Refer to article: CPI Figures bad for rates and Record petrol pump gain
I guess there are good reasons why I don’t have a car, although I will be on the hunt in a few months time. According to the article above, petrol prices are set to hit $1.60 per litre. Wow. I remember in the early nineties, it was in the vicinity of 35 cents per litre, and in 2006 when I visited UAE - petrol prices there were in the range of 12 cents per litre. When I buy a car, fuel efficiency is definitely going to be high on the agenda, and the possibility of a hybrid although the prices for these cars are still beyond my budget.
The rise of inflation is not good, particularly for home owners. But if you are in the market for a new home, then I would personally wait a few more months. Interest rates will be raised to curb inflation, and there will be no let down until 2009. According to the article, this is the rise of cost of living in Australia: “Petrol prices rose 5.4% in the first quarter and pharmaceuticals climbed 13.1%, the cost of buying houses gained 1.7% and electricity prices increased 6%. By contrast, furniture fell 3.6% and stereo, TVs and computer prices slid 5.8%”. The cost of electronics is coming down, but state of the art technology is still bloody expensive.
As interest rates rise, more and more people will be selling their houses and going back to the good old fashioned renting. This is because, many people who bought homes and apartments were stretching their budgets at the time anyway. Once this happens, the housing market will be in surplus and demand will decrease as affordability decreases. More people will become “desperate” to sell their houses for lower prices, and this is why it makes sense to wait a little bit longer. Having said this, there is thought that this will rise rents as more people will be in the hunt for rental properties. But, my take is that the rental market (although will rise), won’t be affected as much as more people (like myself) will grab that bargain house when it becomes available and choose to buy than continue renting.
Having said all this about petrol prices etc, we are still considerably cheaper than some European countries. Check out their prices. People in Norway are paying almost $2.50 per litre. Compare that to the Americans who are still sitting under a dollar.
If you want to travel, then this is the time to do it with the Aussie dollar reaching $US0.95 today. That’s some good news (although not if you are exporting).
Note: I do not intend to give financial advice, nor am I am a financial adviser. So, the point is - this is all just my analysis and not official by any means. However, if you have your own take - let me know.
Update (26/04/2008): Woke up to this article in The Age: Rates hit home prices. Part of the article agrees with my analysis, and there is more news to come in this sector. Will keep you updated. ANZ has hiked its interest rates already independent of any move by the RBA. What does all this have to do with Mr Feedback and my mission: its news for starters, but if the economy is dwindling indicated by the share market and housing market downfall, you can expect businesses will also struggle to cope due to less consumer spending and demand. Mr Feedback is all to do with businesses and consumers.
Personally, I can’t see interest rates getting above 10% and being a relatively new home owner (1.5 years), I really don’t want them to either, with good reason obviously!
That said, I know a couple of people who strongly believe that interest rates will hit 15%+ before they start coming down.
In any case, it’s one of those things that are a little bit unpredictable. Who knows what the reserve bank is going to do from one day to the next and why. However, there have been reports that the rate rises are slowing inflation which is exactly what the reserve bank set out to do, and that there may only be another 1 or possibly 2 rate rises before they start coming back down.
As Raja posted above, if you are in the market for a house, I would certainly hold off for the time being. Save as much money as you can, stay living at home or rent. It is definitely a much cheaper and smarter option for at the moment while the market is so unpredictable.
I also remember paying around 50cents per litre for petrol. Gone are those days for good I think. One thing I don’t understand though is that we produce our crude oil - why the hell do we need to import the stuff?!?!?! Can someone with more knowledge on this subject please fill me in!
My $0.02 in any case.
The most recent figures show that some SE (Melbourne) suburbs have had up to 45% growth in house prices this year. Rents are also rising according to the most recent reports. However, not such good news for northern and western suburbs in Melbourne.