Video from 20th annual Property Club conference! Mark Bouris was presenting Australian Economic Outlook. [see the transcript of the video below]
Average long term growth in mortgage build or the amount of mortgages you put out there into the system since 1945 is, on average, 8% per annum. Some years 12, some years 6, but on average. Currently it's 7.5% and it has been 7.5 percent the last four years. All of a sudden the banks are making record profits, bigger profits than they've ever made before. They're making it out of the spread.
The difference between their cash rate and what they retail at. That comes off what they call their back book. It's important for you to understand, if you're looking at buying property. How do I get the best rate in the marketplace? 50 base points, come in $100 a month, on a 350,000 alone and over 30 years, that's a hell of a lot of money. That's $30,000.
You work it out and if you understand how compounding works, it's very important. Why it's important for you to find out where is the cheapest rate in the marketplace? You, and your people you're mentoring, and/or yourself, if you're investing. Interest rate becomes extraordinarily important. Not only should you be getting the lowest rate in the market, you've got to understand how interest rates move. Should I be fixing? Should I be part-variable, part-fixed?
Not only that, if you're mentoring somebody, you've got to know how to talk to them about interest rates because the first thing someone says is, "Should I be buying because our interest rate is low, or should I be buying because interest rates are high, when they get better? Which one?" Well, you should buy ... it doesn't matter when you buy. You buy for the right reasons. You buy because you an afford it. You buy because the fundamentals. It's the right price, and there's upside, and you're building a portfolio, and it's a long term view.
You also need to be able to talk comfortably to your people you're mentoring, your customer, your client, your friend, yourself, your family, your colleagues sensibly about interest rates. You need to be able to take people through the 10 steps, well nine steps and arrive here. Today we have historical low interest rates. Single most important factor is it's a fact that interest rates are just one factor, but it's affected by eight things that go before it. They're the eight things that go before it. Now, I'm not making this stuff up.
If you look at the Reserve Bank's one page they put out at 2:30 pm on the first Tuesday of the month, except for the month of January, they go through those eight things. Just take it up, paste in the current month information into the particular paragraph. The paragraphs don't even change. The language only changes during great rise periods or when there's a change in the cycle.
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