Interest Rates are going down

Interest rates are coming down soon in SA, and much sooner than anyone could have expected. About 6 month ago the word was out that interest rate might go up one more time and then come down at the end of 2009. Then 3 month ago they said it would come down middle 2009. Then last month they said in February 2009, but the last week more and more commentators over the media are say and pleading for December 2008.

WOW, how the outlook has changed over the last 2 months. Well I am happy, but why does it take so long for the Reserve Bank to wake up? Even the Bank of England took a while. They slashed interest rate by 1.5% in one go from 5.5% to 3%. That is like bringing the rates down in SA from 15.5% to 10.5%. I wish! Maybe they will decrease it over the next 12 months. Remember, they are slow.

Central banks all over the world have been caught off guard and I think SA will be no different. We might not get 5% reduction in one go, but it looks as if interest rate will go down dramatically over the next 12 months. One reason is inflation. Inflation is falling, at long last. Oil is down from $145 to $48 and still falling. Credit extensions are coming down, food inflation is coming down, the vehicle market has crashed and property is down as well.

They recon inflation will be below 6% by end 2009. So interest rates will follow. The property market will not go into an immediate bull run, but will steady after resent falls. It will pick up momentum again as more people get the confidence back to buy property. Maybe after the second rate cut. Affordability will improve as well and everyone will be able to borrow more with their current income. They say the property market is like a big ship. It takes time to turn. It took time to turn from the 2005 peak, but in the last 6 months the decline has been dramatic. Declines in the property market are all over SA.

I am sure 2009 will be the turning point for property. That is why I believe the time to buy is now, while the bargains are out there. With interest rates falling, many cash flow negative properties will turn positive. And that is great news for property investors.

Tell me what you think will happen to interest rates and the property market in the next 12 months. I would like to see your views.