US Fed Set to Hike by Another 50-75 Points

cannedhams on 14/06/2022 - 11:51
Last edited 14/06/2022 - 13:16 by 1 other user

Good article in the Herald:- Shock US inflation a rude reality check for already shaken markets

Basically, US Fed is likely to hike by another 50 points in their next meeting. AUD has already gone down to 69 cents, which will feed through to inflation, particularly fuel prices, given how dependent Australia is on imports.

I previously thought it unlikely that the RBA would hike by 50 points again before the next release of CPI figures. Now I'm not so sure.

I spoke to a couple today who took out a $1mil mortgage on a single income. They said that they basically can't sleep at night. By the time they pay commission on a sale they would be in the hole to the tune of about 50K including stamp duty on the purchase, but they are still considering it just to alleviate the stress. Really feel for these people, and there would have to be a fair few of them out there…

Financial

Comments

  • Stopback on 14/06/2022 - 12:00
    +2

    That couple easily has 50k in super they be fine

    • HeWhoKnows on 15/06/2022 - 10:19
      +1

      OP and his friends, like every economist, has got it totally wrong with interest rates.
      Both the RBA and the FED need to quickly move rates up to the inflation rate and beyond ASAP.
      Thats 5.1% in OZ as of the March Qtr CPI reading (June Qtr will be much higher)
      And Thats 8.6% in the US

      The fact is that inflation is way of of control and the Central banks have been far to slow to make a move to curtail it.
      So they are both well behind the 8-ball as they have both conceded.
      Forget about these tiny 0,25% incremental increases.They are a thing of the past now.
      Basically 0.5% will be the smallest increase to be considered in any month (and every month) going forward both here and in the US.
      Expect 0.75% and 1% increases moving forward towards the end of the year.

      I think the next move for the RBA in July will be a 0.65% increase to 1.5%. Mark my words.

      People need to be focusing on How high will interest rates go. Not the next rate increase.

      I think in Australia and the US the FED and RBA may pause for a month or 2 when they reach 3% to see whats happening in the economy.
      Then they will march higher when they see that inflation is still rising as it is in both countries and in fact around the world!
      The UK at 9% has even higher inflation!

      BOTTOM LINE: If the couple OP knows are worried now, OP should quote them my post.
      The fact is a whole generation of people entering the property market have never seen the effects of high inflation, quickly rising interest rates chasing inflation higher, and as a result falling property prices.
      Its better for this couple to forego thier $50K now than to lose $200K in falling property values in the next 12 months

      • rektrading on 15/06/2022 - 10:25
        +2

        Pandora is out of the box and no amount of rate hikes will stop inflation.

        • HeWhoKnows on 15/06/2022 - 10:29
          +2

          Interest rates below the inflation rate encourage spending so are inflationary.
          Interest rates above the inflation rate are contractionary which is where we need to be to fight inflation.
          So there is an amount of rate hikes to stop inflation but not without driving the economy into a fully blown recession my friend.

          Ever heard of Stagflation?
          We had that in the 70s and 80s.

          Basically you have High inflation, interest rates and high unemplyment all at the same time.
          Its quite the opposite of what we have experienced over the last few years.
          And its where we are heading right now!

          • rektrading on 15/06/2022 - 10:34
            -3

            @HeWhoKnows: Want to stop inflation? šŸ‘‡

            1. Stop šŸ’µ šŸ–Øļø.
            2. Stop sanctions.
            3. Stop giving free šŸ’µ to Ukraine and to stop prolonging the conflict.
            4. Tell Ukraine to capitulate and negotiate a surrender.

            šŸ˜“ Joe has the power to do 1, 2 and 3 but he won't.

            • HeWhoKnows on 15/06/2022 - 10:39

              @rektrading: Yes. Correct that and much more
              Curbing inflation is not isolated to just raising interest rates.
              Thats why interest rates will keep going higher.
              The central banks only have influence over monetary policy.
              Not over government spending and foreign policy.

