Last week the Reserve Bank of Australia released their monetary policy report for April 2013. Interest rates are left unchanged, remaining at a competitively low 3 per cent. The RBA’s decision means that Australians will benefit from another month with a record low cash rate. Since the 0.25 per cent reduction in December 2012, the cash rate has remained unchanged. How might things alter in future? International economies and domestic spending will surely influence decisions throughout the remainder of 2013. C&G report.
As noted by Governor Glenn Stevens in previous months, the RBA’s most recent decision has been heavily influenced by the economic circumstances of China, the USA and Europe. Europe continues to operate in a recession-like environment without any promising signs for change in the near future. Italy, Greece, Spain and Cyprus are far from robust members of the EU currently. It’s not all bad news however – America has shown slow, consistent economic improvement. China is the envy of all nations, continuing to show signs of unprecedented growth. Since March, there haven’t been many ‘status changes’ to economies globally.
Internally, there have been some changes to the spending habits of Australians, including moderate growth in private consumption. A return to the vibrant consumer confidence and purchase of luxury goods experienced pre-GFC is not likely in the short term, however – with spending on-par with 2012’s records to date. The property market is steadily displaying signs of growth with rising dwelling prices and high rental yields. In relation to foreign trade, the export and mining industries continue to prosper.
While it seems like this economic news is similar to that reported in the past, RBA Governor Glenn Stevens notes that interest rate cuts in 2012 have had the desired effect. The outlook for Australia’s economy is generally positive with healthy employment rates, a strong dollar and expected further growth in the coming years.
Economic commentators are not expecting an interest rate change next month. With inflation close to the middle of the RBA’s target range, there is a chance rate cuts may be made later in the year – providing that there are no major incidences in exterior global economies.
The Reserve Bank of Australia has made its March monetary policy statement, opting to keep rates unchanged at 3.0 per cent. This current cash rate is a record Australian low, which explains why the RBA may be standoffish about further interest rate reductions. Our national cash rate has remained the same since our last 0.25 per cent reduction in December 2012. Influential factors to take into consideration include the global economy, public spending and growth trends locally. Many forecasters are predicting a rate to drop to 2.25 per cent by the year’s end. C&G reports on what this means for home owners and those wishing to acquire a property in the near future.
The RBA last week released their monthly statement, with Governor Glenn Stevens explaining that the financial climates in China, Europe and the USA have been a major focus for the board in March. The USA has shown positive signs of growth while Europe is also in a better position than at this time last year. Meanwhile, China is continuing to grow at a rapid rate.
The report also identified that there has been moderate growth in the local economy with the housing market on the rise, paired together with an increase in employment opportunities. Public spending’s forecast is not so bright, with budgetary constraint likely to continue. Exports of resources have also strengthened throughout February, and the Australian dollar raised half a US cent to $101.81 the day prior the RBA’s monetary policy announcement. The board has reported that spending trends and inflation have remained consistent with predictions.
While some homeowners may be disappointed with the RBA’s decision, economists believe the banks may still implement a 0.25 per cent interest rate cut in an attempt to attract new mortgagees. Even if this is not the case in the immediate future, many pundits expect rates will fall to 2.25 per cent by the end of the year.
Confidence in the RBA’s monetary policy direction is high, with commentators praising the actions of the board in light of Australia’s relative economic health in the wake of the GFC. The population at large seems to be buoyed by the positive reports of 2013 – we’re enjoying unprecedented numbers through open for inspections – a sign that the property market is back and stronger than ever. Now is certainly the time to take stock and plan to purchase – or perhaps upgrade to a new residence – before the property market’s inexorable upwards climb begins again.
While some soon-to-be first home owners may have groaned when their hopes of an interest rate cut this month were dashed by the RBA’s Governor Glenn Stevens, many in the finance community noted the decision to hold our interest rates steady at 3% as a step in the right direction, and an indication of stability. Today, C&G write on the positive stance taken by the RBA in anticipation of a strong market for 2013.
