Are Low Interest Rates Gone for Good In Australia?

Jason · 00:00Welcome to episode 239 of the Numbers Game. I'm Jace. I'm here with Nick and Marty. And Nick, I've got a question for you. It's when am I gonna be able to buy a house at a really low interest rate?

Nick · 00:10Well, Jace, I've got bad news for you. Interest rates are not going to be low, or at least for this foreseeable future, I'm not gonna say ever again because we could have another pandemic, but days of the two to 3% interest rates are gone.

Nick · 00:26People need to get. Used to the new norm, which is probably gonna be somewhere around 5%. Interested to hear Marty's, uh, thoughts on this because he's an economic guru, um, loves reading stuff on the economy. Um, 5% Marty, do you think that's the new norm? Well,

Marty · 00:47well, there's bigger issues here. The, uh, the ticket for the MCG for the cricket has just doubled.

Marty · 00:54How does, how does. The ticket double in price from last year.

Marty · 01:00I know it's the ashes, but they said they've gotta double it because the costs are, you know, the, the a problem

Jason · 01:07we've, we've just, just come off an episode about value pricing. Maybe they've just gone, we, we can sell this joint out even if we double the price.

Jason · 01:14Let's make some more money

Marty · 01:15now. Mix that with a 5% interest rate. Um, funny, funny you

Nick · 01:20bring that up, Marty. I got an email today. This is completely sidetracking. I've just been accepted as provisional member. Oh, congratulations. Um, 2009. Entrant. So well done. 14 years later, provisional. So it means I'm still a hack, but, um.

Marty · 01:35No, no, no. You'll enjoy, uh, the perks of provisional and not to top you, mate, not to top you. But I got an email and I'm a restricted member as of, uh, that's great. As of August, I'm so excited because I get to go to the Anzac Day Clash, and I get to go the day one of the Boxing Day tests, which I've missed out on.

Marty · 01:56Uh, but I, I, I was in there for five years, Nick as a

Marty · 02:00provisional. Mm-hmm. So, but it's getting shorter, I think with COVID. So. What has this been? Everyone's dying quicker. It's actually, it, it,

Nick · 02:07it, it's interesting. If we talk about our last, um, our last, uh, our last episode in creating, you know, value, you, you've got a 14 year wait list to be provisional, another five years to be restricted, which I assume means what you sit behind a pile on or something and you can't see anything.

Nick · 02:22Um. So it's a good way to create value, you know, put your name down where you should be able to get, you should get looking in about 20 years.

Jason · 02:29You know what, there, there's that many numbers to unpack in that let's, uh, park that for a future episode of, uh, the, the, the numbers around MCC and even our A FL membership.

Jason · 02:40I'm silver, I know, want 'em to be gold. So park that thought, let's, uh, come back to the numbers around that. 'cause, you know, that's, that is exciting. But

Marty · 02:46I think, I think 5% is where, you know, like, like. You said Nick. I've been doing a lot of reading, but I feel like it's, um, yeah, there's no way we are going near to those, uh, those low rates again,

Marty · 03:00unless something drastically happens, I think inflation will be in check.

Marty · 03:03They won't want to drop rates and have that spark up. 'cause if it did, it could pose a real problem that would be harder to turn around again. So I think it's a softly, softly approach. And, and like I've always said. You know, you want to take action from where the market is at because you can't control what the market is gonna do.

Marty · 03:23You've gotta come back to your own market and do what you can do given the circumstances. Otherwise, you are always waiting for something else to happen to make a move. A hundred percent.

Nick · 03:33Well, I just wanted to give people just some background on why we think that and, uh, what, what the, uh, experts are saying.

Nick · 03:40And you know, we are sitting here saying, oh, well it'll be 5% to control inflation, but what does that really mean? You know, how they come to 5%? So, um, the important thing is when we talk about interest rates, we're talking about you and I now at 5%, we're talking about the. Uh, the end consumer, their home loan rate.