              To quote this linked areticle:
              "The persistence of inflation rates at levels not seen since the dark days of the 1970s and early 1980s gives central banks few options but to go even harder with rate rises and the continued withdrawal of the vast injections of liquidity from the unconventional policies that had remained in place, until very recently, since the 2008 financial crisis."

  • Jimothy Wongingtons on 14/06/2022 - 12:01
    +5

    a $1mil mortgage on a single income

    Is this not considered extreme? Or is my salary just too low to even begin to fathom how this is a sane choice in current economy?

    • Kaz0551 on 14/06/2022 - 12:22

      My ex did that to pay me out ĀÆ_(惄)_/ĀÆ Silly.

  • tsunamisurfer on 14/06/2022 - 12:07
    +34

    Really feel for these people, and there would have to be a fair few of them out thereā€¦

    No!

    Do not feel for these 'people', they were more than happy to climb over others to get their property.

    They are part of the machine that pushed prices sky high, they won the auctions, now live with the price, the debt, the obligations, the stress.

  • jorf on 14/06/2022 - 12:12
    +4

    Really feel for these people

    What were they expecting? The warnings were out there a long time ago.

    Reality is about to sink in for a ton of people. Not just those who bought houses at the top, but also those who pulled hundreds of thousands out of equity to buy bullshit cars and other rubbish. Did they think interest rates would never go up again?

  • Donaldhump on 14/06/2022 - 12:16
    +4

    obviously have no buffer… so what's the plan if he loses his job? oh that doesn't happen in the land of pixies and elves.

    • ausdday on 14/06/2022 - 12:19
      +4

      ABC news is always there to help.

  • Donaldhump on 14/06/2022 - 12:20
    +2

    fed put up .75 to 1 is my call

  • brendanm on 14/06/2022 - 12:23
    +3

    Really feel for these people, and there would have to be a fair few of them out thereā€¦

    They have done this to themselves though?

    • cannedhams on 14/06/2022 - 12:28
      -4

      Well, they wanted a house. Its an understandable human impulse. Not a particularly ostentatious house by any means. They made the point that no one would have seen the Ukraine invasion coming, which I can relate to somewhat.

      • brendanm on 14/06/2022 - 13:15
        +12

        I want lots of things, doesn't mean I'm getting them.
        Ukraine has diddly squat to do with the predicament we're in.

        • whatwasherproblem on 14/06/2022 - 13:41
          +9

          Yeah exactly. The writing was on the wall (street) well before Ukraine got invaded.

          (That the US government in particular wants to keep trying to convince people that this global financial situation/inflation/price hike is "all Putin's fault!" is a special kind of ludicrousness that they wouldn't have countenanced for a second if it were the orange fella making those claims instead.)

          • Brodo Faggins on 14/06/2022 - 15:07
            +5

            @whatwasherproblem: They just want something to blame it on. Problems were existing in financial market for many years, now it's visible to all & impossible to hide.
            Implosion in 3, 2…..

      • Jason Genova on 14/06/2022 - 15:26
        +6

        mate world economy has not recovered since the 2008 GFC, stop blaming everything on Ukraine

        • KangaDrew on 14/06/2022 - 17:39
          +1

          But, but…. that's what the politicians are telling us! Everything is "because of the war in Ukraine".

          looks for a 'fed up with BS excuses' emoji

  • nfr on 14/06/2022 - 12:33
    +15

    AUD has already gone down to 69 cents

    Nice

  • Pcosmic on 14/06/2022 - 12:33
    -2

    Real estate isn't going to crash. Keep hoping

    • Drakesy on 14/06/2022 - 12:35
      +5

      30% correction happened in Perth in 2016, i'm still amazed that you're hanging onto this thought.

      It won't crash but it's definitely got 10-20% to fall.

      • Pcosmic on 14/06/2022 - 12:54
        -3

        I've heard this a 100 times, and I'll hear it again for another 100 times

      • No on 14/06/2022 - 13:06

        30% in 2016 is a surprise.

