RATE RISES SET TO BEGIN

As the market starts to stabilise, the beginning of the

end of low rates is just about to begin

The Reserve Bank Governor’s statements seem to suggest that the scope for further interest

rate cuts is very minor and given this, the latest interest rate futures yield curve is indicating

that financial markets believe that rates will not fall any further. With the first increase in

rates expected around November or December this year.With fewer properties being built than

required to cater to demand, competition for available stock increases and as a result, upwards 

price pressure is created. In the three largest states, which as a result are the states with the

strongest demand for housing and requirement for new dwelling building approvals, the number

of approvals on a trend basis rose by: 1.0% in New South Wales, 0.2% in Victoria and 1.8% in

Queensland.  Later this week the ABS will release the labour force statistics and many expect 

unemployment to be recorded at or around 6%. The ANZ released their latest July job advertisements

survey this week and the results showed a -1.7% fall in advertisements during July. Even compared

to just one year ago, the number of dwelling approvals nationally in June 2009 is -14% lower with

approvals in New South Wales -28% lower and in Queensland they were -31% lower. Late last

week the ABS released their building approvals data and although building approvals increased

by 3% during June on a seasonally adjusted basis, on a state-by-state basis the performance was

quite varied.  The yield curve shows an expectation that in one year’s time interest rates will sit

1.5% above their current level. The results although showing a decline in the number of jobs

advertised represented a marked slowdown from the previous month when job advertisements fell

by -1.7%. In the Federal Government’s Budget they anticipated that unemployment would peak at

8.5% in mid 2010. Despite the fact that unemployment is still rising the rate of increase in the

unemployment rate to date coupled with the fact that the rate of decline in the number of job 

advertisements appears to be slowing suggest that the forecast unemployment rate of 8.5%

may have been a little too pessimistic.These results highlight the significant demand and supply

imbalance and also provides some insight as to why property values are once again beginning

to rise.The Reserve Bank of Australia decided to keep Australia’s cash rate at a near 50 year low

of just 3% when they met this week. This is why Governor Steven’s highlighted the under supply

issues in his speech last week and why governments need to be much more proactive in allowing

additional construction and most importantly, these new dwellings need to be available at

affordable prices coupled with provision of critical infrastructure in and around these dwellings.

He also stated that economic conditions have been stronger than anticipated in Australia for a 

few months and that the risk of a severe economic contraction had now abated. In his statement

the Reserve Bank Governor pointed to the fact that worldwide economic stimulus was helping the

global economy to stabilise. Locally the market has not improved with an under supply of stock. 

Homes that are listed on the market are receiving offers in the first day of marketing and proceeding

to sale very quickly. There is a real sense of panic at the moment with a great deal of buyers.

Those that dont have there finance pre approved, are going to find it tough to get the finance in

place before October 30th , when the first home buyers boost starts to be wound down. No lenders

are financing more than 97% LVR, where most are wanting 10% from the buyers.