Latest News
|
|
Current Articles for download viewing:RPData Property Pulse: October 2009 MFAA Economic Review July 2009 Economic Insights CBA April 2009 RPData - Weekly Property Pulse Professional Edition March 2009 Economic Outlook February 2009 MFAA Economic Review February 2009 Metropolitan house prices show endurance in tough times FUTURES MARKET: Where to from here with Interest rates?Published 29/1/09 Australias Futures exchange is predicting that interest rates will fall as low as 2.75% by Easter this year. The Reserve Bank has lifted interest rates by a further 0.25% today, taking the cash target rate to 3.75% The Reserve Bank of Australia (RBA) has slugged cash-strapped homeowners with an interest rate rise just before Christmas, raising the cash rate to 3.75 percent today. The 25 basis point rise is the third interest rate rise in as many months, and the first time the central bank has hiked borrowing costs three months in a row. Your say: will the interest rate rise ruin Christmas? <http://money.ninemsn.com.au/article.aspx?id=978339> The RBA's move will add around $50 to the monthly repayments of the average $300,000 mortgage - with the three consecutive rises hitting homeowners' pockets to the tune of $150 a month. RBA governor Glenn Stevens conceded that the effects of the government's stimulus on consumer spending have now faded - leaving households on a tighter budget. However, he said the economy is on course for a gradual recovery, and the threat of a serious economic contraction "has now passed". He added: "Public infrastructure spending is starting to provide more impetus to demand. Prospects for ongoing expansion of private demand, including business investment, have been strengthening. "There have been some early signs of an improvement in labour market conditions. The rate of unemployment is now likely to peak at a considerably lower level than earlier expected." The rate rise was largely expected by economists, after policy makers touted a "new upswing" in the home economy on the back of Chinese demand for Australian resources, and rising consumer confidence. While central banks in the US and the UK have kept interest rates wallowing at record lows in a bid to stimulate their stagnant economies, the RBA has continued to lead the developed world in raising rates, helping to boost confidence in the economy and propel the Australian dollar ahead by 31 percent so far this year. In October, Australia became the only country apart from Israel and Norway to have raised rates this year. The central bank's decision to raise rates for the third consecutive month comes as a further vote of confidence in the recovery of the home economy, and in spite of indications that the global stock market remains sensitive. Panic gripped stock markets across the globe on Friday as Dubai's debt debacle unfolded, raising fears that the global financial crisis has further shockwaves to deliver. Last week, conglomerate group Dubai World sought a "standstill" agreement from creditors - spooking investors who had assumed the United Arab Emirates (UAE) stood behind the group's US$59 billion of liabilities. While interest rates are expected to climb back to more normal levels of around 5 percent in the coming year, homeowners will be granted relief from further rate hikes until February at least – the Reserve Bank board does not meet in January. Bill Evans, global head of economic research at Westpac, said the emergency interest rate level of three months ago was set when unemployment was expected to hit 8.5 percent. Now that the government has scaled back its forecast to 6 percent unemployment, low rates are "clearly inappropriate". He added: "I expect the Reserve Bank will raise rates again and again until they get to a neutral level of 4.5 percent. "Historically that neutral level has been 5.5 percent but I think the amount of debt that we have in the economy now and the link between the mortgage rate and the cash rate 4.5 percent is neutral." With higher rates, borrowing for housing will come down, he said, which one of the RBA's key aims - to take the heat out of the property market. Housing affordability likely to move back onto centre stage.... The decision from the Reserve Bank to raise interest rates by a further 25 basis points has been met with Mixed reactions. First home buyers and low income households are going to feel the pinch the most, as are those mortgage holders that managed to stretch their budgets too thinly without allowing for the time when interest rates inevitably moved away from their historic lows. Other parts of the market aren’t as likely to be affected – those who have budgeted prudently will have built a more normal rate of mortgage payments into their financial plans and investors are probably thankful for the rate rise as it means less competition in the market place. If the financial markets are anything to go by, the tightening cycle of interest rate rises has some way to go. By February next year financial markets are suggesting the cash rate will be at 4.0 percent and by June the yield curve suggests a cash rate of about 4.75 percent. If the banks move in line with the cash rate, this means the average standard variable rate will be about 6.8 percent in February and 7.55 percent in June. Under the same financial market guidance the cash rate is likely to reach 5.5 percent in February 2011 equating toa variable rate of 8.3 percent. A cash rate of 5.5 percent is widely considered to be at the outside limit of a ‘neutral’ stance from the Reserve Bank. To provide some relativity, over the last ten years variable mortgage rates have averaged 7.26 percent which highlights the fact that mortgage rates are still well below average and are likely to remain so well into 2010. Even with the latest rate rise, monthly mortgage payments are still, on average, about 25 to 30 percent lower than what they were in August last year when variable mortgage rates were averaging 9.6 percent. The spotlight over the coming months will be on housing affordability. We anticipate consistent modest gains in home values and rental rates over the coming year, which, together with mortgage rates returning to more normal levels, will result in an erosion of housing affordability. The latest figures from Fujitsu Consulting suggest the number of people who default on their mortgage payments will almost double from 25,000 today to 40,000 by the end of 2010. Rental pressure will once again gather pace as more potential buyers are financially blocked from purchasing or prefer to rent and as a consequence rental yields for investors will improve. Unfortunately there is no rapid ‘fix’ to housing affordability; the situation isn’t likely to improve until we see substantial improvements in the number of new housing starts – a scenario that doesn’t appear to be on thecards any time soon.
|
