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Archive for April, 2010

Will RBA put the brake on rate hikes?

Posted by Tamara McDowell on April 28, 2010

Leading economists are predicting an extended pause on official interest rate rises as inflation pressures ease across the Australian economy.

An AAP survey of financial market economists shows that inflation is expected to rise just 0.7% for the quarter, putting the annual figure at 3%. This would be inside the RBA’s target band and well down from the peak of 4.7% 18 months ago.

Governor Glenn Stevens indicated that tomorrow’s release of the March quarter CPI figure would have a significant impact on the bank’s decisions over the next three months.

Reserve Bank of Australia Governor Glenn Stevens has told a business forum that inflation is now close to target and interest rates were falling back to normal levels.

“The Reserve Bank has moved early to raise the cash rate to levels that deliver interest rates for borrowers and depositors more like those that have been the average experience over the past 10 to 12 years,” Mr Stevens said in Toowoomba last week.

With interest rates now close to average, this may be a sign interest rate rises will cease, at least for now.

Access Economics warned, however, that inflation could build to 3.2% in 2011, driven by business activity and wage growth.

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May Rate Rise not Warranted : CBA

Posted by Tamara McDowell on April 21, 2010

CBA released a new report today showing consumer spending in March was the strongest it has been in eight months.

The Commonwealth Bank Business Sales Indicator (BSI) rose 0.7% for the month. However, the bank warned that this was no excuse to raise official interest rates further, despite indications from the RBA that rates may go up again in May.

“While the latest figures appear solid, it’s important that the Reserve Bank doesn’t overreact,” CBA executive general manager of local business banking Symon Brewis-Weston said. “Interest rates have lifted sharply since late last year, and the effects are being felt, with housing loans down five months in a row.”

The BSI recorded an increase in sales in all states and territories. The ACT topped the list with 1.2% growth, followed by Western Australia on 1.1%. Sales growth in NSW and Tasmania was a more sluggish 0.6%.

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First Home Buyers

Posted by Tamara McDowell on April 19, 2010

FIRST home buyers are rapidly being priced out of the property market as cashed up investors snap up properties amid a housing shortage.

Martin North, managing consulting director of Fujitsu Consulting, says a buoyant economy and strong jobs prospects have spurred established home owners to invest in property or upgrade their homes as house prices continue to rise.

Mr North said affordability for first home buyers was likely to keep falling while investor appetite picked up.

“We have such a demand from property investors and people trading up who are now feeling more wealthy and affluent, because the GFC has passed and their jobs (are) safe, that we’ve got quite a lot of buoyancy in the marketplace,” he said.

Average loans now were 40 per cent larger than in 2005, although the number of loans had not increased greatly, Mr North said.

First home buyers, on average, now put 40 to 45 per cent of their income aside for mortgage repayments while established owners were paying between 25 and 30 per cent, he said. Read the rest of this entry »

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Home loan demand falls for fifth month

Posted by Tamara McDowell on April 13, 2010

The Reserve Bank of Australia (RBA) will raise the cash rate one more time before giving borrowers a long reprieve, economists say, after new data showing that housing finance commitments fell for the fifth straight month in February.

Australian housing finance commitments for owner-occupied housing fell 1.8 per cent in February, seasonally adjusted, to 50,287, the Australian Bureau of Statistics said on Monday.

It was below market forecast of a 1.0 per cent fall in the month and was the fifth straight month of decline.

ICAP economist Adam Carr said the lending data would concern the RBA, causing the Bank to reassess the pace of future interest rate rises.

“It’s pointing to a sharp, broad-based decline in lending activity,” Mr Carr said.

“That would suggest to me that we’re getting to the point where the pace of rate hikes will slow, markedly.

“The RBA will only hike once more and then ease off.”

The central bank has lifted the cash rate five times in the past seven months.

The current interest rate is 4.25 per cent.

Meanwhile, RBA assistant governor Guy Debelle told a Senate committee in Sydney the central bank isn’t trying to suppress demand by raising interest rates.

“We’re trying to ensure growth is at a sustainable pace,” he was reported by Bloomberg to have told the Senate Inquiry into Access of Small Business Finance.

Mr Carr said Monday’s ABS data showed activity already was being dampened.

“It’s already happening,” he said.

“So I would imagine that there’s not a lot left in the tightening cycle in the near term at least.”

He could not predict whether the bank would next raise the rate in May or June, however. Read the rest of this entry »

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It just got a bit harder for First Home Buyers!

Posted by Tamara McDowell on April 9, 2010

Along with the interest rate rise came the news for WA first home buyers that Keystart have issued a change in policy.

Keystart is a Government owned scheme primarily aimed at assisting first home buyers at the lower income level into essential housing for owner occupancy only.

Purchase Price

The maximum purchase price below the 26th parallel was previously $412,000 – It has now been reduced to a maximum of $400,000.