        Reiwa has it at around -5% for 2016. https://reiwa.com.au/uploadedfiles/public/content/the_wa_marā€¦

        Reiwa is certainly going to be biased so I'd be interested in where you saw 30%?

      • cannedhams on 14/06/2022 - 13:47
        +1

        Its an article of faith for a lot of Australians. The Earth could be facing a fiery death at the hands of some impending asteroid but property bulls will be looking at the sky saying, sure, prices will drop temporarily but I reckon I will double my money in 10 years…

    • ALesha77 on 14/06/2022 - 17:31
      +1

      Your statement is based on the last 20 years of easy money getting easier and easier every year.
      The truth is that to get into that overheated property market people had to be more and more levered because their REAL income has gone lower and lower.

      This was great for lazy governments and even better for home-owners BUT we have reached a zero bound AND we have a fierce inflation.

      The money will become tighter and tighter and the banks have already willingly introduced LVR and LTI (because they know). The only outcome of this is that loan value for would-be dream-riders will be getting LOWER and LOWER.

      Guess what will happen to the property prices?

  • Drakesy on 14/06/2022 - 12:34
    +12

    Zero sympathy for those who bought into the domain and realestate.com.au hype and the fact the RBA said no rate hikes until 2024.

    The ones who were complaining that prices were only going to keep going up and took the bait were just adding to the problem aided by investors.
    Nothing should be done to protect those that undermined the Australian dream by taking out $1 million loans.

    Now the sensible ones will wait in the wings while the market capitulates (people will still say property only goes up).
    They're in for a rude awakening.

    • TilacVIP on 15/06/2022 - 09:09
      +3

      Surprisingly most are under the impression Real Estate doubles every 7 years.

      They may just be in for an amazing shock.

      • DemocracyManifest on 15/06/2022 - 09:34

        Yeah those fibro asbestos shacks and crappy apartments are finally set for a reevaluation

    • RecklessMonkeys on 15/06/2022 - 12:24
      +3

      RBA said no rate hikes until 2024

      The board of the RBA should resign. They knew what they were doing.

      The average property is 'worth' a million bucks, or so I've just read.
      It's clearly wildly overvalued.

      I've do have some sympathy for people who got sucked into this, because they aren't meant to be financial experts. The banks however, are. And they are legally bound not to lend to people who can't afford it. I hope the rest of us aren't expected to bail them out again.

  • Hearthstone on 14/06/2022 - 13:54

    Properties don't need to fall very much for most people to be under the water and if they did fall by 20% most will be really @#$@#$

    the whole -ve gearing concept and large debt pile is to bang on properties need to keep rising

    else every year you are a few percent behind
    most people was sick of holding properties in the 80s, a lot of people eventually sell because they cant hold it any more
    it a bottomless drain of cash and there is no growth.

    FOMO is what get people burned, the number has to stacked up, if it doesn't then chances are you going to get burned in hot flame
    1m debt on single income doesn't stacked up unless you on 250K+ salary

    • Kaz0551 on 14/06/2022 - 14:00

      250k will get you 1.65m loan

      • Kaz0551 on 14/06/2022 - 14:02

        150k will service 1.020m

        • Kaz0551 on 14/06/2022 - 14:02

          These will leverage you to the extreme, but are serviceable with HEMS expenses.

        • Michael1983 on 14/06/2022 - 17:14

          Have taken only 240k with 200k deposit 3 years ago. More than happy with the loan, hope to pay off in 5 years. Be modest and that will bring happiness. Ubank rate being lifted from 1.99 to 2.14, but I should be fine even with 4-5%. Can't understand how would you buy in current market though, it's crazy. Similar townhouses on sale for 550-580k now, I even could see one for 780 and it is like 40 m away from busy train line..

  • rektrading on 14/06/2022 - 14:03
    -1

    $XJO -4.62%.

    SELL SELL SELL…………………………………..

  • ywpn on 14/06/2022 - 14:40
    +8

    I spoke to a couple today who took out a $1mil mortgage on a single income. They said that they basically can't sleep at night.

