August 2011 Newsletter
Welcome to our August Newsletter.
What is happening to the Real Estate market and interest rates?
There has been quite a lot of discussion about interest rate trends and the property industry lately. For the past few months the RBA has been saying that it was looking to increase rates in the near future whereas most economists are saying that they expect rates to drop. If the state of the housing market and level of retail sales are any indicator then rates should probably go down fairly soon.
The 'two speed' economy is one of the factors that the RBA is focussing on and the other is the CPI. The CPI takes in to account a basketful of prices that affect consumers, like the price of bananas and petrol. One thing that puzzles me with the price of petrol is that with our strong dollar, which makes us able to buy more from overseas (OS) for the same money, then shouldn't the price be coming down? This is something that puzzles many people.
One indicator as to likely future interest rate trends is a lender's fixed interest rates (1, 3 and 5 years). With many lenders having already dropped fixed rates and more talking about it, it means that they expect rates to fall over the coming 12 months and stay there for some time.
In the property market there are some areas that are doing well and some are not. Remember that with a downturn comes opportunity. So if you are thinking of buying a property make sure you do your homework so you get value for money.
We hope you enjoy the read.
Richard
Housing decline is slowing and could soon bottom out, analysts have claimed. 
New home sales have seen their biggest monthly setback in five years, the HIA has claimed.
House prices have continued their decline in the midst of stunted building approvals.
A growing number of Australians expect property prices to fall over the next year, a new survey has found.
As we go to 'print' with this month's edition, thankfully the US Democrats and Republicans finally agreed to a compromise on Sunday (ratified by congress last night) to increase the US debt ceiling from the current $14.3
trillion by $2.4 trillion while they simultaneously cut spending by an equivalent amount. It's hard to imagine the consequences, even as far away as we are in Australia, of what would have happened if they didn't reach a compromise.
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Potential home buyers are being frightened away from the market by the government's proposed carbon tax, it has been claimed.
NAB has seen a rise in earnings amid what it has deemed 'challenging conditions'.
The Australian housing market is a 'boomtown' compared to the United States, RP Data has claimed.
Rates are likely to stay stable for the rest of the year, but 'panic' could bring about major cuts, an economist has suggested.
Vendors trying to sell propertes at prices above the current weak market demand are 'wasting everyone's time', a property analyst has stated.
Slow credit growth is likely to continue for some time, with credit demand unlikely to recover to pre-GFC levels, Westpac CEO Gail Kelly has said..
More evidence has emerged that Gen Y buyers are increasingly turning to investment properties for their first purchase.
The RBA should cut rates immediately to halt tumbling consumer confidence, the HIA has claimed.
APRA has cautioned the major banks for loosening lending standards in the fight for mortgage market share.
The Financial Ombudsman will replace outgoing chief ombudsman Colin Neave with ASIC's Shane Tegillis, it has announced.
The furore over consumer group Choice's mortgage switching campaign may be a 'storm in a teacup', according to one broker.
Source: Australian Broker News
Housing decline is slowing and could soon bottom out, analysts have claimed.
The RP Data-Rismark Home Value Index has indicated a 0.2% seasonally-adjusted decline for capital city home values. The result follows drops of 0.3% in May, 0.4% in April and 0.5% in March.
RP Data research director Tim Lawless said the slowing decline suggests the effects of this year's natural disasters are filtering out of the results.
“In January we saw Aussie home values fall by 1.2% which was the weakest monthly result on record. Over the March quarter home values were down 1.8%. Since that time we have seen the rate of decline slow along with an improvement in our leading indicators, like vendor discounting and time-on-market," he commented.
Lawless said these indicators show the market may be reaching the bottom of its cycle. However, he said any return to capital gains for the market is unlikely to come soon. Lawless commented that RBA rate hikes could further exacerbate the weak market.
“Market conditions are clearly being dampened by low levels of consumer confidence fuelled by interest rate speculation and global economic jitters.
The higher-than-expected CPI figures earlier this week are likely to reignite the interest rate debate which is not going to assist with an improvement in consumer sentiment," Lawless said.
Rismark managing director Christopher Joye predicted that the Reserve Bank will raise rates at least once and possibly twice to combat inflation.
Source: Australian Broker News
New home sales have seen their biggest monthly setback in five years, the HIA has claimed.
