RBA Announcement- Interest rates on hold

At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
Recent information suggests that the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate has continued to moderate.

Commodity prices have declined very substantially over the past couple of years. This partly reflects slower growth in demand but also, in some key instances, large increases in supply. The decline in Australia’s terms of trade has continued.
Financial markets have once again exhibited heightened volatility over recent months, as participants grapple with uncertainty about the global economic outlook and policy settings among the major jurisdictions. Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened. But funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment. This was reflected in improved labour market conditions. The pace of lending to businesses also picked up.

Inflation is quite low. With growth in labour costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, inflation is likely to remain low over the next year or two.

Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities. The exchange rate has been adjusting to the evolving economic outlook.

At today’s meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate.
Over the period ahead, new information should allow the Board to judge whether the improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.

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Sydney home prices show growth in January after December’s fall

Sydney home values ticked up slightly in January, with a 0.5 per cent increase partially offsetting the market’s larger decline in December.

Data provider CoreLogic’s monthly figures, due out on Monday, will reveal that prices in the NSW capital picked up in the first month of the year after what it says was a 2.3 per cent decline in the final quarter.

Figures from rival Domain Group – owned by Fairfax Media, publisher of The Australian Financial Review – this week said Sydney house prices fell 3.1 per cent and units were down 2.8 per cent over the last quarter.

The CoreLogic figures, which also reveal a 2 per cent increase in Melbourne in January, boost the argument that housing prices in the NSW capital, which have led the market for the past three years, are in for a more sedate year, but unlikely to fall off a cliff.

“The remaining major capitals are continuing to show relatively sedate housing market conditions with the potential for further falls when the end of month index results are published,” CoreLogic said.

“Despite the higher index readings across the largest cites, it’s likely that housing market conditions will track lower than what we saw over 2015.”

Many economists still expect prices in the NSW capital to rise – albeit marginally – this calendar year rather than slide into reverse.

“We’re not in the skies are falling camp,” says NAB chief economist Alan Oster. “It’s probably going to go sideways most of the next year.

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No ‘Big Short’ as auction results round out strong February

The capital city auction results at the weekend showed no evidence that buyers had concerns about a looming house price crash, as predicted by contrarian research house Variant Perception in its Big Short-themed report.

CoreLogic RP Data and Fairfax-owned APM both reported national preliminary clearance rates of more than 70 per cent from a busy weekend of more than 2000 auctions.

In Sydney, the preliminary auction clearance rate fell slightly from 76.5 per cent the previous weekend to 73.3 per cent, based on 673 of 872 auctions, while in Melbourne the clearance rate rose from 74.1 to 75 per cent, based on 1162 of 1327 auctions, CoreLogic RP Data showed.

The auction clearance rate also rose in Brisbane (58.3 per cent), Adelaide, (72.7 per cent), and Canberra (69.6 per cent). Nationally the clearance rate strengthened from 71.8 to 72.4 per cent, based on 2113 reported results.

The solid results came just days before Tuesday’s Reserve Bank monetary policy meeting, where it is expected to keep the cash rate on hold at a record-low 2 per cent.

“This week marks the fourth consecutive week of the combined capital city clearance rate being above the 70 per cent mark, with the stronger than expected auction results continuing through the final week of February,” CoreLogic RP Data said in its Weekend Market Summary.

“Capital city auction results haven’t recorded a four-week period where the clearance rates were consistently higher than 70 per cent since early September last year.”

EXPECTING INCREASES

CoreLogic RP Data and Moody’s Analytics said on Friday in a new report they expected 2.2 per cent increases in Sydney house prices in 2016 and 7.2 per cent increases in Melbourne.

Commenting on the weekend’s auction results, CoreLogic RP Data said: “The robust rate of auction clearance, together with the CoreLogic Home Value Indices continuing to show a moderate rate of growth through February, suggest housing markets are continuing to demonstrate a controlled slowdown, rather than any signs of a sharp correction.”

This was in stark contrast to the Variant Perception report, titled “I know a guy who can get things done”, by US economist Jonathan Tepper, which forecast a 50 per cent fall in house prices in Sydney and Melbourne and warned that “Australia now has one of the biggest housing bubbles in history”.

The report has for the most part been savaged by Australian housing experts and economists, including The Australian Financial Review’s Chris Joye, though one fund manager, Melbourne-based APT Capital Management, which is shorting banks, listed real estate agents and mortgage insurers, agreed with the report and said the market would crash in 2016. LF Economics’ Lindsay David and Philip Soos forecast a crash before the end of 2017.

