As unemployment rates remain lower than

expected, Australia leads the way again,

increasing rates before any one else.

To a great many people a rising rate of interest comes as no surprise and the

majority of mortgage holders  have been factoring a more normal level of 

mortgage rates into their upcoming budgets.The proportion of new borrowers

who have spread their finances too fine are not likely to represent a great

proportion of the market due to the fact that banks have been exceptionally risk

averse in their lending criteria, generally requiring at least a 10% deposit and a

demonstrated track record of genuine savings without any defaults.Economists

seem to be in line with the financial markets with most stating an additional 50

basis points to be added to the cash rate before Christmas this year. First home

buyers now represent only 24.7% of all owner occupier housing finance commitments,

down from the recent peak of 28.5%. For this reason the mortgage default rate is

likely to remain low, which is currently less than 5% of all mortgages that are in

arrears. Housing finance commitments for property investors were up by 7.6% in

August this year,  highlighting the increase in investor numbers in the market as

first home buyers wind back after the boost wind down. If financial markets are

anything to go by we are likely to see the cash rate lifted in both November and

December bringing the official cash rate up to 3.75%  and the average variable

mortgage rate to around 6.5%. This is also having an effect on the Australian

dollar as overseas investors cash in on the higher rate. The increasing of interest

rates will have an effect on demand in the first home buyer segment the most as

this is by far the most price sensitive segment of the market currently.

Australia is seeing more second and third home buyers and a great number of 

investors enter the market. First home buyer demand is winding back as the boost

to the First Home Buyers Grant has now been reduced to half and the fall back of

first home buyer numbers is more than likely to continue. It is expected the overall

affect on the housing market from 3 successive increases is not likely to be massive.

In all likelihood Australia should see investor numbers continue to increase over

the rest of 2009 and into 2010. Additionally, Australia is likely to see the continued

trend of more upgraders returning to the market as both these segments are much

less price sensitive to rate rises. This is important to have the upgraders buying as

it generally means they have a home to sell, creating stock that currently is not there.

Locally we have seen sales go through the roof literally. As soon as well priced homes

hit the market they are under offer within days, in some cases hours. The rental

market has seen a reduction in the numbers of applicants turning up for inspections.

Rental values have also stabilised at this point as well.

 

 

 

 

09/10/2009