Australian economy heading for a new golden age - Gittens

[Aceyducey]

A little light on the doom & gloom....

As both Thommo & I have commented, commodities & energy are good places to be right now :)

http://www.smh.com.au/articles/2004/06/06/1086460170815.html

How does this impact on property?

A strong economy underpins stability & growth in housing prices. A weak economy removes the floor.

Australia does not have a weak economy at this time.

Cheers,

Aceyducey

[Thommo]

A little light on the doom & gloom....

As both Thommo & I have commented, commodities & energy are good places to be right now :)

http://www.smh.com.au/articles/2004/06/06/1086460170815.html

How does this impact on property?

A strong economy underpins stability & growth in housing prices. A weak economy removes the floor.

Australia does not have a weak economy at this time.

Cheers,

Aceyducey
On this basis I have, in the past, made the brave prediction that we could reach parity with the [weak] US$. I will leave that in the "brave" category for now because in the short term we will probably weaken as the Yanks are due to increase their rates with good employment figures and inflation on the way up. We will have to follow though and our rates could be 200pts higher within 12 mths. Not so good for RE.

Thommo

[djsherly]

On the other hand thommo, our interest rate differential is already 4.25% compared with the states. a 200 point rise in the interest rate will kill the housing market, make the aussie unnecessarily strong against the green back and kill exports too. Imports would get cheaper as the result of a strong aussie and inflation will rise. Couple that with a drought and subsequent increasing domestic prices for food and the petrol outlook and I would have thought the RBA is pretty much tied on the interest rate front for the foreseeable future. (<- I can speak like an economist too!)

I would guess that rates will rise, but not by 200points, I would have guessed somewhere in between 0 and that. I hang my hat on 50-100points in the next twleve months.

ABN Amro in the AFR on the weekend also made mention of a possible rate decrease. While I find that a little baffling, the RBA leaning more towards current rates being neutralish. There are other commentators out there also taking the opinion that i/r are approximately netural at this point.

I think housing prices have to level out for at least the next 12-18 months for the RBA to be truly happy, but by then there will be other influences, I suppose.

[Thommo]

The 1% rate quoted in the US is only a headline rate. Their retail rates are nearly as high as ours. Long fixed mortgages abt 7% and variable ones cheaper. Credit card rates are up with ours.

Who cops the difference? JP Morgan and such big banks, and Freddy 'n' Fanny [the home lenders] are among those in the "carry trade", ie borrowing short and cheap and lending long at nice margins. Obviously they are making a motza but the risk in a rising interest rate environment is equally obvious.

I know little more than the fact that change, possibly big change, is coming. It will start in the second half of this year. Have your own guess on how steep curves are and how far they will go.

Thommo

[Aceyducey]

Who cops the difference? JP Morgan and such big banks, and Freddy 'n' Fanny [the home lenders] are among those in the "carry trade", ie borrowing short and cheap and lending long at nice margins. Obviously they are making a motza but the risk in a rising interest rate environment is equally obvious.

I know little more than the fact that change, possibly big change, is coming. It will start in the second half of this year. Have your own guess on how steep curves are and how far they will go.
So technically the banks could absorb several % before raising rates if they chose.......this could help cushion any US interest rate rises on consumers....but certainly affect share prices.

Thus the net result of a 2% rise in interest rates in the US could be a share market adjustment rather than a property depression ;)

After all the banks stand to lose more money & goodwill if they force foreclosures & attempt to sell properties in a falling market than if they cushion consumers from interest rate rises.

Cheers,

Aceyducey

[Thommo]

So technically the banks could absorb several % before raising rates if they chose.......this could help cushion any US interest rate rises on consumers....but certainly affect share prices.

Thus the net result of a 2% rise in interest rates in the US could be a share market adjustment rather than a property depression ;)

After all the banks stand to lose more money & goodwill if they force foreclosures & attempt to sell properties in a falling market than if they cushion consumers from interest rate rises.

Cheers,

AceyduceySounds about right to me.

T

[Harris]

Current US fixed interest rates for 5 years for a $300,000 loan (IP)= 4.79%
Fixed 30 year loan = 6.5%

A far cry from an interest rate of over 7.2% fixed for 5 years for the similar amount in Australia.


The 1% rate quoted in the US is only a headline rate. Their retail rates are nearly as high as ours. Long fixed mortgages abt 7% and variable ones cheaper. Credit card rates are up with ours.

Who cops the difference? JP Morgan and such big banks, and Freddy 'n' Fanny [the home lenders] are among those in the "carry trade", ie borrowing short and cheap and lending long at nice margins. Obviously they are making a motza but the risk in a rising interest rate environment is equally obvious.

I know little more than the fact that change, possibly big change, is coming. It will start in the second half of this year. Have your own guess on how steep curves are and how far they will go.

Thommo

[NormH]

The 1% rate quoted in the US is only a headline rate. Their retail rates are nearly as high as ours. Long fixed mortgages abt 7% and variable ones cheaper. Credit card rates are up with ours.

