The RBA boss dropped a few clues about the future direction of interest rates and real estate markets when he spoke at a Canberra breakfast event on Tuesday to launch ASIC’s National Financial Capability Strategy.
“All of us have to make choices about money every day,” Mr Lowe said. “Do I spend, or save? If I spend, what do I buy and how do I pay for it? If I save, where should I invest; how much risk should I take? If I borrow, how much should I borrow and how quickly should I pay it back?”
The Reserve Bank governor gave some wise words of pragmatism when he suggested that “we all need to plan” how we manage our money.
“If we go in the wrong direction, it can have a major effect on our families and our welfare, perhaps for years. So it is really important we make well-informed financial decisions,” he warned.
Mr Lowe said that, for many Australians, their biggest single financial decision is whether or not to borrow to buy a home. After noting that he is not allowed to give financial advice, Mr Lowe did stress a few important issues.
“The first is that interest rates go up and down,” he said. “It is nearly eight years since the previous increase in interest rates by the RBA. This means that many borrowers have never experienced a rise in official interest rates. They have mostly experienced lower rates.
“At some point this will change. Over recent times, the Australian economy has been improving. My advice here is to make sure your finances can withstand a lift in interest rates.”
The second point was that housing prices don’t always go up; like interest rates, they go up and down, Mr Lowe warned.
“We are seeing an example of this in Sydney and Melbourne at the moment. And most of our cities have seen falls in housing prices at some point over the past decade,” he said.
“While I would expect housing prices to trend higher over time as our incomes increase, there is no guarantee that your home will be worth more tomorrow than it is today. So plan accordingly.”
Mr Lowe urged Australians to make sure they build “adequate financial buffers” into their plans.
“Things don’t always turn out as we expect,” he said.
“So for most of us, having a buffer against the unexpected makes a lot of sense. We all need to prepare for that rainy day. It rarely makes sense to take all the credit that you are offered, whether on a credit card or when you apply for a loan.
“Many Australians with mortgages find the best way of building buffers is to put any spare money into their offset account. This makes a lot of sense.”
Finally, the RBA governor said Australians should shop around and not be shy to ask for a better deal.
“There are very good deals out there if you look. We can all play a role in making our markets more competitive by being smart and informed in our choices,” he concluded.
Labor Government & Bill Shorten = The Housing Crash we had to have !!!!
It will be perfect timing (NOT) to bring in increased Investment Dampeners in an already slowing housing market.
Bad Boy Billy will knock off Negative Gearing on existing houses.
Take away CGT concessions on investments.
And BAM Billy you will cause a world of pain and then you can speak to your old mate Paul Keating and slightly tweek his old line of the disaster 1990’s recession he caused.
Billy Shorten will be know for The Housing Crash we had to Have.
Welcome everyone to a Labor government and coming recession to Australia.
it’s gonna blow and everyone knows it. just watch the spring season for sydney property and how that is going to play out. it’s gonna blow
I read an article recently and they had a chart that showed that there is more debt outstanding now than at the peak of the GFC! There is a depression coming instead of a recession. Combine that with the fact that global warming will wipe out approximately 10% of food production for every degree Celsius of warming. Droughts and floods getting worse as there is more heat energy in the system. Food price inflation plus import inflation from a fall in the AUD will cause HUGE problems in Australia.
Shame on RBA, this is their get out clause. They know this is going to implode, they had a big hand in creating this credit bubble in the first place and they have been denying it for years, until now it’s too late. Telling people now just before it all crumbles is a disgrace. Mark my words this is going to be a nasty ride for all those debt laden, overpriced property owners. RBA pulls the parachute for themselves just as the plane crashes for everyone else.