Nick · 03:59So, you know, Jay

Nick · 04:00buys a house. What home loan rate is he paying? Let's say it's 5%. When we're talking about the RBA, uh, we're referring to the cash rate. So I think the cash rate at the moment is 3.85, is that right? Um, after the latest drop we're in, you know, we're recording this, um, around the new financial year in 2026.

Nick · 04:19So. Generally a, a home loan rate will be around 2% above what the cash rate is. Maybe a little bit less, just just, just depending on a few different variables. So when we are looking at, uh, prediction on interest rates, we are looking at that cash rate. Where's that cash cash rate gonna sit? And what is the, um, what is the proposed neutral cash rate?

Nick · 04:45Or Goldilocks cash rate as it can be referred to JA smart man, the Goldilocks cash rate

Jason · 04:523%.

Nick · 04:54Well, that's what, yeah, that's what the experts say. But the, what it, actually, what I was asking you is what

Nick · 05:00does it mean? Um, oh, it's a, it's a, it's a cash rate, which then will influence an end, uh, interest rate to a consumer.

Nick · 05:08Mm-hmm. That they feel will keep everything in check. So it will control inflation. Um, it will ensure there is still investment and growth in economies, and it will also ensure that people can maintain, um, savings. So it's this perfect, it's this perfect, um, rate where everything just stays stable.

Jason · 05:30So Nick, just to confirm, I mean from my point of view, is, is Goldilocks rate similar to the neutral rate?

Jason · 05:34Is that what they're describing? Yep.

Nick · 05:35Yeah. One, one and the same? Yeah, just, just another way to say it. If we're looking at that cash rate at the moment, it's 3.85. You know, you mentioned the, um, the predicted Goldilocks or neutral rated about 3%. The issue at the moment is it's, it's predicted, and you know, the RBA has models out there that suggest that neutral rate should be 3.9%.

Nick · 05:58There's other models that

Nick · 06:00suggest it should be 0.7, so there's this big variance in, in what it should be, but. What markets are saying is it's going to be higher than what it has in the past. And there's a few reasons for that. Um, one of the reasons is, um, government deficits. So, you know, gov it's not like supply and demand with money.

Nick · 06:21Governments are lending all this money, right? And they're, they're, they're more than content to go into higher deficits, which means there's no more need, uh, to lend money. Um, a lot of investment in ai, um, a lot of investment in green energy. The shift to green energy. Yeah, for sure. So all this stuff's gonna cost a lot of money.

Nick · 06:38Um, and which means less and less savings, which means, you know, the demand for these money, uh, for these monies to lend goes up. So, you know, we're looking at that Goldilocks rate sitting around 3%. Um, let's say there's another two to three rate drops, um, on top of what we've got at the moment, people now would be paying.

Nick · 06:59Somewhere

Nick · 07:00between mid fives to se to sixes on their home loans. They probably need to get used to high fours, to fives on their home loans, maybe a little bit more for an investment loan. So I guess what I'm encouraging people to do is just think about that and when they're making decisions, long-term decisions on their future, buying houses, buying cars, these sorts of things, they need to factor in that kind of interest rate and.

Nick · 07:26If they're gonna be conservative, they probably need to factor in an interest rate higher because the stuff that I've been reading around, what's gonna drive this neutral rate up, the investment in green energy and ai, those costs are just gonna go up. It is crazy, the government deficits that we're seeing.

Nick · 07:42So I don't see anything that's gonna make it better. So for me, I'm thinking, well, geez, I'm gonna make sure that things are okay at 6%. Um, not so much five because I don't like the way things are going at the moment based on governments and, um, some, some other global trends that we've got.

Marty · 08:00Yeah, and I, I guess in the past, sort of we beat sitting, like I remember in the two thousands sitting at 5.7 fives quite consistently around that area, those sixes.

Marty · 08:09Um, it was just the norm, but obviously property prices were a lot lower. So it's, uh. The impact was very different. But I guess when people are thinking rates are coming down, property prices are going to boom, not necessarily the case. And you know, for every rate cut, maybe you get an extra 40 grand of capability in, in what you can borrow up to.