CoreLogic RP Data’s Kevin Brogan said auction results over February did not portray the sorts of concerns expressed in the Variant Perception report.

“Clearance rates are a reflection of buyer confidence,” he said.

That said, he highlighted the very high clearance rates – between 80 and 90 per cent – in suburbs with higher-value homes, compared with much lower clearance rates in markets in Western Sydney, between 44 and 60 per cent.

WATCHING CLEARANCE RATES

However, he said he would be keeping an eye on the clearance rate as volume rose. Sydney won’t have its first big 1000-plus auctions weekend until March 19 because of the timing of public holidays.

At the weekend, Sydney and Melbourne’s top-quality housing markets both showed evidence of stronger buyer appetite, with a waterfront Hunter’s Hill sandstone mansion on a 1900-square-metre block selling for $6.51 million, more than $1 million above the buyers’ guide of $5.5 million. It sold through Nicholas McEvoy and Narelle Scott, of BresicWhitney.

In North Turramurra, on Sydney’s upper north shore, a three-bedroom knock-down on a large 975-square-metre block had a reserve of $1.1 million and sold for $1.55 million, with 30 registered bidders.

“A few years ago the area would never have hit $1 million but over the years this has changed dramatically, which is evident in today’s result, selling agents Charles Caravousanos and Belinda Shearer, of Savills Cordeau Marshall, said.

In Melbourne, a four-bedroom Toorak home off a quiet cul de sac sold for almost $5.8 million through David Colbran and Greg Herman, of Sotheby’s International Realty. The price guide was $5 million-plus.

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Jake Jacob-Hong Kong

David Moss offered a highly professional end-to-end process to arrange a mortgage with ANZ Australia. He checked in regularly to keep things moving and always responded in a timely manner. I wouldn’t hesitate in recommending David as a mortgage broker to anyone who is based in Asia.

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L Cheng- Singapore

David,

Just want to thank you again for your excellent customer service on a very short timeline. You’ve helped defuse a potentially sticky situation. Will definitely recommend you to friends and associates.

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Sydney awakens, Melbourne and Brisbane housing markets steady

AFR
by Su-Lin Tan

The Sydney residential property auction market has charged ahead, while Melbourne and Brisbane trod water over the weekend.

Many areas in Sydney have revived from the post-Christmas lull, belying forecasts that the market would cool this year.

Although a little lower than the 78.1 per cent of the previous week, this weekend 77 per cent of the properties put to auction were sold, according to Corelogic RP Data, showing local demand – owner occupiers and investors – was strong.

On the northern beaches, a five-bedroom home at 37 Bolwarra Road, North Narrabeen exceeded the expectations of locals.

The 638sq m cul-de-sac property, which had the X factor of the option of adding a granny flat, sold for $1.55 million prior to auction.

“The buying activity is very area-specific though, with northern beaches getting strong demand while places like Frenchs Forest have been quite quiet,” Belle Property’s Kirsten Bertram said.

Ms Bertram noted Asian buyers in the $2 million bracket in areas like Frenchs Forest have cooled.

In Peakhurst, 21 kilometres south of the Sydney CBD, an unrenovated older-style three-bedroom at 1 Clarke Street with duplex redevelopment opportunities picked up a record sale of $1.41 million, agent Belle’s Simon-Peter Kaijage said.

“In fact last year a similar property at 7 Clarke sold at 1.34 million, then 11 Clarke sold at 1.365 million, then now at 1.41 million … the market in Peakhurst did not wane despite the cooling.”

“There’s plenty of money around … from buyers, developers, investors.”

But it is still early in the year and the true test will be the next “Super Saturday” on March 19, when the market has had a “little way from Christmas”, Corelogic RP Data’s Kevin Brogan warned.

“The signs are encouraging but volumes are still pretty low [in Sydney],” he said.

“We can say things are encouraging … but we need to watch for volume.”

MELBOURNE STEADY

Melbourne has been more consistent between the two major housing markets, reporting an auction clearance rate in the range of 70 to 77 per cent over the last four weeks, compared with Sydney’s volatile 45 to 78 per cent. Volumes were also more steady than Sydney’s and comparable with last year’s numbers, Mr Brogan added.

Its clearance rate on the weekend was 73 per cent.

