Strategy for impending rate rise on Melbourne Cup Day 2009

The impending rate rise this coming Tuesday will have significant implications on the property market where home prices have increased by over 3% in the September 2009 quarter. Key points to note:

  • The Reserve Bank is targeting inflation and not trying to curb rising home prices.
  • Due to the current state of the economy being stronger than any developed nation in the world, the RBA feels that interest rates are no longer justified to be at 49-year lows.
  • A 50 basis point increase will be the largest hike since February 2000 and will add $90 a month to a $300,000 mortgage. However, experts feel this is unlikely to have a significant dampening effect. Home buyers have already factored in a series of rate rises into their budgets.
  • However, a rate rise is likely to induce certain people to make snap decisions, which experts agree is unwise. Unless you are getting into the market for the first time, the notion that buying now to avoid impending rises in home prices will only contribute to a property bubble which will burst sometime in the future. Previous burst bubbles have wide-spread effects on all people.
  • BIS Shrapnel predicts that Australia is at the verge of a property bull market and that prices will double in 12 years. This prediction coupled with rising home prices are fuelling the anxiety to buy now. To me, buyer urgency is only justified if you do not currently own a home and is paying high rents due to the acute dwelling shortage all over Australia.

If you are looking for your first home and want to get out of the rental trap, I would advice doing a thorough financial check to ascertain your affordability for getting finance, then do the mandatory research and consider buying your home along established principles. The why, where, when, how and what to buy are now important considerations in view of upward pressure in interest rates. Good luck and I wish you all the best in the hunt for your new home.

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