The newest HIA - JELD-WEN New Home Sales Report has shown an 8.7% drop in the number of new homes sold in June. The decrease is the largest monthly decline since May 2006.
HIA chief economist Harley Dale commented that the figures confirm anecdotal evidence that the demand for new homes "hit a wall" in June. He said prospective buyers may be wary of an impending RBA rate hike, a wariness he said was unwarranted.
"Amidst the roller coaster of interest rate sentiment that has unnecessarily become the norm in 2011, the idea that an imminent rate hike is now unavoidable is misplaced," Dale commented.
The report indicated the sharpest declines in new home sales were seen in Queensland, which suffered a 17.1% decrease. Victoria saw the second-largest drop, with new home sales falling 10% in June.
Source: Australian Broker News
House prices have continued their decline in the midst of stunted building approvals.
New data from the ABS has shown median house prices across capital cities fell 1.9% in the year to the June quarter.
The weighter average house price for capital cities declined 0.1% from the March quarter to the June quarter, with every capital city except for Sydney and Canberra experiencing declines for the quarter.
Perth and Brisbane saw the largest year-on-year drops, falling 4.1% and 3.6% respectively. Hobart and Canberra were the only capitals to see year-on-year improvement.
The numbers come as dwelling approvals have also shown continued weakness. New approvals fell 3.5% in June, following on a 6.3% decline in May.
Source: Australian Broker News
A growing number of Australians expect property prices to fall over the next year, a new survey has found.
The poll by Metropole has found 43% of respondents expect property values to decline over the coming year. The proportion has grown from 27% in a previous poll six months ago.
Among those who didn't foresee declines, optimism was still scarce. Twenty per cent of respondents indicated property values would see little growth, while 34% said they expected values to remain flat.
In spite of the outlook for property prices, 59% of respondents still indicated they planned to buy an investment property in the year ahead.
Source: Australian Broker News
Potential home buyers are being frightened away from the market by the government's proposed carbon tax, it has been claimed.
A new Loan Market survey has found the proposed tax has shaken the confidence of many potential buyers. Asked if the carbon tax affected their confidence in purchasing a property, 57% indicated they were wary of buying due to the tax.
Of the proportion who indicated they were deterred by the tax, 35% said they expected cost of living increases brought about by the tax to scuttle their plans of buying property.
"Our survey shows the carbon tax is not something that looks likely to encourage consumers," Loan Market COO Dean Rushton claimed.
Of the respondents, Rushton said Gen Y were the least likely to be put off by the tax, with 51% saying it would not impact their plans to purchase property.
Source: Australian Broker News
NAB has seen a rise in earnings amid what it has deemed "challenging" conditions.
The bank has posted cash earnings of $1.4bn for the June quarter, up 27.3% from the June quarter of 2010. NAB CEO Cameron Clyne said the result came in spite of difficult economic conditions.
"This was achieved despite considerable challenges, including Australia's multi-speed economy, subdued system credit growth and fragile consumer confidence in all the markets in which we operate, and concerns about US economic growth and European sovereign debt," Clyne said.
The bank claimed strong growth in mortgage lending, building on its first half momentum. NAB said in a statement the growth came amid slowing credit demand and increased home loan competition.
Source: Australian Broker News
The Australian housing market is a "boomtown" compared to the United States, RP Data has claimed.
The company's latest Property Pulse has pointed to continued declines in US home values, where nearly one-quarter of loans are in negative equity. However, both Australian and the United States are experiencing lagging demand, with transaction volumes in the US 33% below five-year averages and Australian transaction volumes 16% below five-year averages.
RP Data research director Tim Lawless said the US housing market may see a boost from the recent Federal Reserve announcement that rates will remain on hold for at least the next two years. Lawless commented that the Australian market has no such guarantee of stability.
"The certainty around US interest rates is in direct contrast to the Australian mortgage market where the direction of interest rates over the short to medium term still seems to be up in the air," Lawless remarked.
Australian mortgage holders are also more sensitive to interest rate movements, Lawless said.
"The vast majority of Australian mortgages are on a variable rate. This means that any change in the interest rate environment has an immediate impact on most mortgage holders and consumer behaviours," he commented.
Though there are significant differences between the two markets, Lawless said the Australian housing market would be well served to learn from the US market. "The mortgage market meltdown in the US has resulted in a greater level of data transparency, which is a good thing, and potentially one way in which the Australian economy can learn from the changes now being made in the US," he said.