“Melbourne seems to ride the peaks and troughs with a lot more grace, better than Perth, Darwin. This weekend past was the first litmus test of the mood of the market. It seems to be slightly effervescent,” Melbourne buyer’s agent Christopher Koren said.

But Mr Koren said while auctions in areas such as inner-city North Carlton and North Fitzroy were hot, the private treaty market, which has the majority of sales, was subdued in Melbourne.

The third-biggest market, Brisbane, which is not a big auction market, remained steady but with significantly higher volumes, Mr Brogan said.

“Auction rates are an immediate indicator [of the market], but it is still a subset. A majority of homes that go to auction are properties of a higher value, and mainly houses.”

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RBA says housing market may be slowing

Edgy home buyers and a crackdown on bank lending to property investors appear to have drained momentum from Sydney’s housing boom, the Reserve Bank says.

Ahead of another bumper auction weekend, the central bank on Friday pointed to “tentative” signs of a slowdown, citing slower price growth, a run of weaker auction results, and a turn in sentiment in Sydney and Melbourne.

While it remains on alert over the housing market – where it said risks were “higher than average” – it also said there were “a few tentative signs that sentiment may be turning in the housing markets of the two largest cities.”

Recently, home buyers and a crackdown on bank lending to property investors appear to have drained momentum from Sydney’s housing boom, the Reserve Bank says.

Ahead of another bumper auction weekend, the central bank on Friday pointed to “tentative” signs of a slowdown, citing slower price growth, a run of weaker auction results, and a turn in sentiment in Sydney and Melbourne.

While it remains on alert over the housing market – where it said risks were “higher than average” – it also said there were “a few tentative signs that sentiment may be turning in the housing markets of the two largest cities.”

Queensland house prices are expected to rise 2 per cent next year.
Queensland house prices are expected to rise 2 per cent next year.
“Recently there have been tentative signs of some slowing in the Sydney and Melbourne housing markets: auction clearance rates have fallen and price growth has eased in Sydney of late,” the RBA’s Financial Stability Review said.

It comes amid predictions of house price falls and Westpac’s shock move to this week jack up interest rates by 0.2 of a percentage point for the first time in more than three years. Other banks are likely to follow to some extent, analysts say, which could take more heat out of the property market.

The rate hike has also sparked predictions the Reserve Bank may cut interest rates next month as it tries to stimulate the economy and create jobs growth. The RBA did not comment on interest rates, only saying competition between banks remained strong, despite Westpac’s move.

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Home loan demand hits eight-year high

Home loan demand has hit an eight-year high, according to official figures.

Home loan approvals climbed 2.6% in December 2015, figures from the Australian Bureau of Statistics (ABS) have revealed, clocking 58,552 loans settled over the month. The last time more than 58,500 home loans were approved in one month was back in January 2008.

“December was an incredibly strong month in terms of home loan approvals. The fact that we haven’t seen this level of demand for home loans since 2008 is a testament to the ongoing strength of the property market,” Mortgage Choice chief executive officer John Flavell said.

“Pleasingly a, the data shows that ll parts of the market improved over the month of December. The number dwelling commitments approved for the construction of new dwellings was up 1.8%, while the number of loans written for the purchase of new dwellings and the purchase of established dwellings was up by 12.4% and 2.1% respectively.”

The total value of home loan approved also increased in December, up 0.8% over the month to more than $33.5 billion. The value of all investment loans written was up 0.6%, while the value of all owner occupied home loans written was up by 0.9%.

While it was a welcome result, Flavell says it wasn’t at all surprising.

“At Mortgage Choice, we know from our own data that December is a traditionally hot month in terms of home loan settlements, as Australians are keen to finalise their property plans before the New Year commences.”

But he says the property market is likely to remain elevated.

“Interest rates continue to sit at record lows, making the cost of borrowing more affordable than it has been in a long time. As such, we should continue to see a steady stream of buyers entering the market looking to take advantage of the current rate environment.”

