Predicting future interest rates has become a national obsession. The latest call is that there are “green shoots” emerging, supposedly signalling the end of the recession and the possibility of increasing interest rates. Personally I think it is way too early to call that – and I’m an optimist!
I still don’t think we’ve seen the full impact of increasing unemployment especially on highly-geared baby boomers. It will come from three fronts:
- More baby boomers will be made redundant (as they tend to be higher paid for equivalent work.) Compounding the problem is the fact that they will find it harder to get another job.
- There’s a huge reliance on double incomes these days – and no financial assistance if one of you is still working.
- Tenants will be less likely to pay rent on time.
- A large amount of negatively-geared investment property which “made sense” during the boom will have to be sold.
There has been some euphoria over the past few months with property sales picking up and prices holding. In my opinion this is (1) a lack of listings due to people not being confident enough to upsize and (2) a surge of buyers who had been sitting on the fence.
We still have a number of buyers out there struggling to find a place, but that’s typically in the highly-desirable suburbs and they’re all looking for a good price that simply hasn’t eventuated yet.
The two-second interest rate strategy
My preferred fixed term remains one-year fixed at 5.39% or 18 months at 5.79% – and probably splitting the mortgage between both to give two bites of the cherry. I’m also a huge fan of setting up a revolving credit account and focusing any extra repayment against that. That way you can build up a safety buffer (while rates are low) without having to think about it too much.