Source: Australian Broker News
Rates are likely to stay stable for the rest of the year, but "panic" could bring about major cuts, an economist has suggested.
With lenders increasingly slashing fixed rates and economic unease growing following the U.S. debt downgrade, AMP chief economist Shane Oliver has told Australian BrokerNews continued market panic could see some significant moves by the RBA.
"The most likely scenario is rates on hold for the time being, but probably a rate cut or rate cuts starting next year in response to slowing inflation. If, alternatively, the economy goes into complete meltdown a la GFC, then I think a rate cut would be brought forward. We could be looking at 100bps of cuts if we’re looking at complete panic in the market," Oliver commented.
Money markets have already priced in rate cuts, a move which has been reflected in the 90-day swap rates falling around 50bps below the official cash rate. While Oliver said this could be a leading indicator for rate cuts, be argued that it is not a perfect predictor.
"I think it’s a good indicator, but you’ve got to be a bit careful. There’s a few occasions where the money markets have factored in rate cuts. In the middle of last year, in fact, they factored in rate cuts. Every time there’s a global upset the market has to factor in cuts. It’s not a perfect predictor, but the fact that we’re seeing a significant increase in downside risks regarding global growth is pointing in one direction, and that’s toward eventual rate cuts," he said.
Money markets are currently factoring in 150bps of cuts, bringing the cash rate to 3.25% by mid-2012. Oliver called this "a bit rich", but said such cuts were possible in the event of "a full-blown economic meltdown".
Source: Australian Broker News
Vendors trying to sell properties at prices above the current weak market demand are "wasting everyone's time", a property analyst has stated.
With housing demand and credit growth sluggish, SQM Research managing director Louis Christopher has urged vendors to have more realistic expectations. He told Australian BrokerNews the Melbourne market in particular currently has an oversupply of housing, and that many vendors have yet to adjust their expectations to this.
"A lot of stock on market is not selling. It’s just piling up. Lots of vendors are still trying to sell at an inflated asking price. That’s meant less sales have been achieved," Christopher said.
Christopher stated that, as of the end of July, the Melbourne market had 43,000 listings. He said this was a greater overhang of stock than the previous record set during the GFC in 2008.
"It’s going to take awhile to clear this overhang. We’ll need a sudden increase in demand to absorb it all. We saw a little bit of this back in ’08 when Sydney had a bit of overhang. It went very quickly as buyers snapped up some properties and sellers took others off the market," he remarked.
But sellers have yet to react to this, Christopher said. He said unrealistic price expectations were leaving many vendors "frustrated", and urged vendors to either readjust their expectations or remove stock from the market.
"Vendors who really aren’t that keen to sell and have properties listed above the market are foolish, because they’re wasting everyone’s time and money. They’d be far better off either meeting the market or withdrawing their property," Christopher commented.
With increased buyer access to valuation and research tools, Christopher said vendors can no longer get away with inflated asking prices.
"The days of finding some poor sucker to pay an inflated asking price are gone," he said.
Source: Australian Broker News
Slow credit growth is likely to continue for some time, with credit demand unlikely to recover to pre-GFC levels, Westpac CEO Gail Kelly has said.
Announcing the bank's third quarter results, Kelly commented that consumer wariness had seen increased deleveraging by both households and businesses. She said she expected market volatility and weak demand for credit to continue for the near future.
The bank posted a $1.55bn cash profit for the third quarter. The result is down 2% from the bank's second quarter result, but up 11% on the same quarter last year. Westpac has claimed subdued demand for credit saw it grow its mortgage portfolio in line with weakened system growth. The group's flagship brand grew 1.2 times system, while it claimed subsidiary St. George saw "improved momentum".
Kelly echoed fellow big four executives in pointing out weakened credit growth and increasing wariness on the part of consumers.
"The June quarter 2011 saw the operating environment become more subdued with consumers increasingly cautious and larger businesses continuing to de-leverage. This was reflected in slowing system credit growth in the quarter, and weaker markets," she commented.
The bank said it saw a slight rise in 90-day arrears, while 30-day arrears fell. Kelly said the decline reflected "an easing in the disruption some customers experienced with natural disasters earlier in the year". She predicted that 90-day arrears will continue to rise in the year ahead, but would remain relatively low.