    I feel for these people, too, and I hope they'll be okay! It sucks having to worry about financial hardship.

    To put myself in their shoes - in mid-2020, when interest rates were ridiculously low, and I kid you not, every bank I previously had an account with would call me about once a month asking if I needed home loan advice or help - they wouldn't say it in such a direct way, but it's where the conversations always led to.

    So I took the bait and did a few meetings at the banks to enquire about how much I could borrow and my measly salary could borrow something ridiculous like $1.3M. I'm not going to say how much I earn, but it's average.

    As tempting as it was to go and buy a place, I figured it can't be possible to sustain these low rates forever, and it only took 10 minutes of extra work (punching numbers into an online home loan calculator, bump up the interest rates, and see how big the repayments were), and I was like…I'd be f***ed if it went up 1% or 2%.

    So I understand the temptation of borrowing $1M on a single income, because I was getting calls from banks quite regularly about how awesome interest rates were. But yeah…it still didn't add up to me.

    I don't know if this day will ever come, but I'm basically waiting for a lot of people under mortgage stress to sell for cheap.

    • Brodo Faggins on 14/06/2022 - 15:28
      +4

      Agreed. People are waking up to see that the Banking & property sectors are a rort. I'm sorry if I offend anyone, but truth hurts.
      (Unless you played it smart - got in 10yrs ago, flipped, refi, took out profits, repeat, etc).
      Now it's a different ball game. Yeah rates were cheap 1-2 yrs ago. But do rates stay low forever LOL, or are they bound to come up?

      Look at it like this - As soon as you get $, you try to "save" in a bank offering some BS rate 0.3-1.5%.
      By that logic, why don't banks "save" too? Banks go against what they tell you to do. Instead, they lend out your "savings" 10 times over to HL, CC, PL, car finance, and now BNPL schemes. They profit from interests & fees on these your indebtment. Not from interest rates in HISA's.

      As for property, it's an illiquid "investment". Yeah cap gains, yeah rental income, yeah refi, yeah no renting. Ok but you can't control markets, rising cost of living, rate increases, the gvt, builders, the foundation a property is built on, earth erosion, the dogshyt 1000 yr old plumbing system. You can barely control when you want to sell.

      a lot of people under mortgage stress to sell for cheap.

      Soooon it will happen.

      • cannedhams on 14/06/2022 - 16:06
        +2

        Maybe, Im wary because Ive considered the property market overvalued for a long time and ever since its just gone up, up, up…

        Net migration still low:- https://www.abs.gov.au/media-centre/media-releases/australiaā€¦
        Fertility rates also declining - 1.58 births per female and still falling
        Forecasting migration will go up, but gee, even though labour market is tight, its a big risk to commit to employing someone on TSMIT salary for four years…
        Interest rates will keep going up, they will have to hike even as the economy goes into recession
        10 year bond yields have blown out to 3.67%.
        So buyers will face increased living costs from inflation, potentially increased precarity in terms of their job if there is a recession, plus interest rate hikes.

        • Brodo Faggins on 14/06/2022 - 19:07
          +2

          Once upon a time it was like that. For about a decade, property values doubled and you essentially got a portfolio of residences for next to nothing. You can take equity out from existing loans and 2x multiply it over a few times. But property also has their own cycles, notwithstanding all other cycles and circumstances in the market.

          Migration/tourism and import/export were AU's bigger revenue generator. Gvts essentially took that away from themselves past couple yrs, and our relationship with Chnia has gone down the drain. They've ditched our import/exports and started afresh with NZ instead. So we've basically got nothing now.

          Everything is now out of control and the people are left to stand alone… Where are the big blokes upstairs, now that we need them? The kicker is that maybe they caused all this to enslave the middleclass…

    • cannedhams on 14/06/2022 - 16:16
      +4

      I used to work in the industry and a lot of banks were writing mortgages with their eyes closed. They just treated it as a compliance exercise. The stress test margin was 2.5%. As long as people could demonstrate that they could handle that sort of hike and not starve, they got a mortgage.

