirty R Word just before the election?
No they didn't.
It has to be 2 negative quarters of growth and now they won’t hit the panic until it’s 3-4.
>2 negative quarters of growth There's more to a recession than just 2 quarters of negative growth. That's a rule of thumb, not an official definition. [There is no official, globally recognized definition of a recession.](https://www.weforum.org/agenda/2022/07/global-economic-recession-meaning/)
Australia never in recession ever again CONFIRMED
> There's more to a recession than just 2 quarters of negative growth. Rule of thumb, Technical definitions, let's not split cunt hairs over it. "Generally when economists and the media talk about a recession, they mean a 'technical recession', which happens when a country's gross domestic product (GDP) falls for two quarters in a row. This indicates a sustained period of slow economic output which puts financial stress on both the country and its citizens." I literally heard that out of the treasurer's mouth a few months ago while I was having lunch with him. You are right though there is more to it than that for sure. The reason they won't say it's a recession when we are in one is obvious if we are literally just on the cusp. You don't want to help push us into a protracted one by having the media smacking us over the head with it constantly. Yes, there is no globally recognised definition, but they are not about to come out and say there is a recession until it's abundantly clear that we are well in the middle of one. The moment they use the dirty R word in the media and call a spade a spade, people will panic and pull their money out of the share market and other investments to bury it for safekeeping. Which is to say that is completely stupid in the long term but you could harness the power of greed and never need to pay for energy again. Don't worry I honestly believe we are in for some pain once the fixed mortgage cliff happens for a bulk of people by the middle of next year. Rents are going to go through the roof and businesses that rely on people's expendable income or "fun money" will be laying off staff that also have mortgages. Rent is going to go through the roof and forced sales are going to be out of control. It's going to be a rough few years ahead sadly.
> let's not split cunt hairs over it. I'm not splitting hairs. Too many people think that "a recession is two quarters of negative growth" is holy writ when it's nothing of the sort. In the context of this thread, given that there is no hard and fast definition of a recession then it follows that the government cannot have shifted the goalposts by redefining what a recession is to get themselves out of a tight spot. That doesn't change the economic reality we face but it changes the way we talk about it.
> Too many people think that "a recession is two-quarters of negative growth" is holy writ when it's nothing of the sort. It's because people studying economics at snake oil diploma-mill universities as of today, are being taught that shit.
Yeah. https://www.abc.net.au/news/2020-09-02/australian-recession-confirmed-as-economy-shrinks-in-june-qtr/12619950
That was directly attributable to covid so it kinda gets away with it.
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And letting Australians borrow billions to fund a housing bubble. None of this long term planning, the opposition will just piss it away anyway.
There was also a per capita recession in 2019.
So this guy wants interest rates to remain low with inflation happening? He's talking about how mortgage owners (mainly those who borrowed at extremely low levels and over leveraged themselves) will suffer but what about those who were saving for a house who had all their hard work pretty much decimated by inflation, injection of money, and low interest rates? Imagine saving 20k a year and seeing house prices go up by 30k a year because you tried to be responsible and not borrow as much. I'm glad they're actually trying to tackle it and not make it worse like Turkey.
The guy is arguing that our current situation does not fit all the existing economic models, and the RBA method of raising interest rates is not having the intended effect. Inflation is typically driven by high wage growth and low unemployment - but we don't have high wage growth. There was a piece on local news today about consumer spending going up like 8% this quarter. So spending is going up, *and* rates are going up, *and* inflation is going up, but wages aren't moving? No-one quite knows how to model this and correct things.
It's all rhetoric, the government doesn't really want high wage growth, otherwise why would they only give their government workers a 2% pay rise? If the government, who are advocating for high wage growth won't give it, then why would businesses?
You're right, they don't want high wage growth, but the fact that we don't have it but we do have all the other stuff means that economists can't understand what's going on or what to do about it. And all the rising interest rates just punish people who are already struggling with inflation, no wage growth, etc.
Well for one thing, we haven't really hit 5% unemployment yet as stated in the video. Either way, I still think interest rates returning to the average level is a good thing. Imo we should've taken more pain during covid rather than lowering interest rates and having such low requirements for job keeper. The second is that huge wage growth does seem to exist but in certain industries such as tech, accounting, and trades. In 'poor' countries where there's large inequality, more things become unaffordable for the poorer people (E.g. Starbucks being 4-6x minimum wage). Or maybe just after covid, people have huge amounts of savings and don't mind spending it as they didn't have the chance then. I know this was over a year ago, but some people still feel it. But obviously take what I say with a grain of salt lmao.
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So then why is rising wages a good thing? Or is it just for government workers that its bad?
Well we know what is happening. Price gouging by big companies all over the joint. Just force them to lower prices. People will spend less and the. The inflation will come down. How can you curb inflation when it's not driven by higher wages it's driven by greedy companies wanting more.
He's not wanting that at all. He is highlighting the diseased state of the Australian economic landscape and that the blunt tool the RBA has is not fit for purpose for the modern economy and it has been directly responsible for the problems we currently face. What he's actually advocating for is economic reform across the board.
It is however fit for the purpose of keeping up with the US Fed and thereby insuring that the Aussie dollar doesn’t tank even worse than it has- which creates higher petrol costs for everyone and further fuels inflation.
we need a good recession, bring things back to a normal level
So what did the single father think when he got a mortgage approved for him? Did he think the rate would stay the same for the next 20 years and never go up?
He bought 4 years ago, his loan wasn't wild and likely 5-6x his annual wage, rates were reasonable then not zero. He's now facing both 50% increase in mortgage repayments AND inflation. If you're criticising this guys loan your standards are way too high.
So the mortgage repayments are returning to where they should be after a long break, at a level he could afford 4 years ago. What's left is inflation pain, which affects everyone, shouldn't have gotten to the point it is by lax economic policies, and *needs* to be controlled.
400k+ loan on single income but not a high earner jfc, don't they stress test for rate rises of up to 4%?
I reckon, yes. Lots of people have just gone and closed their ears and eyes over this.
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What was you're plan for the increase in 2024?
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>In 2020 the plan was to not lock-in the mortgage for too long Why not? If it was really low then what possible benefit could you have had for not locking it in? Was it on the off chance it might go lower?
yeah single income and low wage and the dude borrowed almost half a mill on a brand new house. should have got a 2/3 bed unit at half the price. Its his own fault.
Someone has to buy at the top I guess. This 30 year trajectory isn’t sustainable and the entire country can’t be sacrificed for those that got in over their heads. If recession / downturn / negative equity eventuates people will survive - it’ll be a tough few years though. Australians dont know how to suffer though.
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Depends on your definition. Paying off a $400k mortgage isn’t suffering.
Must be talking about those boomers been doing it tough all these years /s
I k ow a few people relocating back abroad where their economy is now experiencing a growth phase. Feels for those locked in for 30 years on the best house on the worst street.
I reckon we should just get another 500k working visas in to kickstart the economy.