Marty · 08:31Um, and we might be capped out at an extra a hundred grand. So, so this. You know, this boom or bust mentality? Um, I think it's probably like, you're right somewhere in between and we just have to make, uh, you, you're always better to be a bit defensive and, and like you say, like. Dictate everything on 6% just to be safe.

Marty · 08:49'cause you just never know what happens, right? We never would've thought rates would've come down to two either, right? Mm-hmm. But, um, but we sure as hell didn't think they'd go up 14 times. Well, I don't think we'll get

Marty · 09:00either or now, you know? Yeah. So it's, it's, yeah. It's just a new frontier.

Nick · 09:04And

Marty · 09:04I, I

Nick · 09:05think the challenge is now that.

Nick · 09:07You know, COVID was five years ago, so that was the reason why rates did what they did. Um, so there's a lot of the population that are, that are in the, um, the positioning life or the, the life cycle or stage of life where they're borrowing that have only seen those in that environment. So you picture someone in their, you know, early thirties, bought their first home in their mid.

Nick · 09:33Twenties or late twenties, they've only, they only saw two to 3%. Then they've obviously experienced this, um, this increase in rates so they could, there is an expectation that it'll get back to what it used to be like. But what it used to be like wasn't that two to 3%, that was a pandemic, that was a Black Swan event.

Nick · 09:52What it used to be like is people like you and I, Marty, who've been around a little bit longer and we've seen fives and sixes, we know what's normal because that's what it always was.

Nick · 10:00So. I just think, um, yeah, there might be this, uh, assumption that, you know, even four, I've heard 4%. People think, oh yeah, it's not gonna get back to 2%, but it'll probably sit around four.

Nick · 10:11I I don't think it will. I just don't think it will. So these are the things that we are hearing amongst our clients, but I think five is, um. Is what people need to get used to paying.

Marty · 10:21Look, we joke around about the, the cricket tickets and things, but again, the other thing people are dealing with is obviously the cost of living increases are quite dramatic from even five years ago.

Marty · 10:32So you've got that, that double compounding effect where a lot of money's coming out of people's pockets. And, um, you know, I, I don't want Jace to get to the point where he has to be running around with machetes in the street. Uh.

Marty · 10:47But, but I go, I, I know you would never do that, chase, but, but I'm going. But this is what's happening. You're bringing more people into the country. Um, there's more demand and need for housing, but affordability is a real problem.

Marty · 11:00I mean, you need people earning great money to be buying the average, you know, the average property in Melbourne, Sydney, or Brisbane.

Marty · 11:07And yes, you can go rurally, but that doesn't always match up with what people want. So it's, um, it's, it's a real. Concerned, and I'm not sure, not sure what the solution is at the moment, and maybe it's gotta play out a little bit more. But energy costs going nuts,

Jason · 11:22affects businesses and you know, people, so that's, that's probably one of the other ones we had.

Jason · 11:28Brian Parker, um, he's the economist at Sunsuper. He presented to us a few weeks ago just on all things. Economics and macro economics and right gender. But you know, when you've got in an inflationary environment where inflation cost of goods is still been quite steady, it's, it's on the up. You know, the ability to pull interest rates back, that lever that happens.

Jason · 11:48One of the major issues is around government spending, which Nick, you touched on a little bit too, but the government's putting such an investment into to roads, defense, green energy, AI health, so on and so forth. When you think about the

Jason · 12:00salaries that a lot of these workers are on when they're doing these government projects, they're big, big incentive salaries to come and do those projects.

Jason · 12:07What that's meaning is if we're letting in heaps of people into the country that then we have a home affordability issue, we we're not building enough homes. But then we also don't have enough skilled workers to build those homes 'cause they're all jumping onto other projects for the government where they're on a big dime.

