I thought it would be appropriate to include these news items as I am often asked the question “ Isn’t Australian property overpriced ?”. This brings out a number of interesting insights and whilst statistics can sometimes be somewhat misleading, it is reasonable to use the rule of thumb that people spend about a third of their income on housing, be that rent or mortgage payments. If we keep that in mind, this would mean that Australia is quite well placed on the “dwelling affordability index” relative to other developed nations.
The other articles focus on interest rate expectations, firstly from the Reserve Bank of Australia and then from Macquarie Bank and Westpac .. this is interesting in that Bill Evans, and Matthew Hassan, the chief economist at Westpac made these two predictions which are in opposing directions, within days of each other.
I think this highlights that we need to be mindful of the macro factors at work, but also use some common sense and recognise that it is sometimes better to work with the “likelihood factor” of certain outcomes occurring. When applied to you property investment and associated loan portfolio, it might be sensible to take a measured approach and fix the interest rate for a proportion of that portfolio and leave the rest on a variable interest rate.
Dr Andrew Unterweger MBBS, CFP®, Dip FP,FPA, AFA, SMSF
by Craig James
Homes are still affordable: The Rismark housing affordability measure indicates that home prices stood at 4 times household disposable income in the December quarter – a figure broadly unchanged on a decade ago. Over the past decade disposable income per household has risen around 70 per cent while the average home price has lifted around 67 per cent.
What do the figures show and what does it all mean?
Gen Y has no reason to blame parents or grandparents – home affordability hasn’t really budged in the past decade. Home prices may be up, but so are disposable incomes. read more …
RBA offers good news on interest rates
The Reserve Bank of Australia has signalled that interest rates
are likely to remain at record lows..
“At recent meetings, the board had judged that it was prudent to leave the cash rate unchanged, while noting that the cash rate could remain at its current level for some time.. Read more…
The RBA has released the minutes of its most recent meeting on March 4, which support hopes that the official cash rate might remain at 2.5 per cent for the rest of 2014.
Macquarie has become the latest bank to revise its forecast for further rate cuts from the Reserve Bank of Australia, moving from an expectation of two reductions to interest rates this year to just a single cut.
Macquarie follows Westpac which on Monday scrapped its prediction for two rate cuts in favour of calling rates on hold for the next 18 months before anticipating a hike from the RBA.
National Australia Bank, JPMorgan and Bank of America-Merrill Lynch still think the RBA has more easing to do in this cycle. read more …
Declining confidence in the economic outlook and escalating job-loss fears have contributed to a decline in the latest Westpac Melbourne Institute Index of Consumer Sentiment.
The March figure posted a decrease of 0.7% to 99.5 from 100.2 in February. The Index is down 10.9% from its November peak of 110.3 and is at its lowest level since May last year, Westpac reveals.
Consumers have been rattled by the bad news surrounding the car industry, other manufacturers and Qantas, according to Westpac chief economist Matthew Hassan.
“The March survey showed a continued collapse in near term expectations for the economy – the sub-index tracking consumer views on outlook for ‘economic conditions over the next 12 months’ dropped 4%, following a 7.1% fall in February,” says Hassan. “The sub-index is at its lowest level since December 2011, at the height of the European sovereign debt crisis.”. read more...
Westpac’s about-face on rates
Westpac no longer expect rate cuts
Banking Corp chief economist Bill Evans has dropped his expectation for two further rate cuts from the Reserve Bank of Australia, instead predicting a rate hike in 2015.
Mr Evans’ views have been closely followed by traders because he was the only economist to successfully predict the last turn in the economic cycle when the RBA began easing.
He went out on a limb in June 2011 when he forecast the RBA would cut interest rates; though the central bank didn’t cut until November that year when more economists shared that view, Mr Evans still got the credit.
Better news on employment; consumption and business confidence will help counter the effect of weaker employment, says Westpac chief economist Bill Evans.
Mr Evans together with NAB chief economist Alan Oster was until today one of the most bearish interest rate forecasters, citing weak domestic demand for expectations of further easing.
But Westpac now has rates on hold for the rest of this year, and the first rate rise in the third-quarter of next year. read more…