Resources: Market Update

RESERVE EXPECTED TO SLASH RATES AGAIN.

Posted 29/01/09

With the latest inflation figures showing the Consumer Price Index falling by 0.3 per cent in the December quarter - the largest fall since 1997, the Reserve Bank is expected cut interest rates dramatically next week.

The annual inflation rate fell to 3.7 per cent, thanks partly to an 18 per cent petrol price drop however it is still outside the Reserves comfortable 2-3 per cent target.

Predictions vary, but the general consensus with economists is they expect the RBA to cut rates by between 50 - 100 base points.  There are those who believe the RBA could cut them by as much as 150 base points as Australian businesses start to feel the effects of the global economic slowdown.

All in all, for those with mortgages the reductions in interest payments since October last year has been significant.


THE GOVERNMENT TO PROP UP THE COMMERCIAL PROPERTY SECTOR.

Posted 27/01/09

The Federal Government along with the four major Australian banks have set up a $4 billion Investment Partnership to provide financial support to prop up the commercial property sector. 

The partnership will see the banks provide $2 billion and the federal government $2 billion to "fill the gap" if foreign banks don't roll over their share of loans.

Mr Rudd said that the initial $4 billion through the issuing of government guaranteed capital could be extended to up to $30 billion. "Our banks are strong and well capitalised and the guarantee has enabled them to raise the funds they need to lend to Australian businesses,"

He later went on to say there were two options for the government, provide liquidity support to viable major commercial property projects or sit back and do nothing.  The later was not an option whilst he is leader he said.

AUSTRALIANS PAYING DEBT OFF.

Posted 22/01/09

With rates plummeting and this set to continue, it seems that many Australians are using this period to pay off their loan faster.

In a recent survey conducted by the Australian National Retailers Association 75% of mortgage holders have kept their repayments up rather than reducing them.

The association's chief executive Margy Osmond mentioned that those who have reduced their repayments are now "using that spare cash to retire debt or help with living expenses,"

The repayment on the average variable rate in August 2008 for a $300,000, 30-year mortgage was $2,544.  The average variable rate has now dropped to 6.8% with a repayment of $1956, a saving of $588.  By keeping the repayments at $2544 the savings over the life of the loan would be $207,306 and the new loan term would be 16 years and 3 months.

It does appear Australian borrowers are determined to use lower interest rates to get ahead.

RATE CUTS LOOK LIKELY IN FEBRUARY.

Posted 14/01/09

The futures market is currently putting a cut in the overnight cash rate of somewhere between 75 and 100 basis points (three quarters or a full percentage point) when the Reserve meets again in February; amazingly this will bring it back to around the 3.25 per cent or 3.5 per cent mark.

There are some key data releases between now and the RBA meeting on February 3 namely the November housing finance data, the December quarter consumer price index figures and importantly the December employment figures.

This will have a bearing on the next lot of cuts but with the world economy in for hard times ahead the futures market believes the news globally is bad enough to not only warrant a big cut in February but also another big cut in March.

If this is true the cash rate will be at levels not seen since at least 1959 and great news for those paying off mortgages.

AUSTRALIA REMAINS WELL PLACED.

Posted 14/01/09

Standard & Poor's yesterday acknowledged that Australia's finances are sound and affirmed Australia's AAA credit rating, backing up recent governments claims.

Whilst global economic conditions are expected to worsen in 2009, Australia remains well-placed even though Standard & Poor's believe Australia will go into deficit.  The agency went onto say that "this deficit does not materially alter the robust profile of the country's public finances".

The tightening conditions that will slow world economies would possibly increase banks' problem loans however Australian banks are adequately capitalised and should remain profitable.

FIRST HOME BUYER ACTIVITY ON THE INCREASE.

Posted 12/01/09

With recent government incentives and a sharp decline in interest rates, according to the latest Mortgage & Finance Association of Australia /Bankwest Home Finance Index brokers look set to benefit from the increase in first home buyer activity.

The Index surveys those who are in the market to buy their first home.

The results of the index found that people under the age of 29 were most likely to utilise the services of a mortgage broker for their first home purchase.

Almost 40% of first time buyers are happy that the Government is doing enough to support them.  Phil Naylor, CEO of the MFAA  said "As we expected, the increase in the FHOG, from $7,000 to $14,000 for an existing home and up to $21,000 for a new home has been welcomed by first time buyers, with 53.8 per cent believing that the increase will help them buy their own home."

Of the first time buyers who believe now is a good time to buy:
- 28 per cent believed house prices to be lower;
- 16 per cent because interest rates were low; and
- 8 per cent because of the size of the first home buyers grant.

FIRST HOME BUYERS GRANT WORKING.

Posted 12/01/09

Figures this week released by the Housing Minister Tanya Plibersek show that in November 2008 5385 first home buyers have taken advantage of the first home owners grant.

The greatest response was from the state of NSW where 2076 applications were received from first home buyers.

Noel Dyett the Real Estate Institute of Australia President has asked the Federal Government to "undertake a comprehensive review of the boost to the FHOG to assess its effectiveness prior to its proposed cessation in June 2009,"

The minister has not ruled out extending it into the new financial year in their efforts to continue to assist home buyers.