2012 was a year that involved watching and waiting for many aspirant and current property-owners. Who would move first? Market expectations or market forces? The RBA observed the economy carefully last year, responding with a series of interest rate drops from 4.25% down to our current (historic) low of 3%. The Australian dollar remains high – something unlikely to change until our northern neighbours in America and Europe fully address the economic challenges they face. That said, both Europe and the US are working through their issues – America in particular bringing down deficits effectively. China is beginning to re-invest in Australian iron, with exports strong for the last quarter paired with a 6% increase in price per tonne. Inflation is controlled at 2-3% (acceptably within forecast) – the RBA’s major concern is in relation to employment. Australia’s wages continue to be high, making our exports far from competitive and restricting the growth of small business growth. It’s not all bad news though – happily, residential investments have grown (particularly for units) in capital cities across the board. The RBA’s ‘wait and see’ approach for February should be interpreted as a sign of confidence. Although the economy has improved, the RBA will wait to see the full ‘trickle down’ effect of 2012’s rate cuts before considering any further discounts to the cash rate.
More locally, the bayside areas of Melbourne are enjoying strong consumer demand. With the property market far from over-supplied, Chisholm & Gamon are anticipating a busy and successful tail end to summer real estate sales. Many economists suggest a further two rate cuts over 2013, whilst UBS predict a rate cut in March (touting a 62% chance of one, in fact!) Regardless of further cuts, the home buyer has returned to market in 2013 hungry for the opportunity to purchase before rates begin their inexorable climb upwards, locking them out of blue chip suburbs which grow in value annually. Remember – it’s not about timing the market – rather, investment successfully centers around purchasing intelligently and spending time in the market.
The Reserve Bank of Australia (RBA) has spared borrowers an interest rate rise, leaving the cash rate at 4.75 percent in a widely expected move.
The Reserve Bank last increased the overnight cash rate in November 2010 to 4.75 percent from 4.5 percent and most economists still expect a rate rise this year.
“We expect that the Reserve Bank’s decision to leave the official cash rate unchanged at 4.75% today will fuel a new trend emerging where we’re starting to see Australians saving less and borrowing more money for home loans," RateCity chief executive Damian Smith said.
Prior to the announcement the Australian Chamber of Commerce and Industry warned that an official interest rate rise today would "punch a hole" in business and consumer confidence. The chamber’s latest expectations survey, released on Monday, again highlighted the pressures businesses are facing, it said.
"We are particularly concerned about a pre-emptive rate increase, or an early increase," the chamber’s director of economics and industry policy Greg Evans told reporters in Canberra.
"That that could be very damaging and punch a hole in both business and consumer confidence."
Now that the Reserve Bank has decided to place interest rates on hold, we can all breathe a sigh of relief. But for how long?
The first Tuesday of each month can understandably make home owners and investors a little nervous. May proved to be a false alarm for those who thought that we’d see a further increase in the interest rates of .25%.
Did you know that on average, an increase in the interest rate by .25% is another $60.00 on top of the monthly mortgage? The hardest hit by these rate rises are those families which are single income.
Buying closer into the city isn’t always achievable, as housing affordability has gone down in the wake of 5 years of sustained growth and combined with the RBA’s decision to raise rates in recent months.
We may see families now compromising on space and preferring to purchase townhouses or units – a more european attitude towards home ownership.
The cash rate is now at 4.75%, with most variable interest rate mortgages being charged commercially at 7.83%. The Australian share market rose in response to the RBA’s conservative decision to hold rates steady, the benchmark S&P/ASX 200 index rose 11 points, or 0.23 per cent, to 4897.80, while the broader All Ordinaries added 11.9 points (0.24 per cent) to 4996.60.
Locally in Victoria we’ve seen clearance rates at auction hover at 61% for the past two weeks – thankfully the areas that Chisholm & Gamon specialize in are considered blue chip by many investors and owner occupiers alike.
Our firm sold 36 out of 37 properties listed for auction in March and the 37th property sold today, just missing out on a 100% strike rate for March. Thus, we are continuing to achieve strong sale results and rental returns for our owners.
In a market as balanced as this, it is important to consider carefully all factors before making that next investment – property or otherwise.