      As of next month, we will have already blown through half of that stress test margin.

      About 280,000 mortgages are very heavily overgeared, those people will simply be forced to sell at some time in the next two years, simple as that:-

      https://www.abc.net.au/news/2022-05-02/borrowers-home-loans-ā€¦

      There's still a fair bit of pent up demand, but realistically, the banks are going to want people to stump up 150K in cash reserves or have a lot of equity, and I just dont know if there are enough of those people to buy those homes.

      • Brodo Faggins on 14/06/2022 - 19:13
        +3

        I have experience in Banking, and Financial Markets myself.
        I left because I could not stand rorting fair dinkum Aussies - You have to not have a conscious so you can sleep at night.
        Everything inside there is a metric or a KPI. Risk heavily emphasised on, and yet they are so poorly forecasted and executed.
        And when damage is done, they do very little to minimise the collateral.
        "Too big to change" mentality. Or when change is embraced, it takes 6-18 months to implement. Don't forget all the levels up it has to climb for approval.

  • Jason Genova on 14/06/2022 - 15:23
    +6

    I spoke to a couple today who took out a $1mil mortgage on a single income. They said that they basically can't sleep at night.

    lul

    • DemocracyManifest on 15/06/2022 - 09:32
      +4

      Well looks like the other person has to get job and they will have to sublet a room in their 2 bedroom $1 million fibro shack šŸ˜‚

  • Peanut money on 14/06/2022 - 19:58
    +2

    Why are they on a single income?

    If they canā€™t sleep at night might as well work - stack shelves etc

    If they have kids get the grandparents to sleep over and turn a single income to 4 incomes.

    Maybe move in with the in-laws and rent the house out

    • RecklessMonkeys on 15/06/2022 - 12:37
      +1

      They could sell the children on the open market.

  • leiiv on 14/06/2022 - 20:03

    I really don't understand what is happening now.
    I thought the general rule of thumb is that high inflation hits people holding cash harder than those holding assets. So how come share prices are tumbling down and property prices are forecasted to be down as well?

    • ALesha77 on 14/06/2022 - 22:07
      +6

      In short, because Central banks were never this LATE in tightening the monetary conditions AND with inflation high, they now have to catch-up at a much higher pace of reducing demand. All this works out perfectly for a recession with a stagflation agenda.

      Stock market is a forward-looking discounting mechanism and have already priced that in. And they will be the first to recover and will rip-roar into new highs when everything around will look like a disaster.
      Property market is always slow but will catch-up with a vengeance soon and this one will be much harder to turn around.

      There are many more angles to that but local public with 5-seconds attention span does not like reading long posts.

      • Bargain-er on 15/06/2022 - 08:11

        I'm not a property bull but i think Aussie property market is rigged to keep going up. Even in South East Asia, property got a good correction during covid but not ours xcept mere 5-10% dip in the wake of covid in our area. If price is not good then no one's selling. Unless, prolonged recession or great depression scenario it's hard to see a crash. And migration will start again sooner than later.

        • Drakesy on 15/06/2022 - 09:18

          We haven't had rate rises like these for 10 years
          Thus is definitely not business as usual.
          Labor I feel will keep migration low to keep unemployment low.

          Nothing worse than being poor and without a job.

        • ALesha77 on 15/06/2022 - 10:39
          +3

          You are right, it has been and it is (I have explained that in details in my earlier posts) BUT we have about reached the very far corner of the can-kicking road. In short:
          - Monetary policy will only tighten from here for the next year at least
          - Fiscal policy has got so much bad rap (with JobKeeper and alike) and our brilliant politicians are unlikely to trigger a cash-splash for property given crazy valuations

          Markets are never a certainty but the most likely probability for property is to go much lower from here.

      • Brodo Faggins on 16/06/2022 - 02:08
        +1

        Too little too late.
        Even if they šŸ’µšŸ–Ø to infinity, nothing will save this shytshow.

  • rektrading on 15/06/2022 - 07:47
    +2

    Get ready to #BTFD.