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Sydney, Melbourne auctions bounce back

A two-bedroom home at Drummoyne in Sydney’s west that sold well above its reserve was one of many successful auctions on the weekend, as buyers return in force to the residential markets in Sydney and Melbourne.
Both markets posted strong clearance rates – Sydney at 70.2 per cent and Melbourne at 80.1 per cent – as the amount of listings picked up considerably.
The free-standing home at 126 Gipps Street sold for $1.51 million, $210,000 above its reserve as four of the 10 registered bidders fought for the prize.
Not far from the Drummoyne waterfront, the property on a deep 385 square metre block was part of a deceased estate.
“This was one the first auctions for 2016 in Drummoyne, and it seemed that many local buyers were curious to see what the property market is going to do this year,” said selling agent Adrian Sereni, of Warwick Williams Real Estate.
“There still seems to be a huge demand for properties in the $1 million to $1.5 million range.”
Sydney’s clearance rate over the weekend was achieved on 265 auctions, on CoreLogic RP Data figures. A week ago the clearance rate was 44.9 per cent from just 61 auctions.
Even so, the weekend action was still well short of the bumper 80 per cent clearance rates that were being struck during Sydney’s peak last year.
That frenzy fell off markedly toward the end of last year, with exhausted Sydney buyers only managing clearance rates in the mid 50 per cent range.
Melbourne’s weekend result came from 262 auctions. A week earlier, a 69.9 per rate was achieved from across just 151 auctions. One year earlier, the Melbourne market was on a 60.7 per cent rate from 255 auctions.
Property analyst Louis Christopher, from SQM Research, said this week’s volumes were large enough to give clear signal on the health of the market.
“It was a strong weekend overall.The auction numbers are going to keep building from here. Next weekend the volumes will be greater again,” he said.
“If we keep getting these type of clearance rates throughout the course of February, it put to rest the view that prices are going to fall as average for Australia.
“That won’t happen. This kind of clearance rate indicates the market is still moving up.”
Melbourne is set to out-perform Sydney this year, according to Mr Christopher, who has forecast price growth of 8 per cent to 13 per cent this year in that market.
Sydney prices are more likely to hit the lower end of the 4 per cent to 9 per cent growth forecast by SQM Research.
The weekend results follow fresh concerns over price growth and the strength of investor sentiment. National Australia Bank has predicted price growth of only 1 per cent over the year.
As well, there is uncertainty over the impact of Chinese capital controls on the market, although the Reserve Bank has played down concerns at a slowdown in foreign buyers.
Mr Christopher said anecdotal evidence showed Chinese buyers were still in the market, although foreign investor activity has slowed somewhat.
“But they are not the primary driver of the property boom. It wasn’t just Chinese investors, there were plenty of Australian investors who were involved.”
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RBA says foreign buying will keep housing investment buoyant

The Reserve Bank has shrugged off concerns of a slowdown in residential property investment, saying sustained demand from foreign buyers will buoy the sector even if local appetite weakens.

Offshore buyers took a view on property investment decisions that made them less likely than locals to be influenced by changes in the domestic economy, the RBA said in its statement on monetary policy on Friday.

“Dwelling investment seems likely to be supported by continued strong demand from foreign buyers,” the RBA said. “Information from the Bank’s liaison suggests that foreign buyers tend to have long-term motivations for investment and may be relatively unconcerned about temporary fluctuations in housing price growth.

Offshore demand for residential property – particularly in CBD apartments – has driven the housing construction market to new highs. But with the prices of apartments softening and new dwelling approvals figures coming off their recent peaks, uncertainty is rising about how the market will perform. Price growth will certainly moderate from last year – the question is how much. National Australia Bank this week said house prices are likely to grow just 1 per cent this year and apartment prices will fall 1.2 per cent.

Some analysts take a more negative view. China’s crackdown on on illegal and unauthorised foreign exchange transfers would “exacerbate the collapse of the cycle,” CLSA senior analyst Andrew Johnson said in a research note on Friday. Mr Johnston downgraded his recommendation on Lendlease to Sell from Outperform, saying it was most exposed, with 60 per cent of earnings expected from apartment development.

The RBA itself said some areas “particularly the inner-city areas of Melbourne and Brisbane” were at risk of a housing oversupply and separate industry figures on Friday showed apartment construction work slowed sharply in January.

But the RBA’s more sanguine view overall, by contrast, is more in line with comments by Goldman Sachs head of Australia/New Zealand macro research Tim Toohey on Thursday that a flood of money out of China over the past six months could push property prices higher.

The central bank still expects a more subdued local demand for housing, however, and this picture was supported by companies reporting earnings on Friday.

Realestate.com.au owner REA Group said property listings were flat in the half-year to December, but it boosted profit 28 per cent by selling more value-added services to existing clients. Mortgage lender insurance provider Genworth, which reported a 5 per cent decline in underlying net profit for the year to December, said moderating house-price growth and a cut in appetite by lenders for high loan-to-value-ratio mortgages would cut revenue this year.

