Consumer Inflation Expectations Rise In December

Monday, December 21st, 2009

An increase in consumer inflationary expectations could add to the case for a fourth consecutive interest rate rise by the Reserve Bank of Australia to curb price pressures.

A survey of consumer inflationary expectations showed a rise of 0.4 percentage points to 3.6 per cent in December.
Only 17.7 per cent of respondents expect the rate of inflation to fall to between the central bank’s two to three per cent target band, down from 18.7 in November.

A 25 basis-point rate hike by the central bank on December 1 appeared not to have curbed consumers’ inflationary expectations.

The Reserve Bank of Australia’s December rate rise followed similar moves in October and November.

This is a little surprising given the decline in median inflation expectations in November from 3.5 per cent to 3.2 per cent following the Reserve Bank board’s previous rate hike announced on November 3. Barring any major shocks, this months jump in inflationary expectations appears to pay the way for a further rate hike in February 2010.

In a survey of 1200 people conducted between November 30 and December 6, the share of respondents expecting prices to increase rose by 2.8 per cent.

The proportion predicting no price change fell by 3.5 per cent while 0.1 per cent anticipated prices to fall.

The consumer price inflation rate rose by 1.0 per cent in the September quarter for an annual rate of 1.3 per cent, the last Australian Bureau of Statistics showed.

The ABS will release its consumer price inflation report for the December quarter on January 27, 2010.

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Angst for Borrowers – Interest Rates are rising

Friday, December 11th, 2009

Homeowners are nervously awaiting the major bank’s lending rate decisions after Westpac jacked up its key home loan rate by almost double last Tuesday’s official rate move. Business has backed the Federal Government’s attack on Wespac, blaming a lack of competition in the mortgage market.

The Opposition pointed the finger at the Government’s “reckless” spending for the steady rise in the official rates.
Wespac lifted its standard variable rate by 45 basis points last Tuesday because of increased funding pressures, drawing a stinging attack from the Treasurer.

The Reserve Bank of Australia (RBA) increased its cash rate by 25 basis points to 3.75 per cent at the board meeting.
The decision continued the RBA’s normalisation of monetary policy because the emergency levels set during the economic downturn were now no longer required.

It was the third month in a row that the central bank had lifted the rate, a pace unprecedented since it began announcing its rate decision in 1990.

The other major banks have yet to announce their rate decisions. This rate rise will no doubt hurt all Australians with a mortgage or credit card and all small business owners with an overdraft or small business loan.

While Westpac had limited the increase in its business rates to 25 basis points, many small business owners used their home loan for business purposes.

Westpac’s decision was a further unwelcome development given small businesses did not get all the benefit or the massive reductions when the RBA was actively cutting rates.

The onus is on the bank when then they do this to ensure that those increases do reflect pressures in terms of their underlying funding costs. If the banks in their own right are making upward adjustments, then it reduces pressure on the Reserve Bank in terms of any decision they might make in increasing rates.

Money market pricing pointed to a less than 50 per cent chance of a further move in February when the central bank holds its next board meeting. The major banks were likely to lift rates at a greater pace than the RBA because of funding pressures.

There are a number of challenges facing the market and foremost is the concentration of power with the big four banks.

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Shopping Around Pays For Borrowers

Tuesday, December 8th, 2009

Borrowers who assume there is no competition in the home loan market could be missing out on thousands of dollars in savings. A significant disparity has opened up between lenders on interest rates, fees and credit policies in the last 12 months. There tends to be a widespread view that all banks are the same, offering pretty much the exact same products with the exact same requirements. However when you make comparisons between lenders, it quickly becomes clear they are not all the same. Borrowers can potentially save thousands of dollars by shopping around for a deal that better suits their needs. One of the big differences between lenders was how much of the purchase price of a property borrowers could get access to. There are lenders requesting an LVR (loan-to-value-ratio) of 88 per cent with a deposit of 12 per cent, compared with a lender at the other end of scale that is requesting only a five per cent deposit. If you paid a 12 per cent deposit on your dream home valued at $500,000 for example, the lender would require $60,000 – versus $25,000 if you were required to pay five per cent of the property’s value. Also, once the LVR is more than 80 per cent, the lenders mortgage insurance premium kicks in – and this, too, varies between lenders. Borrowing limits could also differ between lenders, with some offering a $60,000 income earner up to $250,000 in finance, while others would provide up to $300,000.

Tags: mortgage brokers
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Beware Of Low Rates

Thursday, December 3rd, 2009

First-Time home buyers who took out a mortgage with a low honeymoon rate will be in for a shock when their introductory offer expires, a mortgage broker has warned.

More than 170,000 people have taken up the Federal Government’s more generous first home owner’s grant since October last year.

The Loan Market Group said some of those first-time buyers may have chosen honeymoon rates, which were as low as 4.5 per cent. When this period ends their variable rates could increase up to 1.5 per cent.

Introductory rates could lull first home buyers into a false sense of security. Honeymoon rates are tempting but borrowers need to be aware of restrictions and exclusions on the loan such as significantly higher fees for early repayments and exiting the loan.

People also need to consider all the issues they will face such as starting a family and potentially moving to one income.

The government grant was reduced at the end of September from a maximum of $14,000

to $10,500 for existing homes, and from $21,000 to $14,000 for new homes.

It will return the original $7000 on January 1, 2010.

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Interest Rates fall in April ’09

Friday, July 3rd, 2009

We’re all glad to know that the Reserve Bank has slashed interest rates again – this time by 1%. In talking with finance brokers and looking around I notice that there is now plenty of interest for properties under $400,000. Some of thee guys are starting to write a lot of business whereas a few months ago it was really dead.

It is again possible to purchase positively geared real estate in Queensland. If you are interested in engaging us as buyer’s agents to find you good deals which won’t put you out of pocket on a weekly basis, contact us using the link above and let’s talk.

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Falling Interest Rates Take the Pressure Off

Friday, July 3rd, 2009

We’re happy to note that the Reserve Bank of Australia has slashed interest rates yet again – this time by 1%.

On Monday 2nd December, 2008, The Reserve Bank cut one percentage point from its key cash rate to 4.25% in its latest bid to avert a recession. The move brought the cuts since September to three full percentage points, as the RBA changed tack.

According to an article on the Sydney Morning Herald, investors are “pricing in a further cut of about 75 basis points when the RBA’s board next meets in February, according to Credit Suisse figures”.

This is very good news for existing homeowners who may have been struggling to make repayments. It means we are less likely to see a wave of foreclosures across the markets, such as has been happening in the United States. I think people who own properties in capital cities are a lot safer than people who own expensive real estate in regional towns and areas which could end up being hit badly if the mining sector slows down due to an across the board fall in commodity prices.

What we are observing here in Queensland is that there is a good level of buying interest for properties under $450,000, and especially those under $350,000. But buyers are still a bit “spooked” and while interest is picking up, people don’t yet feel a strong urgency to buy “before the prices rise”. As rents have continued to rise while the cost of home ownership has come down significantly, we can expect that the levels of investor interest will start to pick up. Within a few months I expect that investors will be actively scanning the market for good buying opportunities and taking them.

If you are looking to upgrade or downgrade its a good time to act, because as long as you are buying and selling in the same market, it should make little difference WHEN you do it.

No one can say for sure which direction property prices will go in the next year. But if you are an investor, think about avoiding regions which depend on just 1 or 2 industries. If those industries go down, property will be hard to sell for a good price around them. I would say, all other things being equal, you are better off buying in Brisbane than any other place in the current economic climate.

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