Tag Archives: real estate

When the bank calls, bells start ringing

If, like me, in the last couple of days you’ve had a call from your bank eager to talk about how to they could save you money on your mortgage, you’ve probably twigged that something is up.

Usually they call to flog insurance policies I don’t want, or offer a lift in my credit card limit that I can’t afford.

So to hear them actually prepared to come to the table to strike a cheaper deal on what is one of their core products is an interesting development.

It tells me that their own economists have told them the prospects of an official interest rate rise sometime this year are looking pretty slim.

This is no news to the market, which sees no chance of a rate hike before March next year, and instead is pricing in the possibility of a rate cut.

As RBA Governor Glenn Stevens put it today when announcing the Reserve Bank Board had decided to hold the central bank’s cash rate steady for a seventh consecutive month, “on present indications, the most prudent course is likely to be a period of stability in interest rates”.

It also shows that the field of competition has well and truly shifted from deposits (remember when the interest rate on 3-month deposits reached above 5 per cent? It is now down to around 3 per cent), and the scramble now is to sign up home buyers.

It is pretty clear that at the moment the economy is like a dog on roller skates, desperately trying to gain some traction.

Mr Stevens said that, while consumer demand was “slightly firmer”, and data foreshadowed a “solid expansion” in housing (building approvals jumped 6.8 per cent in January to be up almost 36 per cent from a year earlier), demand for labour is weak and the unemployment rate is likely to rise higher.

Its cause isn’t helped by a Federal Government that at every opportunity thunders about the dire state of the nation’s public finances and hints darkly at the need for painful spending cuts.

In central bank-speak, “public spending is scheduled to be subdued”.

It can’t be doing anything to improve the willingness of businesses to invest. Official figures confirm private capital expenditure has been sliding for the past couple of years, even as profits have grown – gross operating profits were up 107 per cent in the year to the December quarter, yet over the same period private capex fell 5.7 per cent (and spending on plant and equipment plunged more than 16 per cent).

As Mr Stevens put it, resource sector investment is set to decline significantly, while there are only “tentative” signs of improvement in investment intentions in other sectors.

The economy is partly the victim of an unfortunate clash of timing between the business and political cycles.

The incentive for the Abbott Government is to cut hard in its first Budget, giving itself room for vote-enhancing largesse closer to the next election, while the economy could do with some productivity-enhancing infrastructure investment.

Fat hope of that at the moment.

Even more people are likely to be out of work in the coming months, and being able to negotiate a cheaper mortgage is likely to be of little comfort.

 

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Forget business gloom, ABS revisions suggest housing on the rise

Hopes for an August interest rate cut look increasingly precarious.

Earlier in the week, the Minutes of the Reserve Bank of Australia Board’s July 2 showed the central bank was happy with its current policy settings, and gave no hint of a immediate desire to ease monetary policy further.

In fact, the RBA wants to see the effects of recent rate cuts – which it said were only starting to feed through the economy – before deciding whether more rate relief is needed.

Notwithstanding evidence of weak conditions for many businesses and a 5.5 per cent drop in housing starts early this year, there appears little need for the central bank to change its view.

The results of the National Australia Bank’s quarterly business survey show that business conditions and confidence declined in the June quarter.

This is not really surprising.

As the RBA has flagged, and as NAB Group Chief Economist Alan Oster observes, there is little sign yet that record low interest rates and the tumbling exchange rate are supporting activity.

With these positives yet to make themselves felt, there is little so far to offset the negative effects of a sharp slowdown in mining investment, soft domestic demand growth, rising unemployment and political uncertainty.

Reflecting this environment, businesses surveyed by NAB said a lack of demand was the biggest drag on their profitability – much more so than interest rates, capital and labour.

Underlining the weakness of demand, for the first time in its history the NAB survey found producer prices fell in the June quarter, by 0.2 per cent.

It means input costs are well contained, but so is pricing power.

On the positive side, there has been an improvement in investment intentions in the non-mining sector, though Oster warns it is unlikely to be sufficient to fully offset the slump in mining investment.

None of these developments would particularly surprise the RBA.

But what is a surprise is the admission by the Australian Bureau of Statistics that it has badly underestimated the recovery in housing.

In its Building Activity release on 17 July, it admitted that it had had to make “quite significant” revisions to building approvals data in recent quarters following a major internal audit of figures going back to late 2000.

To give some idea of the scale of the official statistician’s miscalculation, estimates of the total value of building activity in the December quarter 2012 have been revised up by $582.1 million (2.8 per cent), and the estimate of total value of work commenced in the same quarter has jumped almost 9 per cent higher to $1.79 billion. The number of dwelling commencements have been raised 8.4 per cent to 3326.

These are not small corrections.

These revised figures suggest that, even with the setback to starts recorded in the March quarter, the housing sector is developing momentum.

If data releases in coming weeks bear this out, the chances of a rate cut later this year – forget August – will look increasingly dim.

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