OK, let me give you a different spin on the whole interest rate thing-a-majig.
To keep it in simple terms, when the RBA puts up interest rates they think things are going great, awesome, fantastic.
…when they lower them, they think times are tough, the outlook is bleak and difficult.
Most mortgage holders think the opposite when interest rates go down.
They’re wrapped, ecstatic and over the moon.
But here’s what I think… It’s time to party like it’s 1999.
Take a look at this chart:
Hmmm… Some interesting observations.
Back in 1996, we were paying interest rates of 11% …ish.
The cash rate was about 6.75%.
The banks were killing it and making a fortune.
Then we see the rates come crashing down from 11% to 7% within 12 months.
The cash rate was 5%. (Jeez, the banks play funny games with us, don’t they?)
But anyway, it’s not about them…
Between 1997 and 1999, rates stayed stable.
OK, here’s why it’s relevant. The period between 1996 through to 1999 was the best time to buy real estate in that particular cycle.
I personally bought a single-front in Brunswick, Victoria for $104,000 during that period. Within 3 years it was worth $250,000.
So, if you were smart enough to be able to pick a bottom and then start investing like crazy, it would have had to have been 1999… Hence my silly little subject line.
Party like it’s 1999…
In fact, it should be party like it’s 1996 all over again and get a 3-year head start on the rest of the market (if you follow my philosophy and thinking).
So let’s have a look now…
The interest-rate cycle high I see as late 2007 at around 9%. Same deal, interest rates came crashing down from 9% to under 6% around the 2009 period (similar to 1996-97).
Because this is fairly recent, we all remember what happened when interest rates hit that 6% low. Lots of folks piled back into real estate, and if you bought well in the right states, you would have made 20-30% gains in 2 years.
…but then the RBA did something really weird. In the eye of the GFC storm, they started lifting rates.
You can thank the 2-speed economy theory for that.
Now that their view is that the mining boom has ended, they can resume their normal programming… and that’s what we’ve started to see with their recent rate-cut.
I think we’ll go back to the previous low (look at the green line) of just under 6% within a 3-6 month period… and then we’re going to flat-line.
Here’s my view… The period between 2013 and 2016 will be a great window of opportunity to create wealth in real estate. But it won’t just be real estate. There will be a lot of other strategic opportunities because of this cycle interest rate low.
Pretty simple. You have to ask yourself this question… When interest rates are low (think cost of money), then who benefits from that type of environment?
…in fact write that up on a Post-It note and slap it onto your desktop so you can see it every day.
Let me start the ball rolling…
– Real Estate
– Anyone who lends money (brokers, banks, etc)
– Anyone who sells or supplies manufacturing, infrastructure equipment
– Money advisors (be careful with this one)
– I hate to say it, but banks as well.
OK, I hope that makes sense to you. I could go on and on, but I don’t want to confuse you with too many ideas here.
The main premise is that I’m getting this feeling that it’s 1996 all over again. Back then I was just starting to get my act together and didn’t have a lot of money.
This time, I’m cashed up and believe that I can double my wealth in the next 3 years and then disappear to a remote Greek island, drinking Ouzo, eating the catch of the day and cruising around the Mediterranean.
Come join me.
Signed with Success,
P.S. Hey, leave a comment., I’m sure I’ll get a lot of arm chair economists telling me all the reasons I’m crazy, history doesn’t repeat, times are different now, what about this and what about that?
P.P.S. Here’s that question again… Who stands to benefit if money is cheap? Did you put it on a Post-It note? I did. Here’s photo evidence.
P.P.P.S. 2013-2016… It’s time for you to achieve your greatness. Or as the AFL coined it, This is Greatness. It certainly will be if you get off your toosh, and to use another legendary AFL saying from John Kennedy… DO SOMETHING!