    ā€œThe stock market is the only place that goes on sale and everyoneā€™s sadā€

    @cvpayne @FoxBusiness https://t.co/qdJJtEgkzd

    • RecklessMonkeys on 15/06/2022 - 12:39

      Get ready to go broke.

      • rektrading on 15/06/2022 - 13:44

        Fewer people go broke #BTFD than buying #ATH.

  • HelpMeiCantSee on 15/06/2022 - 08:09
    +5

    Itā€™s going to get far, far worse. If I had such a mortgage (I donā€™t because I calculated my ā€œstress pointā€ at a 8% rate, and my critical point at 10%, with an ā€œIā€™m screwedā€ at 15%.

    Iā€™m the only one I know that approached home lending this way, and despite how much we would have loved a bigger place and fancier stuff, but it donā€™t want to risk stability for my kids.

    I donā€™t see rates tripping at 5% to be honest. A shĆÆtstorm is coming, hard and fast lads.

  • Jason Genova on 15/06/2022 - 08:36
    +6

    would not shock me at all to see a 100bp rise

    • fouhay on 15/06/2022 - 09:21
      +3

      From memory in "the recession we had to have" this happened multiple times over only a few months. I was only a kid at the time but remember my parents being quite stressed about it.

    • Brodo Faggins on 16/06/2022 - 02:04

      Wouldn't be surprised but that's asking for a market collapse haha

  • TilacVIP on 15/06/2022 - 09:14
    +3

    I still think the cash rate fell way too far, which has now caused alo tof this sh!te a lot of people are in.

    They should have never gone below 1%

  • Jason Genova on 15/06/2022 - 09:25
    +3

    "Dr" Lowe here in Australia, is unsure how high aussie interest rates will go

    https://www.abc.net.au/news/2022-06-14/rba-governor-warns-itā€¦

    this is worrying considering he thought rates wouldn't go up til 2024

    • DemocracyManifest on 15/06/2022 - 09:30
      +1

      Financial products come with a warning in their PDS, and warnings have been sounded for ages; people didnā€™t listen and if they havenā€™t locked in their mortgages, wellā€¦

    • Drakesy on 15/06/2022 - 12:30
      +4

      I feel Dr Lowe is one of the few people who can literally miss time all their kpi's and still get paid. How have they not all been turfed.

      The board is a mess, the economy alarm bells were ringing a year out, other countries were proacitve, and yet they chose to do nothing in regards to inflation now Australia's housing prices are cooked. People are up to their eyeballs in debt and the rba just happily go on their merry way.

    • Brodo Faggins on 16/06/2022 - 02:03

      To infinity & beyond.

    • cannedhams on 16/06/2022 - 20:14

      I think the error here is this blind assumption that inflation is just a transitory thing related to Covid and the Ukraine war. The fact is that a lot of commodities have been on a steady upward trajectory for a while now but have been kept in check by the price of value-added goods from China consistently declining.

      A lot of the disrupted container flows are not necessarily prompted by Covid, but by the increased tendency of crops to fail due to climate change. Plus the fact that the OECD companies have preserved economic growth only because of loose monetary policy, so there's just so much free cash floating about.

  • Brodo Faggins on 16/06/2022 - 22:34
    +1

    Update: Rates officially in at 0.75bp
    Brace yourselves for a massive šŸ©øšŸ›

    • Bargain-er on 17/06/2022 - 07:25

      Reflected a day after. Quite strange market went up after it was announced. Priced in? If interest keep going up then stonks and cryp still have a long way down?

      • rektrading on 17/06/2022 - 07:33

        Prices damp is an opportunity buy.

        Stack those cheap stonks now or pay more later.

  • DarkOz on 17/06/2022 - 09:11

    US Fed Set to Hike by Another 75 Points for the Next 3 Months.

    Here, fixed.

    June 2022: 75 BP. Ticked.
    July 2022: 75 BP?
    August 2022: 75 BP?

    Our 25BP and 50BP is looking like a joke. Too little and too late.

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