“Genworth expects house price appreciation to moderate in 2016,” the company said. “The high LVR market continues to be constrained in 2016 and GMA expects GWP to decline by approximately 20 per cent due to these market conditions.”

In its economic update, the RBA said tighter lending conditions had pushed loan rates for owner-occupiers above to their level prior to the central bank’s 25 basis-point cut in May and rates for investors were up more, to their level of a year ago. This had seen lending to owner-occupiers grow faster than to investors, but all local buyers would likely be influenced by the local economy, it said.

“Population growth, employment prospects and expectations for future housing price growth are likely to be important considerations for domestic buyers,” the RBA said.

 

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Big banks cut rates for property buyers

Commonwealth Bank of Australia and National Australia Bank are aggressively attempting to build market share in lucrative home loans with new offers to their broker networks.

CBA has told brokers it will beat any advertised one to five year fixed rate home or investment loan interest rate from major rivals Westpac, ANZ or St George.

NAB is offering brokers a discretionary pricing offer, a variable rate of 4.32 per cent for new Homeplus principal and interest variable rate loans where the lender is an owner-occupier with an 80 per cent loan to value ratio (LVR).

Rates on a Homeplus principal and interest loans between $250,000 and $750,000 with an 80 per cent LVR are around 4.64 per cent.

“Competition is alive and well in residential lending. They are fighting for market share. These new offers look competitive but borrowers need to check fine print on rates and fees,” said Christopher Foster-Ramsay, managing director of Capital Home Loans, a mortgage broker.

For example, many lenders charge a large break fee for exiting a fixed rate, especially if rates have fallen since it was taken out.

Brokers are expecting Westpac and ANZ to launch counter-offers.

CBA’s major competitor across the various fixed rate terms is likely to be NAB, according to an analysis of rates by Canstar, a researcher that provides comparative rates.

CBA’s current rate on a five-year fixed investment loan for $500,000 of 5.04 per cent with a 80 per cent LVR is higher than NAB and Bank of Melbourne, which is a division of Westpac.

For the equivalent residential loan, CBA’s 4.74 per cent is equivalent to ANZ and higher than NAB.

“Borrowers need to think outside the Big Four,” said Justine Davies, a Canstar commentator. “It’s a great marketing campaign but there are cheaper amongst smaller lenders.”

For example, lowest five year fixed rates on offer from smaller lenders are around 4.39 per cent.

NAB’s 4.32 rate is also a competitive rate compared to the other majors. But more than 10 smaller lenders, such as Homestar, Bank Australia and Queensland Police Credit Union are advertising rates below 4 per cent, according to Canstar.

Fourteen lenders have recently increased loan-to-value ratios or slashed investor rates by up to 30 basis points.

But borrowers face tougher scrutiny of their capacity to repay, such as reviews of income from all sources, other debts, expected rental from investment properties and the impact of higher rates on family markets.

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RBA Cash Rate Decision – Cash Rate remains unchanged at 2.00%

Statement by Glenn Stevens, Governor:
Interest Rate Decision

Number 2016-01
Date 2 February 2016
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
Recent information suggests the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate has continued to moderate.
Commodity prices have declined further, especially oil prices. This partly reflects slower growth in demand but also very substantial increases in supply over recent years. The decline in Australia’s terms of trade, which began more than four years ago, has therefore continued.
Financial markets have once again exhibited heightened volatility recently, as participants grapple with uncertainty about the global economic outlook and diverging policy settings among the major jurisdictions. Appetite for risk has diminished somewhat and funding conditions for emerging market sovereigns and lesser-rated corporates have tightened. But funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 even as the contraction in spending in mining investment continued. Surveys of business conditions moved to above average levels, employment growth picked up and the unemployment rate declined in the second half of the year, even though measured GDP growth was below average. The pace of lending to businesses also picked up.
Inflation continues to be quite low, with the CPI rising by 1.7 per cent over 2015. This was partly caused by declining prices for oil and some utilities, but underlying measures of inflation are also low at about 2 per cent. With growth in labour costs continuing to be quite subdued as well, and inflation restrained elsewhere in the world, consumer price inflation is likely to remain low over the next year or two.
Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while regulatory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney over recent months and has remained mostly subdued in other cities. The exchange rate has continued its adjustment to the evolving economic outlook.
At today’s meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate.
Over the period ahead, new information should allow the Board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand.

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