Wednesday, March 05, 2008

25 basis points

The official cash interest rate has just risen in Australia, again. And, yet again, the bleating and wailing and gnashing of teeth has begun.

Surely, and I profoundly hope this is the case, people are not so stupid that they would truly believe that interest rates would remain at record lows for more than 5 years.

Take a simple example: in the last 25 years, interest rates have gone from above 15% to below 6%. If you consider the majority of home loans are calculated to run a course of 25 to 30 years, why would you not consider rate rises and their impact on your payments?

The number of people who jumped into a large house with a mammoth mortgage over the lean rate period was massive. The ads were targeting everyone at every turn. There were an abundance of ads for no-deposit loans, low deposit loans, no background check loans, etc, etc. It was a blanket of advertising all aimed at one thing. Home ownership.

While this is not a uniquely Australian ideal, it certainly seemed to be taken to a new level over here throughout the last decade or two. Now, the halo seems to be slipping on the home ownership angel.

The mass sell-off of “toys” has been an indication. Sales of boats, jet-skis, vehicles, recreational machinery, and motorbikes have all been on the increase. People cant afford to run these items and meet the mortgage. Something gives, and its normally the ‘fun’ side of things.

I wonder what the suicide and divorce rate will do now.

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