Source: Australian Broker News
More evidence has emerged that Gen Y buyers are increasingly turning to investment properties for their first purchases.
Loan Market has claimed a 15% rise in the number of first home buyers looking to purchase investment property. The company's COO, Dean Rushton, said Gen Ys represent a large proportion of first time buyer enquiries.
"Gen Y is still chasing the great Australian dream of home ownership but many are approaching their entry to the market from a different angle. An investment property also gives them the option to buy property where they can join forces with a family member or friend to purchase," Rushton commented.
A recent Mortgage Choice survey also provided evidence of the trend, with 43% of Gen Y respondents saying they planned to become investors before owner-occupiers.
Source: Australian Broker News
The RBA should cut rates immediately to halt tumbling consumer confidence, the HIA has claimed.
Citing a 3.5% slump in consumer confidence in July, the HIA has argued that an RBA rate cut could provide a catalyst to bolster sentiment.
"Uncertainty and confusion are further damaging falling confidence and will act to aggravate softness in the domestic economy in the absence of interest rate relief," HIA chief economist Harley Dale said.
Dale commented that building approvals have slumped 15.5% compared to last year, and 13.5% in the first half of the year compared to the first half of 2010. He said land sales had also fallen to a 10-year low.
"New housing hit a wall in mid-2011 and residential building activity was heading towards one of the lowest levels in the last fifteen years - and this is before the latest bout of weakness hit the global economy," Dale said.
Without the relief of a rate cut, Dale argued, housing starts could fall further than GFC lows.
Source: Australian Broker News
APRA has cautioned the major banks for loosening lending standards in the fight for mortgage market share.
According to a report from the Australian Financial Review, the regulator has sent a letter to lenders, urging them to maintain prudent lending standards as they compete for home loan customers. The communication was sent to the chairs of the boards of banks, credit unions and building societies.
The report has claimed the APRA letter expressed concern over rising LVRs and higher LMI thresholds. APRA has also cautioned that a return to pre-GFC lending standards may no longer be appropriate.
Source: Australian Broker News
The Financial Ombudsman Service will replace outgoing chief ombudsman Colin Neave with ASIC's Shane Tregillis, it has announced.
Presently a commissioner at ASIC, Tregillis has previously worked in a number of senior management roles at the corporate and securities regulator, and has also worked at the Monetary Authority of Singapore as its deputy managing director.
FOS said Tregillis' experience in leading change and fostering constructive stakeholder engagement would be "invaluable" to the service at a "critical time", as FOS aims to cement and build on its creation from the merger of five predecessor EDR schemes.
Tregellis' appointment comes as a result of present chief ombudsman Colin Neave's decision not to continue in the role. Tregillis will commence in his role at FOS in September.
FOS is a national external dispute resolution scheme. Under current NCCP legislation, practicing mortgage brokers are required to notify their customers of their external dispute resolution scheme membership.
Source: Australian Broker News
The furore over consumer group Choice's mortgage switching campaign may be a "storm in a teacup" according to one broker.
The Big Bank Switch campaign promoted by Choice and run by One Big Switch, aims to register mortgage holders and lobby lenders for group discounts. One Big Switch has revealed it will receive commissions for any loans it originates, and Choice has disclosed it will receive a referral fee. The campaign has faced criticism from the MFAA, but Laurie Parkes from Front Runner Mortgage Group has told Australian BrokerNews he believes the campaign will sputter out.
"I think this will blow over once they realise it's not going to work," Parkes commented.
Parkes questioned whether the campaign's aim of securing group discounts will be effective. Without providing credit assessments or calculating serviceability for clients, Parkes said the campaign is unlikely to generate the discounts it is expecting.
"Lenders are going to assess each application on a case-by-case basis, so market forces will come into the equation," he said.
Regardless of the campaign's efficacy, Parkes said Choice should be called to account for its involvement.
"Where has their independence gone when they're doing this? Choice is supposed to be an independent body, and yet they're going to take referral fees," Parkes said.
The MFAA has also criticised the consumer group's involvement in the campaign, and called into question the legal standing of One Big Switch. Though One Big Switch holds an ACL and is a member of COSL, the company claims it is not providing credit assistance and therefore is not required to abide by NCCP regulations. However, the MFAA has challenged this assertion, and has requested an ASIC investigation into the claims.