Who cops the difference? JP Morgan and such big banks, and Freddy 'n' Fanny [the home lenders] are among those in the "carry trade", ie borrowing short and cheap and lending long at nice margins. Obviously they are making a motza but the risk in a rising interest rate environment is equally obvious.

I know little more than the fact that change, possibly big change, is coming. It will start in the second half of this year. Have your own guess on how steep curves are and how far they will go.

Thommo

Hmm I am not sure I agree about their rates being the same as ours, the consumer in the USA has a number of options and they also have a strong demand for the VA subsidised loans.

I also believe the AU$ won't get to parity so leave that in the wishful basket :) . My reasoning is, I believe the reserve would have liked to have had the "option" of increasing interest rates back in February again, but due to the strength of the AU$ due to the interest rate differential with the US$ they were unable to.
If the US interest rate is pumped up, as I believe it will by at least 1% in the next 12mths, then we will see the AU$ exchange drop back to the mid 60's and lower, that will give the reserve some room to hike our rates up to about the 6.25 where they would feel more comfortable.
It is the strength of the AU$ that held them back in Feb I think due to the rate difference. whadaya reckon? That is what I am banking on anyway, that is why I have moved all my money (8mths ago now) offshore into the USA markets. Cos I believe the AU$ will weaken again as the USA starts to again drive the world markets. (super money that is, rest is aussie property :D )

[BV]

The 1% rate quoted in the US is only a headline rate. Their retail rates are nearly as high as ours. Long fixed mortgages abt 7% and variable ones cheaper. Credit card rates are up with ours.
Thommo

Thommo

I can't agree with you

Today's US rates from Yahoo mortgage centre
1-yr Adj 3.47%
15-yr Fixed 5.34%
30-yr Fixed 5.98%

On top of that in US the interest on mortgages is tax deductable.
so they win both ways.

Not to mention that they earn more......

cheers

[DavidPleydell]

Since people expect rates to rise, why is that the banks have the variable rate at 7.07% but we can fix for 3yrs at 6.95%?

If banks expected the rates to rise by 1% or so then they would be losing money on people who locked in rates for approx 4yrs.

If anyone was going to get things fairly right you would expect them too, affects their bottom line.

I'm not sure if that observation is correct but worth looking at.

David

[Thommo]

Thommo

I can't agree with you

Today's US rates from Yahoo mortgage centre

1-yr Adj 3.47%
15-yr Fixed 5.34%
30-yr Fixed 5.98%

On top of that in US the interest on mortgages is tax deductable.
so they win both ways.

Not to mention that they earn more......

cheers
5.98% is closer to 7% than 1%. I was replying to "On the other hand thommo, our interest rate differential is already 4.25%" which you guys have just proven to be false.

And yes, I know their mortgage interest is tax deductable. And that in constant dollars their wages have been going down for 20 years with a slight drop in nominal terms lately.

I have just re-read the thread and I can see why you guys are gunnin fo me: I said "Not so good for RE." I will give myself an uppercut and go sit the corner!

Bye, Thommo

[rodimus]

Is there somewhere we can find out the inflation rate of Oz over the years? LIke a graph or chart or table?

Also whats the current inflation rate /

[Aceyducey]

Rodimus,

It's been posted in the forum before, by Pitt_St I believe.

However here's the RBA ten year charts: http://www.rba.gov.au/ChartPack/index.html - see No. 6

Current annual inflation rate is 2%

Cheers,

Aceyducey

[Aceyducey]

And here's a bit more about inflation & unemployment & the RBA's view.....

Summary - everything is swanning along nicely.

From the AFR today:

Figures fail to put pressure on wages
The national unemployment rate fell to 5.5per cent last month for the first time since the early 1980s and economists said there was little evidence that the tight labour market was creating new wage - and therefore inflationary - pressure.

"Even with unemployment at its lowest levels in decades, there are still no signs of emerging wage pressures,"ABN Amro analyst Felicity Emmett said. "Public-sector wages have been growing strongly, reflecting some catch-up for teachers and nurses, but growth in private-sector wages remains unusually quiescent."

For the Reserve Bank, this is important because it means that as long as all other parts of the economy are behaving well it can let the economic expansion run further by keeping interest rates lower than if inflation were being threatened.

In Western Australia, the Northern Territory and the Australian Capital Territory, the unemployment rate fall was even lower than the national rate of 5.5 per cent. The West Australian rate fell from 5.1per cent to 5per cent last month, which was the lowest since records were first collected in 1978.

Reserve Bank governor Ian Macfarlane appeared relaxed about the pace of wages growth when appearing before a committee of federal parliamentarians last Friday. He acknowledged that some areas of the economy were generating significant wage pressure, particularly the mining and building industries. But these pressures were waning, he said. "Obviously, if there were a surge in wages, it would have inflationary implications, but we have not seen one, and I do not regard it as a high probability that there will be a surge in wages."

The Reserve Bank has also predicted that inflation will remain within its 2 to 3per cent target band. "We are still forecasting that underlying inflation will be running at about 2 per cent by the end of 2004. By the end of 2005 both headline and underlying measures are likely to have moved up to about 2.5per cent," Mr Macfarlane said a week ago.

Cheers,

Aceyducey