Jason · 12:23So we have a supply issue where now we've still got, house prices are an all time high and they're never gonna come back. Or you know, they're not pulling back, they're going up more than ever. We're talked about the price in Melbourne. What's gonna happen to property prices? Um, this is all fueling that idea that we're never gonna get back to the glory days of two or 3% mortgage rates.

Jason · 12:42'cause they just can't pull the lever to do that. While we have such other issues around supply in homes, too many people coming into the country that need a place to live and a massive undersupply due to not having people out there building homes. So, you know, from my point of view, and a lot of the conversation in that chat was,

Jason · 13:00government needs to intervene and make.

Jason · 13:03Developments More, more, more promoted, more of a thing that we should be doing. You know, medium density living where you got 4, 5, 6 story developments in, not regional, but, but inner city or, or suburban kind of areas where, you know, we're so used to trying to have these 500 square meter, you know, properties, four bedroom, double, double, you know, double car garage, brick.

Jason · 13:25The mindset needs to change if we're gonna be able to create affordable housing and affordable living. Where we don't have the big property, uh, the big land component, um, something's gotta shift.

Marty · 13:35It's all gonna be apartments. And that's what you're seeing going up and building projects everywhere.

Nick · 13:40Well, I think the issue is, and not to, um.

Nick · 13:43Go down a rabbit hole. 'cause we could, I, I think the mindset shift is there. Mm. You know, there's definitely, talking about our country in particular, there's definitely pressure on, um, from state to local councils on what's approved. They're definitely, uh, rezoning, um, areas from, you know, maybe medium to

Nick · 14:00high density, but to your, to your previous point, it doesn't change the underlying issue.

Nick · 14:04Mm-hmm. Around. Compliance and cost to get things built and, you know, pro build's just gone broke again after someone tried to save that. It's, the numbers don't stack up. So you can have, you can have the mentality that, oh no, we need to build more smaller stuff, but if the numbers don't stack up because of your cost of goods and your weight, particularly labor.

Nick · 14:24A lot of that's driven by compliance as well. What compliance boxes have gotta be ticked. No one's, no developer wants to put their hands in their pocket to do it because it's too risky. Like why would you risk that amount of money? So,

Marty · 14:36yeah. It's funny you say that, Nick. 'cause I, I was talking to a builder about a week and a half ago and he was saying that they've stopped building new homes because it's timely, it's costly.

Marty · 14:49The prices can vary from start to finish. So they're just going in on renos. Because the infrastructure's set up, they can do a quick turnaround, they get bigger margins. So even

Marty · 15:00builders and particularly those medium density and uh, builders are sort of making different business decisions where they can get in and outta projects really quickly because it's, um, it's just not worth their while.

Marty · 15:12And people aren't willing to pay the big ticket stuff. So, so whether the government's obviously taking on those type of bills, you know, in the future, but. Yeah, even the builders are making different decisions 'cause otherwise they end up like pro build. Right? Yeah.

Jason · 15:24Nick, if there's anyone out there who, you know, was kind of banking on rates continuing to come down, if we are saying that the new mi, the mindset needs to be to get used to rates somewhat similar to where they are, maybe one or two more drops.

Jason · 15:36If they're concerned about their situation, they think affordability is becoming an issue, maybe they were gonna start a family and or, or have another child into the family. Should they be fixing? Should they be reviewing their rates? You know, what are the options that the tangible, actual, actionable things they can do?

Nick · 15:51I've never been advocate for fixing. Um, the reality is the bank doesn't give you a rate thinking they're gonna lose. That's, that's the best way to explain it.

Nick · 16:00Um, and the only time I've ever seen fixing, um. Uh, well, people win with fixing is when there's a, there's a crisis. So, you know, if you fix during COVID, no one saw what was going to happen post that.

Nick · 16:15Um, as in, you know, the how quickly we're gonna bounce back in the increases. So in a normal market, you would, you would never fix, um. That's general advice only. Um, but if you were, you know, for some people it's not about rates. For some people it's about being able to sleep at night. So if you're stressed and you wanna ensure that your rate's not gonna go anywhere for two years, it might cost you slightly more.

