Hi
Welcome to our December Property Finance e-Newsletter. Another month, another interest rate cut! As predicted the RBA slashed the cash rate by another full 100 basis points when it met earlier this month. And there are no signs of them slowing the trend.
According to Stephen Walters, chief economist at JP Morgan Chase & Co in Sydney the expectation is that the RBA will lower the cash rate another 50 basis points in early February and a further 25 basis points in March. Further, according to several newspaper reports, investors take this even one step further and are quite confident that the RBA will cut interest rates by another 100 basis points at its next scheduled meeting in February. All this and rental yields remain high!
Many investors out there I am sure are now finding that some of their previously negatively geared investment properties are now in fact positively geared – or very close to it! In addition to these rate cuts the consumer sentiment index compiled by the Melbourne Institute and Westpac rose 7.5 per cent over the past four weeks and is now 16.4 per cent above the low point reached in early October. This is no doubt off the back of the Rudd Government's economic stimulus package and the RBA’s continued culling of interest rates.
These are all signs of a return of confidence amongst consumers. Added to that the housing industry is also sensing signs that the interest rate cuts and the doubling of the First-Home Owners grant are starting to breathe life back into the market. So whilst we may not necessarily be completely out of the woods – it is certainly not all doom and gloom. I suppose it comes down to being able to see the forest through the trees. In saying that, where will the money flow to in 2009, lets take a look...
- Cash – (Term Deposit, sure they are safe, but is your money really working here anymore? Cash rates are falling fast and no longer offer attractive yields)
- Shares – (Perhaps, but for the average share investor who is still licking their wounds the stock market is still way too volatile, and certainly more susceptible to global economic problems still ongoing in overseas markets primarily the USA, China and Europe.)
- Property –(Still relatively stable, yields are high and predicted to go higher due to a shortage of stock, recent rate reductions have interest rates to low levels not seen in years, (of course finance is harder to obtain, but still available for well presented borrowers). Further well selected metropolitan property is still performing well with many commentators indicating that it is now buyers market, some opportunities savvy investors have not seen in years are now becoming available.
So where do you think the smart money will go in 2009? Only time will tell.
That’s our final newsletter for 2008. The team at Red Rock would like to take this opportunity to thank everyone for their continued support throughout 2008 and wish everyone a Happy and Joyful Christmas and Safe and Prosperous New Year!
Its Not All Doom & Gloom!
 "THE economics of Australia's $3.3 trillion housing market is widely misunderstood, with sensationalist claims that a housing bubble caused the global credit crisis and that Australian house prices will fall by 30 per cent to 50 per cent. In fact, the latest RP Data-Rismark Index results show that Australian house prices declined by just 0.8 per cent in the 12 months to October this year, and increased during the most recent three months.
Read Full Article >>
Spotlight on Low Doc Lending in Australia
 There has been alot of news of late regarding the significant changes to the mortgage insurers and lenders credit policies for low documentation loans.
The majority of these changes have stemmed from a tightening of credit policy and re-risk ratings in financial markets and credit providers globally as a result of the 'sub-prime' melt down in the US and the ongoing global credit crisis.
In this article we look at what low doc lending in Australia is, how it came about and what the future may hold for low doc borrowers.This report by Mortgage Insurer Genworth Financial provides interesting reading.
Read Full Article >>
Rates tipped to fall to less than 3%!
 THE official cash interest rate, targeted by the central bank in its monetary policy actions, is forecast to fall to its lowest level since early 1960 by Easter next year.Debt futures markets are pointing to a cash rate of 2.75 per cent by April, down from 5.25 per cent at present.
The cash rate was at 2.9 per cent in early 1960.Debt futures market are also tipping the RBA to cut the cash rate by a massive 125 basis points in December after its next board meeting. This would be the biggest cut to official interest rates since the onset of the 1990 recession
Read Full Article >>
Housing affordability eases while rents continue to soar
 Housing affordability across Australia has finally turned the corner thanks to the positive impact of the first rate cut in September.
The latest data from the Deposit Power/Real Estate Institute of Australia Housing Affordability report showed most states saw a reduction in the proportion of household income needed to meet mortgage repayments.
Nationally, this proportion fell to 38.8%. NSW has taken back its position as the least affordable state with households now needing 41.6% of the family income to pay their loan repayment. This is a considerable improvement from the 42.6% level in the previous quarter. Queensland families saw the affordability level dropping below 40% for the first time in 2008 to 39.9%.
The Northern Territory was the only state recording a significant deterioration in housing affordability in the September quarter. The proportion of household income needed to meet loan repayments climbed to 28.1% from 25.2% in the previous quarter.
While the easing affordability brings some good news to homeowners, investors can take heart that the rental affordability continues to worsen amid soaring rents across the country. Rents increased, not only in nominal terms, but also in relation to income during the same period. Overall, families renting needed 25.2% of their household income to pay their rent.
REIA said vacancy rates show that demand for rental properties remains extremely high in every state and territory. "There is little prospect that this will improve in the short term - a situation exacerbated by the global financial crisis that erupted during the September quarter," it said.
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