Great another rate cut coming for Interest rates which will probably only aid those negative gearing.
Rate cut looms on back of global turmoil
I think the best time for a rate cut is was about 6 years ago, sure they cut for the GFC but once the RBA raised rates again while the rest of the world turned on the printing presses so we were completely out of step with the rest of the world, and the AUD$ went through the roof suffocating Australian exporters (from manufacturers to miners and farmers) and killing the tourism industry. All the while - the RBA was putting the handbrake on by raising interest rates whilst the federal government from 2008 to 2013 had the foot on the accelerator throwing money out the door and spending on school halls etc. Meanwhile the Chinese resouse boom that started in 2003 just kept on going. The high interest rates in Australia just meant that existing homeowners used the stimulous to pay off home loans faster, while the high interest rates and high AUD became a barrier to business investment. What happens when one foot is on the accelerator and one foot on the brake? A whole lot of smoke and noise without much progress.
Meanwhile the countries that actually did feel the effect of the GFC went through the process of people & businesses going broke, banks going under, real estate markets correcting, some governments cutting spending and some not and then printing presses being turned on and the process of stimulating their economies by printing more money. So very different to Australia.
So post GFC (which was just a bunch of overleveraged Irish and Icelandic banks and US homeowners and banks getting a haircut) we had the massive over-reaction of the Australian federal government stimulous while the RBA were forced to raise or keep interest rates high, which led to all sorts of unintended consequences in foreign exchange rates and possibly a bit of a housing bubble among other things.
If anything - it will be interesting to see if the ructions in the Chinese stockmarket now and the unwinding of overleveraged positions there affects Chinese buying property in Australia. I suspect a lot of the news about some Chinese buying in Sydney and Melbourne may have been overblown but keep an eye out for a correction in the property markets of Sydney and Melbourne. Which possibly need a correction anyway. Alternatively you could argue that things may start to get so panicky that chinese investors make a 'flight to safety' from one bubble (the Chinese stockmarket and property market) straight into another bubble (i.e. the Sydney and Melbourne residential real estate market).
As
cove says - the overleveraged or recent arrivals into the SYD and MEL property bubble are leveraged to bigger losses if prices retreat or if interest rates go up. We shall see.
Lower commodity prices aren't a big problem as long as AUD floating exchange rate acts like a shock absorber with the AUD going down if commodity prices go down (which it usually does) thus giving some protection to Australian resource producers and even farmers as well. So it isn't quite as bad as some make out, and its not as if the whole of China has vanished off the face of the planet so they are still investing, manufacturing, building, eating, redeveloping their infrastructure etc. and using commodities to do so.
So I think with the printing presses running worldwide, the RBA would be very ill advised to raise interest rates at the moment to kill the Sydney and Melbourne real estate property bubble, because by doing that they would kill the entire trade exposed australian economy and stifle business investment.
If I was the RBA - I would cut Australian interest rates to 0% now, and let the speculators go crazy and lose their shirts in a bursting real estate bubble in Sydney and Melbourne. Better to get it all out of the way now and let the speculative end of the market get corrected. Let the Australian banks clean up the mess and more importantly divert some money into productive investment in Australia such as investment in the stockmarket, industry, infrastructure and investment in 'the real economy' where goods and services are made, produced and sold both here and overseas.