Nick · 16:40You're never gonna know, 'cause you dunno what the variable rates are gonna do. But for some people they're happy to pay a little bit more for certainty. So, you know, I think it's very, um. It very much depends on people's circumstances and what's happening as to whether or not they're fixed, and we can give them guidance on that.

Nick · 16:57Um, other than that, it's just, you know, you've

Nick · 17:00really got a. Realign your expectations based on what's happening. So, you know, we talk about doing budgets for, for businesses, and we also say, you should do your household budget, but sit down and actually do it. Sit down and do it. Sit down and understand, okay, if I bring a child into the mix or another child, what does that do childcare wise?

Nick · 17:18How does that impact my wife's ability to work? Mm-hmm. During the pregnancy, what are we gonna lose from an income point of view? Actually map it out. Do, is this house suffice? Do we need to renovate it? If we renovate it, what does that look like? Can we afford that? Do we need to find another area? Because this house won't be big enough.

Nick · 17:34So, you know, we go back to run the household budget like you do your business and, um. We kind of do that automatically because we're in business all day. So, yeah. You know, I don't, I don't sit down with a spreadsheet on the household budget. I definitely don't do that. I'm not saying I do that, but I've got a fair indication of what needs to occur and what moves need to be made and whether or not they're gonna be, you know, achievable.

Nick · 17:58I. And,

Marty · 17:59and

Marty · 18:00on the back of that, that budget, that's the first step to, you know, minimize your expense. But talk to a broker at Innovate and talk about how to pay down debt. The best interest rate cut you could ever have is use surplus income to pay debt down. And that's gonna better your position more aggressively than, than, than anything.

Marty · 18:18So don't just utilize it for a great rate. You're gonna get that, but you wanna start. Looking at some strategy even before having kids. It might be, it's a year before we have kids, you know, go all in, double income, you know, really tighten the belt up and, um, try and deleverage debt, um, to get yourself into a stronger position to make those decisions after the budget as well.

Marty · 18:40So again, a little bit more foresight and planning can really set you up for the future if you do it well.

Jason · 18:47One more question from me, Nick. Uh, you know, for anyone out there who has a mortgage, they've bought a home at some point in the last five to 10 years, how often do you recommend doing a review of their rate

Nick · 18:58annually?

Nick · 18:59So we, so

Nick · 19:00we automatically do it annually here. Um, you know, it's a, to go a bit deeper on that, the market. Has changed a lot. So, you know, there has been some refinance, uh, frenzy time periods over the last four or five years. So I think like most of our clients, and I'm sure most of our competitors clients, they're.

Nick · 19:22You know, they're on really good rates now. Um, and banks will really price to retain, but you should ask the question to your broker or your bank annually. Um, doesn't mean you need to move. You might just have to ask a question and make sure your mar your rate is a market rate.

Marty · 19:35And if you are doing a good job in your, uh, in your job, don't be afraid to ask for a slightly higher wage.

Marty · 19:42You know? Yeah. If you're doing a good job, if you're floating, don't bother. But if, if you're doing a good job, people, business owners are not gonna wanna lose you. Right. So again, it's, again, you're thinking about, you're thinking about how do you move the needle in a direction that's gonna serve you across the board.

Marty · 19:59That's

Marty · 20:00what Nick's talking about. It's holistic thinking, not just reactive thinking and going, holy crap, I'm in trouble.

Jason · 20:07And, and look, it's. A little personal shout out as well to, uh, Luke Mac at Innovate, not just the mortgage broking team, but if you are working with a financial advisor as well. Um, you know, one thing to have great business budgets and great business forecast, but often, I dunno if you know the saying the mechanics car is the worst car on the road.

Jason · 20:24Um, you know, when it comes to personal finances, you know, there, there wasn't necessarily as much of a strategic plan for myself and Case. And recently, you know, Macy. Sat us down and said, this is a non-negotiable. You're doing the budget. This is what's gonna happen. Because he wanted to extract out the extra things we were missing, the things we could do differently to fast track.

