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Category Archives For: Interest Rates

Interest Rates The Hot Topic For 2009

ratesborder1An extremely tight rental market driven by a lack of housing and falling interest rates is really going to have investors motivated for a property purchase.

Early 2008 was a time of rapidly rising interest rates, some say they were raised too high. This was mainly to do with inflation, however the TD Securities- Melbourne institute inflation guide, placed headline inflation at 3 year lows down to 2.2%.

In times of rising rates we were treading at 5%.

So what does this mean for future interest rate movements?

Be ready for further downward movements in the cash rate. Most economists are predicting a 0.5% drop when the reserve bank next meets on the 3rd of February.

Investors on financial markets however are forecasting an 85% chance of a 1% drop in the cash rate in February while the cash rate will reach 2.25% by midyear!
This will have a substantial impact on the property market, especially the investor market for flats, apartments and units. The words 'positively geared' are going to be used which hasn't been the case for a long long time.

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Interest rates fall by a further 1%

As to market expectation, interest rates were slashed again by the RBA.

The official cash rate is now 4.25%, this will most likely not be the end of falling interest rates.

It’s quite staggering to see that we had a rate increase in March this year by 0.25% to make the cash rate 7.25%. We’ve now seen a 3% drop in interest rates over that time period.

This will ease some pressure off property sellers and won’t be enough to really stimulate the property market in the inner city. We will most likely see a lull of activity in the short term especially with the Christmas season about to arrive.

Full statement by Glenn Stevens, the Governor of monetary policy.

Further large drops predicted with the cash rate

Debt futures markets are predicting a cash rate in Australia of 2.75%, that’s right, 2.75% by April 2009.

This would be the lowest level since the 1960’s as the Reserve Bank worries about falling asset prices and the slowdown of the Chinese economy.

A positively geared property portfolio is starting to come more and more possible, especially if the above rings true.

For the full article, read this section of Business Day.

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The road ahead for the RBA

Expect rates to fall again when the RBA meet on the 2nd December.

We should expect a minimum of 0.5% taken off the current cash rate. The more likely scenario is that we’re looking at between 0.75%- 1.0% drop in rates.

In the 9 months to September, household wealth has decreased by a staggering 8% and naturally this is concerning the Reserve bank.

The positive news here is for investors, who are about to make a property purchase.

This is why:

  • Rising rents: A shortage of property, low vacancy rates plus the hesitation of some to buy property will force rents up.
  • Lower holding costs: Falling interest rates mean less to maintain the loan.

We are starting to get closer to the threshold of property being actually positively geared. This has been unheard of for a long time with good quality assets.

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Rate drop bigger than expectation

With just a small trickle of auctions held over the weekend, the clearance rate bumped up to 66%. As mentioned on Friday, this is no indication of the market place.

Yesterday produced yet again a larger than expected rate cut from the Reserve Bank with rates dropping by 0.75%. It is also predicted that over the next few weeks’ rates could again drop.

The current cash rate is now 5.25%, which is down from 7.25% in March. What a difference 8 months makes!

Certainly this will help the property market, but a big drop instead of a steady decline can also make property buyers rather cautious.

In Victoria our best acid test is naturally the auction clearance rates. This Saturday will be another interesting tester…

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More on interest rates

interestratedropWhat an unexpected day yesterday!

The reserve bank hasn’t slashed rates by 100 basis points since May 1992.
The official cash rate is now 6.0%; the big banks however will not pass this latest 1% drop in full to customers. Yet majority of it should be with Westpac announcing it will pass on 0.8% of the 1% cut.

So what’s happened since the last time the reserve bank met?

The world financial meltdown has continued to ripple through many parts of the established world. America, France, Germany, Japan and many others are in a recession; the UK is not too far off.

The collapse of Lehman Brothers, one of the world’s largest investment banks has really crippled the world financial system.

Commodity prices have started falling and much of Asia’s growth seems to be moderating. China’s growth rate is expected to drop slightly from over 10% consistent year on year growth to around 8.5%.

So were does this leave us?

We are probably the best-placed western country in the world right now.

  • Our banking system is sound and still profitable.  
  • Commodity prices have dropped but the outlook still looks good for the next 20 years.
  • Asia’s growth is moderating, but growth rates are still incredibly high (Besides Japan) in which we rely heavily on.

The property market can view these latest rate cuts in two different ways:

  1. With caution: Holding out to see what happens with the entire economy over the next couple of months.
  2. Optimism: This could prove to be a real stimulator to auction clearance rates and put further increases on pricing.

People I’ve spoken with have been mixed between the two groups above. A number of people have changed their search criteria to obtain a bigger or better home as the extra saving from the rate cuts enables them to spend more.

This weekend should prove a very interesting weekend. We haven’t really any data from the last time a rate cut was given of this magnitude and its affects on auction clearance rates.

This manoeuvre from the reserve bank could be a history defining moment. It only takes a stroll down to the local supermarket or electronic store to see people aren’t spending like they used to.

The latest rate cuts could prove a real winner for the average homebuyer or owner.

Read here for the full statement by Glenn Stevens, the governor of the reserve bank.

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Auction Wrap – September 6th & 7th 2008

As expected, the market had a better weekend for clearance rates. Up from 59% the previous week, the market performed at 64%.

Interest rates no doubt helped give property buyers more confidence in the market. News reports have quickly pointed to a much healthier market, however I think we need a few more weeks before jumping to any instant conclusions.

It’s always interesting looking at the higher turnover suburbs for some further information:

  • Hawthorn and Hawthorn East had 19 auctions on Saturday, of which 11 sold. Many of the passed in properties were in the range of $1- 2 Million.
  • Richmond had 8 sell from 10 auctions. Many sold were Single fronted between $550,000 – $875,000. The two properties passed in were both $1 Million plus.
  • Kew produced a strong performance with 9 selling from 11 properties offered on the day.
  • South Yarra was also very strong. The same result applied, 9 sold from 11 offered.
  • Brunswick had 12 auctions with 8 selling.
  • St Kilda had 6 auction booked for the day. 2 passed in while the other 4 sold prior to auction day. This is very interesting with St Kilda at the moment, many properties are selling before the day with both buyer and seller willing to reach agreement.

Single fronted stock, entry point property and good quality townhouses managed to sell quite well. The typical family home, had varied results on Saturday especially in the $1 – 2Million range.

NAB will pass on any interest rate reduction

Good news for home owners/ buyers with the National Australia Bank coming out yesterday promising to pass on the full interest rate cut (expected to be 0.25%) should the Reserve Bank drop rates over the next month.

Some thought in the market was prevalent that the banks may not drop or adjust their own interest rates charged to consumers in line with the Reserve Bank.

By the NAB coming out and declaring its position, it will force other banks to do the same or risk a large backlash from the public.
NAB variable rate will be 9.36% should the Reserve Bank drop rates.

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