Nobel Finance Sydney – Money Matters Newsfeed

Australia’s housing market exhibits different fundamentals from those hurting overseas, and is unlikely to see a significant dive in property prices, according to Advantedge general manager of broker platforms Steve Weston.

“I do get a bit sceptical when you here experts, or supposed experts come in from overseas, and they are saying fundamentally because property prices fell in the US or Europe well they’ll have to fall in Australia,” he told Broker News TV, in an exclusive interview.

Weston argues the US exhibits a much higher unemployment rate than Australia – at close to 15% when compared on an “apples with apples” basis. It is also dominated predominantly by fixed rate home loans, in contrast to Australia’s variable rate fixation, giving the Reserve Bank a lever to use if the local economy does enter more challenging territory.

Weston adds that compared with the US, Australian lending standards are high. “If we look at the US in those few years leading up to the GFC, about 30% of their lending was credit impaired, and all of it was done on a non-recourse basis, which means if customers do get into hot water, they can simply hand their keys back and it’s the lender’s problem,” Weston said.

Local market fundamentals are also strong, Weston argues, with interest rates still at normal levels, unemployment very low, a continued strong migration intake, and a “floor” under housing prices due to lack of supply.”So when we are hearing from these overseas pundits that properties are overvalued, I’m just a little sceptical,” he said.

Tags: home values rise, interest rates, Real Estate, real estate bubble australia
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Continuing RBA monetary policy tightening in the first and second quarters of 2010 has impacted arrears performance

The RBA increased the cash rate target by 25 basis points during March with two further consecutive rises of 25 basis points each during April and May. This has taken the cash rate to a current rate of 4.5 per cent from a low of 3.0 per cent between April and early October 2009.

Fitch Ratings has seen arrears performance during Q1 2010 start to  deteriorate on the back of the rising cash rate, which has flowed through to home loan lenders’ lending rates.

Fitch’s Dinkum Index, which tracks arrears across all Fitch rated residential mortgage backed securities (RMBS), has seen an increase in its prime index during the first quarter with 30+ day arrears increasing from 1.19 per cent to 1.38 percent.

The increase was mainly attributable to 30-59 day delinquencies which rose from 0.52 per cent to 0.65 per cent with almost no change in the 90+ day arrears, which remained at 0.49 per cent.

All low doc loans evidenced an increase in the 30+ day delinquencies, which jumped from 4.82 per cent to 5.53 per cent; most of this increase was attributable to the 90+ delinquencies which rose 0.31 per cent to 2.67 per cent.

The deterioration in later stage arrears for low doc loans could be explained by Christmas credit spending rolling over into the New Year and successive rate rises in the last quarter of 2009.

Non-conforming low doc loan arrears remain persistently high with 30+ day arrears increasing from 16.5 per cent at Q409 to 17.7 per cent at Q1 10, while conforming low doc arrears also rose, but at much lower levels, from 2.8 per cent at Q409 to 3.6 per cent at Q1 10.

The RBA have held rates steady at 4.50 per cent since May 2010, after 6 rate increases since October 2009.

With decreasing unemployment, and a strengthening economy, the RBA is expected to increase rates further during 2010, putting continued upward pressure on borrower’s ability to service debt.

Fitch anticipates an increase in arrears for both conforming and low doc borrowers during the remainder of 2010 as compounding interest rate rises impact borrowers and flow through to rises in Fitch’s Dinkum Indexes.

David Carrol, Director Fitch Ratings

Tags: home loan, interest rates
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Despite the RBA’s decision to keep rates on hold last month, 50 per cent of consumers are already sacrificing a range of everyday necessities to accommodate higher interest rates.

According to the latest Bankwest/MFAA Home Finance Index, 50 per cent of Australians are forgoing eating out to deal with the burden of higher rates, while 47 per cent are reducing costs at home or taking lunch to work and 42 per cent are going on cheaper holidays or not taking a break at all.

The Index found the number of borrowers feeling ‘worse off’ than 12 months ago has been steadily increasing since November 2009.

Those who are most concerned and affected by the state of the economy are the over 60s, unemployed, low income earners, students and those involved in home duties.

“With interest rates higher than last year, many mortgage holders seem to be holding back on their spending.  Home buyers are opting for practical strategies such as packed lunches, shopping during the sales, and buying in bulk to balance their household budgets. There is a clear move to more thrifty spending for many Australian households,” Bankwest retail chief executive Vittoria Shortt said.

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Interest rates are unlikely to change until November at the earliest, according to RP Data.

Tim Lawless, senior research analyst at RP Data, said that an extended period of interest rate stability is in store.

“All the fundamentals apart from inflation are looking subdued,” he said. “There may be some increase in consumer goods over the next few months, which could spur the RBA to act after the next CPI data is released in October. However, that means there’s very little chance of an increase before the Monetary Policy Board’s November meeting.”

This will provide some welcome certainty to the housing market, Lawless added, particularly for owner-occupiers.

“The renewed certainty over rates may even translate to a small bounce in first homebuyers,” he said. “However, price growth is still likely to be relatively flat for the next six months at least, and we’re likely to see the balance of the market swing back towards buyers.”

Mortgage Choice spokesperson Kristy Sheppard agreed an extended period of rate stability would be good news for borrowers.

“This will be a great relief for anyone repaying a variable interest loan or approaching the end

of their fixed-rate term, just as it will be for those who are looking forward to jumping into the market during spring. A rate rise would

surely have discouraged many people from acting on their property plans, be that selling up or purchasing. Now there is another reason to move ahead with confidence.”

Tags: interest rates
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Australia’s leading economists still expect a number of hikes before year end as the government seeks to keep inflation in check

THIS MONTH the RBA decided against lifting the cash rate but the question home owners are asking is for how long?

The latest inflation figures have shown that the Consumer Price Index (CPI) rose by 0.6 per cent in the June quarter, lifting the annual rate to 3.1 per cent ^-just outside the RBA’s target of 2 to 3 per cent.

In its monetary policy statement this month the RBA board said growth trend factors, coupled with close to target inflation and

an uncertain global outlook, influenced its decision to leave the cash rate unchanged for the third month running – good news for now.

What also bodes well for home owners is the slowing of house price growth and lower levels of lending activity – a clear indication that previous rate rises have taken effect.

RP Data senior research analyst Tim Lawless has welcomed the RBA’s decision to keep

rates on hold, saying the slowdown in market conditions has prompted the rate halt.

“Month-to-month capital gains in Australia’s capital city housing markets had been trending downwards since January and slipped into the negatives with a result of-0.7 per cent in June,” Mr Lawless said earlier this month.

“The slowdown in Australia’s capital city housing markets, together with a moderate CPI figure, which was below market expectations, would have been an important consideration by the RBA to keep rates on hold,” he said.

But while rates remain on hold for now economists warn that home buyers can expect to see further increases in the future.

AMP chief economist Shane Oliver said despite a similar prediction, the RBA still retains a clear tightening bias and will continue to keep inflation within target levels.

“The RBA will continue bearing down on the economy,” Mr Oliver said.

Mr Oliver added that high export prices coupled with improved business investment, consumer spending and solid employment recovery will see rates reach “near top” levels of 5.5 percent by end of 2011.

Tags: home loan, interest rates
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