700 Years of Falling Interest Rates in 4 charts

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Interest rates are at historic lows, but how much do you know about the history of interest rates?

The following chart provided by Visual Capitalist is based on an incredible dataset from the Bank of England, which reconstructs global real interest rates going back all the way to the 14th century.

Falling real interest rates over 700 years

Some of the first data points in this series represent well-documented municipal debt issued in early Italian banking centers like Genoa, Florence, or Venice, during the beginning stages of the Italian Renaissance.

The early data sets of loans to noblemen, merchants, and kingdoms eventually merge with more contemporary data from central banks, and over the centuries it’s clear that falling interest rates are not a new phenomenon.

In fact, on average, real rates have decreased by 1.6 basis points (0.016%) per year since the 14th century.

This same spectacle can also be seen in more modern time stretches:

Contemporary interest rates by country

And as the world reels from the COVID-19 crisis, governments are taking advantage of record-low rates to issue more debt and stimulate the economy.

This brings us to our next set of charts.

Global Debt: To $258 Trillion and Beyond

The global pandemic has made a significant impact on global debt.

As of Q1 2020, global debt sits at a record $258 trillion or 331% of world GDP, and it’s projected to rise sharply as a result of fiscal stimulus, falling tax revenues, and increasing budget deficits.

Rising Global Debt

What about Australian property debt?

A lot of fuss is made about the level of debt underpinned by Australian residential real estate.

However the following chart from Corelogic is eye-opening

The total value of residential real estate in Australia (10.5 million dwellings) at the end of October 2020 was $7.1 trillio

Yet the total outstanding debt against all these properties is $1.8trillion.

Sure some first homebuyers and inexperienced investors have over committed themselves, but the overall loan to value ratio of residential real estate is in the order of 28%.

And in general this debt is held by those who can afford it.

There’s no need to worry with the level of property debt in Australia, especially when interest rates are at 700 year lows

 

Australian Property market

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


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