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.
07/08/09