Maximum LVR (Loan to Value Ratio)

 Keystart was almost the only option for some buyers with litte deposit by allowing a 96% lend. The maximum LVR on all loans is now reduced to 94% – i.e. a 6% deposit is now required, previously a 4%.

Deposit Requirements

 Of the 6% plus fees now required – The Applicant(s) must be able to evidence a minimum of 3% genuine savings. The monies must be held or accumulated in a savings account (In the applicant/s name only) for a minimum period of 3 months. “Please note any lump sum deposit in the 3 month period will not be considered genuine savings.”….previously 2%. The balance of the deposit plus fees can be from the first home owner grant, gifted funds etc.

Income Reduction

 Maximum income for single applicants has been reduced to $70,000 per house hold . The maximum income for couples has been reduced to $90,000 per house hold – a couple can be defined as two applicants in a married or defacto relationship. Please note this income does not include Family Tax A & B.

Establishment Fee

 Effective immediately Keystart’s Establishment Fee will increase from $500 to $600.

“Keystart is still committed to helping West Australians into home ownership in its capacity as the lending arm of the State Government. We are confident these policy changes will ensure our longevity in the WA home loan market.”

One of the great benefits of using Keystart is that they do not charge Lenders Mortgage Insurance  and I am relieved that this still stands.

Although a large portion of first time buyers-to-be are prepared for interest rate rises and appear to be quite knowledgeable about the market, it is difficult to enter home ownership with low deposits.

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Bank Update

Posted by Tamara McDowell on April 7, 2010

It is interesting to note the speed at which lenders are able to make the decision to increase rates after a move by the central bank when compared to the consideration that was taken when the cash rate was on its way down

The first to move were the Commonwealth Bank of Australia and Westpac – they have raised their variable mortgage rates by 25 basis points, relieving some mortgage holders by only matching the Reserve Bank’s hike.

Followed closely by ANZ and NAB – they have fallen in line with Westpac and CBA and lifted the rates on their mortgages by 25 basis points.

NAB continues to have the lowest standard variable rate mortgage at 6.99% and is the only Big 4 bank to have one less than 7%. CBA is next in line with standard variable rate mortgages at 7.11%, followed by ANZ at 7.16% and Westpac with 7.26%.

The move by the Reserve Bank to increase rates 25 basis points is being heralded as a smart decision by economists who believe that getting the cash rate to a neutral setting will save much higher interest rates in the long term.

“This will help to contain growth and moderate inflation risks in an otherwise strong economic environment,” ANZ chief economist Warren Hogan said in an investor note. “Importantly, an early return to neutral monetary policy settings, that is, a level of interest rates neither stimulatory nor restrictive to overall economic activity, will reduce the risk of inflation and a larger increase in rates later.”

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Interest Rate predictions

Posted by Tamara McDowell on April 7, 2010

Analysts are split on what the Reserve Bank would consider a neutral setting for the cash rate and are predicting that it will sit between 4.25% and 5.25% by December – it is currently 4.25% after the rate rise yesterday.

On the low end of the scale, Clifford Bennett of Kinetic Securities and Stephen Roberts of Nomura think rates will not go any higher, while BIS Shrapnel and Westpac are predicting a cash rate of 4.5%.

According to SKY News, AMP and St George think the cash rate will rise to 4.75% by year-end, while ANZ, JP Morgan and Macquarie think the central bank will stop its tightening policy at 5% this year. Only NAB thinks the cash rate will go to 5.25%.

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Interest Rate Update

Posted by Tamara McDowell on April 6, 2010

The Reserve Bank (RBA) meets on the first Tuesday of every month …….. today is the day!

While economists were split on whether the RBA would move today the RBA have officially lifted the cash rate from 4.0 per cent to 4.25 per cent.

Earlier Swan appeared to be softening mortgage holders up for a blow: “I think most families understand rates are currently at 1970s levels and can’t stay there forever,” he said.

The RBA raising rates 1.25 per cent from their near 50-year low of 3.0 per cent over the past six months has impacted on consumer activity, however we are still below the long term trend in interest rates and we’re still lower than we were a couple of years ago.

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Perth median to break through $500,000

Posted by Tamara McDowell on April 6, 2010

 

The resources juggernaut is fuelling the next Perth property boom, with the city’s housing markets unable to absorb WA’s continuing massive population growth.

According to the Real Estate Institute of WA (REIWA), growing confidence has led to an increase in listings as well as sales. At the end of March, there were 12,700 properties on the market – an increase of 22% from December.

“The Perth median house price is very likely to top $500,000 for the first time when official figures are released in early May,” said REIWA president Alan Bourke.

The busiest sector during the March quarter was the $500–600,000 range. “Here, the proportion of sales jumped 2.5 percentage points to represent about 18% of the market,” Bourke said. “The other price range to show increased activity for the quarter was in the $750,000 to $1m range.”

By contrast, sales of homes under $400,000 are beginning to subside.

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