A RATE THAT WON’T WAIT!

A RATE THAT WON’T WAIT!

With an economy that has now posted seventeen years of growth, politicians will tell all and sundry that everything is hunky-dory. Not so! The national average for Australians servicing mortgages is now 36.2 per cent (and climbing) of their income. No doubt the nine interest rate increases over the last five years play a pivotal role in these growing household debt ratios. It is not however, the Reserve Bank of Australia’s (RBA’s) warnings that cause the greatest concerns.

The major banks are voicing concerns over the fallout from the US sub-prime mortgage crisis where funding costs have significantly increased. Should this continue, lending rates are almost certain to increase. National Australia Bank chief, John Stewart, recently commented that these higher costs would not be passed on to borrowers, for perhaps “weeks or months”. Short term borrowing costs have risen 0.25 per cent and this (thus far) has been absorbed by the banks since the credit squeeze began on August 10. Bank bill yields are now closing in on 7 per cent and the last time we were at those levels was back in August 1996. Simply put, the cost of money is growing and this week, 30-day bills reached 6.93 per cent, 6.95 per cent for 90 days and 6.74 per cent for 180 days. No doubt the RBA will be sweating on the September quarter consumer price index data which will be released on October 24. This makes compelling viewing for their meeting on Melbourne Cup Day (flu, or not). One should not forget also, that the Federal Election will then be just a few days or weeks away.

What remains to be seen is whether or not November will see the major political parties open the purse –strings to entice voters. Should this happen there is a strong belief that the RBA will respond with a monetary speeding fine to the cash rate. Since the last recession, our economy has now completed sixteen consecutive years of expansion. Over the last year, labour productivity has risen 2.9 per cent which is the highest recorded level in three years. Housing continues to follow suit.

The Australian Bureau of Statistics (ABS) revealed this week that Australian building approvals rose 0.4 per cent to 12,980 units in July, seasonally adjusted, from a downwardly revised 12,925 units in June. The alarming pattern is, that in the year to July, building approvals fell 7.5 per cent. Queensland continues to lead our nation where in June, the ABS identified that economic activity rose 8.2 per cent in the June quarter, compared with a 5.4 per cent growth for the rest of Australia. Just as complex upon close examination of these graphs on the ABS website this week, is the growing argument that councillors need greater governance with the decision making process.

The Independent Commission Against Corruption (ICAC) announced this week that councillors should be forced to explain any decision made to approve or reject a development application. Presently, councillors don’t need to explain why a development was approved, when not recommended by staff. However, they are required to explain why they rejected a development that was recommended by staff. Again, a process that is no longer economically viable and constitutes a total waste of tax payers’ money. The only thing that tax payers can be assured of today with respective councils, is that their “lone” rangers will fine them in any shopping centre or school drop zones. A very strong argument that we no longer need local council intervention. Still they continue to pop-up on the ICAC radar and building approvals from councils, only stymie building progress.

So let’s look at the “show me the money” markets with the Sydney auction clearance rate posting a strong 65 per cent, a fraction down on last week and well up on the 55.9 per cent this time last year. The Mosman/Cremorne and Neutral Bay property markets are posting market boom results of 80 per cent clearance from last weekend. Given that many of these results are still to be recorded, last weekend’s clearance rates should be in the early 80’s which identifies a very strong property market.

With APEC now under way and school holidays commencing in a few weeks, residential listings will cool off until the second week of October when the market goes back into full swing. What remains to be seen is just what effect the Federal election will have on market sentiment. It is not as though we have never had to contend with an election before, so we predict a buoyant property market through to Christmas. Cheers ^__^

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