Homeowners on notice with crucial data on interest rates

August 9, 2009 – 5:13PM

The nerves of home owners are certain to be tested tomorrow as official data on mortgages is released, sending a signal on the pace of future interest rate rises.

The Reserve Bank of Australia (RBA) indicated twice last week that rates were more likely to go up than down as the chances of a recession diminish.

The number of home loan approvals in Australia has surged since the central bank embarked on a dramatic series of rate cuts last year.

Official housing finance data for June, due out tomorrow, is expected to keep growing, with economists forecasting a 1.8 per cent rise.

This would follow a healthy 2.2 per cent rise in May.

Home mortgage numbers have now risen for eight consecutive months, in a sign that large rate cuts and the federal government stimulus grant to first-home buyers are working to boost the economy.

The housing sector growth spurt started in October, a month after the RBA began cutting rates by 425 basis points, taking the cash rate to a 49-year low of three per cent.

The RBA revised up its growth forecast this week, projecting a half per cent expansion in 2009 instead of a contraction.

Treasurer Wayne Swan, however, has attempted to douse excitement about a possible recovery.

“This is all heartening news but we’re not getting carried away,” Mr Swan said in an economic note on Sunday.

“The pace of recovery is still expected to be modest.”

During times of prosperity the Australian economy grows at an average pace of three per cent a year.

The RBA expects Australia to record below-trend growth during this financial year, and in 2010-11.

Treasury then expects growth to surge to a very robust 4.5 per cent from 2011-12.

The International Monetary Fund is also positive about the Australian economy, projecting a growth pace of 1.5 per cent in 2010, albeit after a 0.5 per cent contraction in 2009.

A rebound in the economy after several years of below-average growth also means a return to higher interest rates.

Financial markets are expecting the RBA to start raising interest rates before Christmas.

By mid-2010, the cash rate could reach 4.25 per cent, if the markets are any guide.

Under this scenario, repayments on a standard variable mortgage for an average $281,000 first home loan would jump by $277 a month to $1,916.

ANZ economist Riki Polygenis said any increase in interest rates would be gradual, as the RBA watches how consumers react to the phasing out of stimulus programs, such as the boost to the first home owners grant.

“Retail sales, housing finance and consumer confidence will all be critical,” Ms Polygenis said.

The first home owners grant was tripled to $21,000 for new dwellings in October last year, and doubled to $14,000 for existing dwellings, as part of the Rudd government’s first stimulus package.

From September 30, the grant for new homes will fall back to $14,000 for a further three months, before returning to $7,000.

The average value of a new mortgage in Australia has risen to its highest level as property investors return to the market, mortgage broker AFG said on Sunday.

The average new mortgage lodged in Australia rose to $354,137 in July, eclipsing the previous record of $353,223 in October 2008, according to data from AFG released on Sunday.

Official wages data, an important measure of inflation, is due out on Wednesday, with economists tipping a 0.8 per cent growth pace for the June quarter and an annual increase of 3.8 per cent.

http://www.brisbanetimes.com.au/national/homeowners-on-notice-with-crucial-data-on-interest-rates-20090809-ee1r.html

Australia’s booming population is showing no sign of slowing, with overall growth surging by 1.7% to 21.37 million over the year – its fastest pace in 19 years.

A record 213,500 people immigrated to Australia as at 30 June 2008, accounting for more than half (59%) of the total growth. The strong migration number is complemented by the equally solid number of babies born in the same period.

Western Australia continues to rack up the fastest population growth (2.7%), followed by Queensland and NT (2.3%) and Victoria (1.8%).

Craig James, chief equities economist with CommSec, said the rising number of migrants coming to Australia will add to the demand for homes in 2009. “More people in Australia means greater demand for houses, roads, schools, hospitals and a raft of retail goods, and as such is providing much-needed stimulus in trying times for the global economy. Population growth in NSW is now the strongest in seven years, boosting the outlook for Australia’s biggest economy.”

Kind Regards,

Michael Shekell

BRISBANE’S house prices are forecast to rise 16 per cent over the next three years, as the economy recovers and investors return to the market.

The average Brisbane house price will rise from $391,000 in 2009 to $455,000 in 2012, says BIS Shrapnel’s Residential Property Prospects report.

It predicts that low interest rates, solid growth in rents and housing shortages would lead to a steady but slow recovery of the entire housing market. Brisbane’s growth will lag behind Sydney, Melbourne and Adelaide, which are tipped to rise 19 per cent in that time.

The study found Brisbane’s house market remained healthy until the end of 2007, rising by 26 per cent over the previous 18-month period due to strong population and economic growth.

But rising interest rates and the subsequent economic downturn led to the median house price declining during 2008 and 2009.

BIS Shrapnel study author Angie Zigomanis said much of forecast growth over the next three years would be in the lower end of the market.

“After years of rising interest rates from 2003 to 2008, first home buyers are now in a good position to enter the property market,” Mr Zigomanis said.

“From here, the recovery in housing demand is expected to broaden.”

The study predicts prices on the Gold and Sunshine coasts to rise by 14 per cent by 2012.

Natalie Gregg :: June 15, 2009 12:00am

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