Mortgage rates fall again in Australia as the US rates rise

The Reserve Bank of Australia reduced official interest rates in Australia to to its lowest rates ever, whilst mortgage rates n the US continue to climb.

The RBA reduced the cash rate to 2.5% in a bid to help the Australian economy transition from the peak of the mining boom and record high demand for coal and iron ore from China, to the wider economy, and especially housing construction and retail, two sectors that have suffered from a lack of confidence in recent times.

There seems to be a recovery in demand for Housing in the capital cities, especially Sydney and Melbourne,  which have seen record sales at weekend auction in recent weeks. Even Brisbane is well up on where it was this time last year.

But there is a growing shortage of homes in most of Australia’s Capital cities,  especially single unit housing, and there is hope that the Australian Government will have housing construction on its radar, as a main driver for employment and the big ticket items in the retail sector.

My concern is that we have heard nothing from either party regarding policy in this area, and a month out from the Federal election. Maybe they are keeping their policies in this for the Official Policy Launches due in a couple of weeks.

Australia has had a smooth ride since and through the Global Financial Crisis, and has a Triple A [‘AAA”] rating from all three rating agencies, a first for Australia. So things are good in the Lucky Country. But they could be a lot better for a lot of people, and for many sectors of the economy, especially manufacturing.

The mix of a high Australian dollar, high wages, employer paid superannuation, holiday pay and other benefits and working conditions, has meant that the Australian economy has defied gravity for years on the back of its economic management and stimulus packages during the GFC.

But as the economy goes into transition from the mining boom, it needs a lower $AU to help agriculture and manufacturing to take up the slack.

So apart from the RBA reducing rates even further, and causing the Australian dollar to fall further, where are the actual policies from the Opposition and the Government that will drive innovation, manufacturing and the single unit home construction industries? I am still waiting.

Source: Mr Mortgage

Australia’s mortgage rates trend up

Mortgage interest rates to trend upward because greedy banks have the market clout.

There may be some truth in the story that Australia’s banks are paying more for their money than the glory days, but not as much as they would have you believe.

Australia’s banks are making record profits, and are gearing up to raise rates over any further RBA mortgage rate hikes the central bank may determine necessary to keep the lid on inflation.

Why mortgage rates will rise

• The non bank lenders are a shadow of their former selves, and most of the big players have sold out to the banks or have moved out of the mortgage space. Profit margins were squeezed before this occurred to less than 2%pa above the base cash rate. The banks want that to go back to 4%pa, and they are nearly there with the next mortgage rates increase.
• Australia’s big four banks have 92% of the new home loan business and so can afford to lose a few customers and still make more money.
• Banks will move inline with the market leader, [the CBA] with maybe the exception of the NAB who seem to have a policy of winning back customers with lower mortgage rates, and that may be something that will slow the rate hikes of the other big banks.
• A new bill proposed by Senator Bob Brown on “Community banking fairness issues” will rob banks of their great fees and charges grab. So the banks will move to raise interest rates on home loans, to take back any losses of profitability that laws may take away revenue.

Unless more Australian homeowners and new home buyers start to swap their mortgage lenders, their mortgage rates will rise for all Australians.

Rick Adlam: Mr Mortgage Home Loans

Residential land developer gets dumped after failed capital raising effort

Australian residential land developer Lend Lease, a well capitalised and funded Australian Corporation, is planning on tendering for billions for dollars worth of contracts in the US  Obama and Australian Rudd stimulus packages in housing development. Yet it still saw its stocks crash more than 16 per cent after hedge funds stop lost their holdings when its $302.5 million capital raising failed to materialise as expected.

Lend Lease resumed trading after the institutional placement of 50 million shares at $6.10 each, a discount of 11.5 per cent to its last traded price of $6.76 on Tuesday.

Although Lend lease is now one of the market’s best capitalised companies, investors dumped its units yesterday, forcing the price down to $5.51 before the stock recovered to close at $5.66.

A leading analyst said hedge funds had bought into the placement thinking that a company without gearing would get strong support in after-trade.

When that did not happen, they dumped the new shares on the market, he said.

Lend Lease is now incredibly well placed. It will be able to fund its capital expenditure over the next two years.

Shaw Stockbroking’s equities analyst Brent Mitchell said that there had been some “short selling” but he said people remained unconvinced by the reasons for the capital raising.

“The company has trumpeted the strength of its balance sheet in the past three months,” Mr Mitchell said.

He said the market also doubted that Lend Lease would be able to sell assets to provide 30 per cent of its forecast profit in this financial year.

Lend Lease chief executive Steve McCann told The Australian: “We would like to have our shares trade at a lot higher than where they are currently trading.”

By the same token, he said, in the current environment management needed to focus on the medium term and not the day-to-day trading of the stock.

Mr McCann said the company had a policy of replenishing liquidity after it had been used.

He said the company had spent $240 million to buy Lend Lease Primelife (formerly Babcock & Brown Communities) and $50 million on restructuring, including redundancy payments.

“The reality is we are not distressed,” he said. The company now had $1.8 billion in cash and net debt of $200 million, he added.

Lend Lease managing director Greg Clarke said the company continued to expect a 10 to 15 per cent fall in full-year net profit from last year’s $447.1 million.

Mr Clarke said Lend Lease intended to focus on two main development projects — Barangaroo in Sydney and Stratford city in London.

He said the growth in public sector projects would help offset the slowdown in the commercial property market.

Mr McCann said the company had been positioned in the past two to three years to take on government projects and would benefit from the massive government spending programs in Britain, the US and Australia.

It had identified $160 billion worth of funding in the Obama stimulus package and $24.5 billion in the Rudd government package for housing, environment and other public projects. Lend Lease would be well placed to tender for those projects, he said.