Jason · 20:43Getting ahead to fast track that property acquisition. And now actually having gone through, you know, I've, I've half asked step one of the process of actually filling in that financial budget spreadsheet, but I've done a fair bit of work on it and circulated back to, to Luke. But he is booked in that quarterly meeting to keep us accountable

Jason · 21:00to, to our goals.

Jason · 21:00So for me, I'd say. Beyond, you know, having a mortgage and checking your rate, actually doing that budget, we've, we've stressed and banged on about it before, but I finally, myself have sat down and put, put myself through what we recommend our listeners do, and it is eyeopening, like, you know, it's scary when.

Jason · 21:19It's just, just to, you know, and again, you know, we, we know these things like subscriptions, just the little things that you bleed sometimes. But, you know, between case and I, we had a Disney and a Stan and a Netflix and a this, it's like, God, we, we don't have time to watch tv. Let's color a couple of them.

Jason · 21:33So, you know, if you're out there and you're listening, you know, the rates are one thing. But you know, like what you said, Marty, if you can squeeze an extra a hundred dollars a week or a fortnight or a month, whatever's onto your mortgage, that has a massive impact on how much interest you pay over 20 or 30 years.

Jason · 21:46So. Find that extra 50 or a hundred dollars could be a game changer as

Nick · 21:50well. I'll just, I'm just taking a note here. Um, check Jason Robertson's fee. Um, definitely thinks Luke adds value, so just make sure it's based on value, not, uh,

Nick · 22:00not ours.

Marty · 22:01But Jason would've picked up, uh, like, like you're talking about played.

Marty · 22:05It's like those, those incremental, uh, those incremental, it, it doesn't have to be a lot, but even that compounding effect of putting extra a hundred bucks into soup every week, you know, every fortnight, it all adds up to a better future. Um, and puts people, you know, with c gives people certainty 'cause they've got a plan.

Marty · 22:22Yes. And they know where they're heading.

Jason · 22:23Cla clarity, certainty, and a plan. You know, those, those words just kind of jump out at me. I go. For Casey and I to see now where we're going, what the numbers look like, rather than, you know, the week to week money hits the account. Cool, no worries. Now we're looking at, well, what happens if we kind of run that out?

Jason · 22:39Nia, what happens if Casey's salary does this and Future Advisory does that? Okay. Wow. I. We can do some pretty cool stuff. Like let's, let's, let's get excited about that future position if we're smart with our money, if we're not, it, it looks very different. So yeah, I think that part of having a plan to map out how that looks is, is really important.

Jason · 22:57But, you know, part of this, this conversation too, is around changing the

Jason · 23:00mindset. You know, thinking that cheap money's a thing of the past, you know, and not saying this is case and I mindset, but if we were sitting back going, ah, we'll just play the waiting game. Interest rates will come down, or property prices will come down.

Jason · 23:10There's people who. Sit on the sidelines playing the waiting game. You know, the message now is you, you can't play the waiting game. 'cause the rates aren't going to be coming down to the level where they were before. So start to think about how you can change your mindset to make sure that you're ready for the environment that we're in, and, uh, creating a long-term strategy for this new environment.

Marty · 23:30Absolutely.

Jason · 23:31Well, thank you for listening. Uh, Nick, great, great conversation, great topic and yeah, one to really, uh, unpack. So I've loved it. If you've also loved listening to this episode, please like usual, like, subscribe, give a rating, send an episode to a friend. We absolutely love growing our numbers game community, so get around us.

Jason · 23:49Until next time.

Marty · 23:50Numbers don't just tell a story, it's reality. Make your move game over.

Jason · 23:57This podcast is for educational and informational

Jason · 24:00purposes only. The conversations are of general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, you consult a licensed professional.

Jason · 24:09Individuals on the podcast may hold positions in the company's discussed. ---