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

Interest Rates: Will the RBA start cutting rates? Westpac says yes

According to Westpac the Reserve Bank of Australia is getting ready to cut interest rates. That has to be good news for home buyers, homeowners and housing construction industry. But will it happen in October?

Westpac is Australia’s second largest home loan lender, and the biggest winner in mortgage growth in recent years since the GFC. It believes the RBA will start cutting interest rates at its next meeting. Many other experts says lower interest rates are on the way, but after October.

The prophet of profits bank

Westpac, has a good track record in predicting the timing of RBA rate cuts. After all it has a big stake in the outcomes. Westpac believes that reigning in the value of the high Australian dollar would help Australian businesses, especially those that are not  in the mining sector.

It would also be  shot in the arm for the ailing house building industry, and that is a big employer

ANZ predicts a brace of interest rate cuts, in October next month and in November!

The RBA was close to cutting interest rates in its September meeting,  but wanted more data on the economy due later in September . And things are suddenly unraveling for Australia with global economic conditions going south, the drop in commodity prices hurting Australia, and the low inflation all mean the bank could cut the base interest rate at its October 2 meeting.

All in all, a mortgage rate cut of 0.5% before Christmas is looming as a real possibility.

Source: Mr Mortgage

Australia’s Housing Shortage: Morgan Stanley suggests its an urban myth?

Morgan Stanley recently released research that pointed to Australia having a glut of housing, rather than the much touted housing shortage. Who is right?

I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims. And maybe teenagers couch surfing were adding to the confusion.

Housing Shortage, Fact or Myth: Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut!

So how did we get this 569,000 housing turnaround whist building around 140,000 homes a year, and demolishing many older homes?

The inconvenient truth? The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Where are all of Australia’s Tent Cities?

Have you ever wondered how these all the people are living whilst we catch up building that 228,000 new homes to fill the housing void? And where are the tent cities that must be sprouting like mushrooms in our Capital Cities. I see them is the US all the time. 228,000 homes short would mean 750,000 people living on the streets? Or maybe we count couch surfers? and teenagers that have a tiff with Mum and dad and decide to camp out in the car when surf’s up?

Vacant homes

Asians and in particular the Chinese love to buy residential real estate in Australia, but many of them don’t care for the rent as, and the upkeep that they invite when used by tenants. So there are over 100,000 homes built where nobody is living in them. Ditto for long-term holiday travellers. Many of these homes are never rented out to tenants.

Then there are the homes build in places nobody wants to be anymore. Country towns that become ghost towns. Ever heard of homes for $1 or free building blocks in these towns? I used to know a farmer who kept buying neigbouring properties for the land. He never used the homes. He had several vacant.

Spin pays the bills and sells homes

Whether the new housing figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.

The absence of robust and consistent house price data

There is no clear, undisputed authority of information in this area crucial to the economy. But house price movements should let us know what impact elevated or falling property prices have on other aspects of the economy because we don’t have a long history of clean, robust and comparable data to rely on.

In the US, the S&P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?

Long range price growth figures: Where do they come from? Advertised asking prices or real sold prices, including demolished homes.

The problem I have with any long-range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. So counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it a specific. But what about the home that was bought, and later demolished. Surely its now worthless and represents a loss of capital? When these homes are included in the overall picture, actual returns surely lower.

In Australia, Residex’s repeat sales index goes back to 1991, in the middle of a Sydney house price correction on the back 17% pa interest rates, and just before the two-decade run-up of housing values began. So these figures and a deliberate distortion of the true picture in my view. Prior to that Sydney home prices collapsed near 50%.

In a similar distortion we have all seen share market growth starting from after the 1987 Share Market crash.

One thing for certain is that it is unwise to expect the “boom conditions” to persist indefinitely. That is an interesting term. I thought the boom finished in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ”assume a risk-less, no-brainer, and even guaranteed way to prosperity is just to leverage property”.

Well surprisingly since that time, Most of Australia’s new jobs generated have been full-time, and wages are growing too, and whilst I too believe that rental property is still a good route to wealth, we need to be told the full facts and the real figures so we can make informed decisions. Is that too much to ask?

Source: Mr Mortgage