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The RBA has cut rates dramatically since September in a bid to stimulate Australia’s weak property market but despite sales volumes picking up slightly in the past month, agents and analysts have ruled out any recovery, despite the recent 4 percentage point cuts since September, saying buyers are preferring to hold off until they see more signs of economic stability.

Job fears and economic insecurity are expected to offset any faint inkling home buyers might have to rush out and purchase property in the belief that rates and prices won’t go any lower. People are concentrating on their job security and general sentiment of the economy.

The recent rate falls have helped buyers in the more affordable markets and has eased the burden of those who were previously highly geared or suffering mortgage stress.

After an unprecedented cut of 4 percentage points in official interest rates since September 2008, the RBA thinks there’s a chance it may have done enough to limit Australia’s downturn to only the next one or two quarters,  and if it hasn’t at least they have retained some ‘ammunition’ to bolster flagging confidence should conditions worsen later this year.

In the United States and Japan for example, official interest rates are already near zero compared to our 325 basis points of rate cuts still up our sleeve.  Prompting the RBA’s decision to hold steady this month is the release of trade data showing ‘positive economic growth’ in the fourth quarter, and from a presentational viewpoint, it is easier to keep rates steady when the economic news is positive rather than negative.

However, the predicted ‘continued inability’ of America and Europe to deal with their banking problems and a collapse in our own housing demands, would be concern enough for the RBA to spark further rate cuts by next month, and so it is expected to drop by a quarter or half point, bringing our official cash rate to 275, or even 225 within the next 6 months.

This year is going to be a very interesting year. Along with the rest of the world, we are currently experiencing one of the worst financial crises in our modern history. The bad news is that some people will lose their jobs and business investment has decreased significantly, but the good news is that interest rates are currently at an historical low and are set to drop further.

If you sift through all the doom and gloom stories, there are currently some good opportunities available to all of us.

Firstly property prices around most of the country dropped slightly last year which now provides investors and home buyers with some possible “bargain buying” opportunities.

Secondly, rents are on the increase which results in a higher yield for the investor but also encourages tenants to start looking at buying a property, rather than renting.  With the federal governments First Home Owners Boost greatly assisting with getting more people get into the property market.

Finally, and most importantly, mortgage repayments have almost halved over the past year which makes buying multiple properties (and some of them positively geared) a reality.

“There has never been a better time to buy property” - How many times have you heard this catch phrase from property spruikers and slick sales people?

Well, this time its true!

With interest rates at a 45 year low, and with a current housing shortage in Australia, more incentives for First Home Owners to enter the property market, more positively geared investment properties avaliable and a property market that will see prices once again boom over the coming years - Why wouldn’t you want to buy.

Bleak forecasts for the global economy from the IMF and the biggest quarterly decline in domestic inflation in more than ten years have paved the way for a substantial rate cut when the Reserve Bank meets next week.

In its World Economic Outlook released overnight The International Monetary Fund (IMF) said the global economy would grow by just 0.5 per cent this year and warned that the financial crisis could intensify should governments not take appropriate action to mediate its effects.

“Unless financial strains and uncertainties are forcefully addressed the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth.”

Official data from the ABS yesterday also revealed that the CPI fell 0.3 per cent in the December quarter, the biggest fall since 1997. This brings the annual inflation rate to 3.7 per cent, compared to five per cent in just the previous quarter.

Shane Oliver, chief economist at AMP Capital said the December quarter CPI confirmed inflation was “yesterday’s story” and gave the green light to substantial rate cuts in the coming months.

AMP expects the RBA to cut the cash rate by 0.75 per cent when it meets next week and to reach 2.5 per cent by mid-2009.

Prospective buyers looking to purchase property by the water could snap up a bargain if they act now.

According to RP Data the global financial crisis, which has seen many highly geared individuals suffer, has resulted in heavy discounting and a sky-rocketing of listings in waterfront properties.

Cameron Kusher, RP Data senior research analyst, said cashed-up buyers looking to snare a bargain may now find many idyllic waterfront properties – particularly in regional coast areas – within their grasp.

RP Data has identified Port Pirie West in South Australia as the cheapest oceanfront suburb in the country where the median house price is just $140,000.

Not far behind is Victoria’s Loch Sport where the median house price is $149,250.

Cheapest waterfront suburbs (median price)

NSW: Corindi Beach (Mid-North Coast) $272,500, Sandy Beach (Mid-North coast) $279,500, Dalmeny (South Eastern) $280,000, Diamond Beach (Mid-North Coast) $282,000, Nambucca Heads (Mid-North Coast) $283,750

VIC: Loch Sport (East Gippsland) $149,250, Toora (Gippsland) $163,750, Golden Beach (East Gippsland) $165,000, Seaspray (East Gippsland) $185,000, Port Albert (Gippsland) $190,000

QLD: Halifax (Northern) $200,000, Rocky Point (Far North) $238,130, Burnett Heads (Wide Bay-Burnett) $271,500, Elliott Heads (Wide Bay-Burnett) $285,000, Cardwell (Far North) $290,000

SA: Port Pirie West (Northern) $140,000, Ceduna (Eyre) $164,250, Port Macdonnell (South East) $165,750, Clinton (Yorke and Lower North) $198,750, Cape Jervis (Outer Adelaide) $206,000

WA: Withers (South West) $270,000, Geraldton (Central) $339,000, Derby (Kimberley) $365,000, Sunset Beach (Central) $370,000, Mandurah (South West) $382,500

TAS: Beechford (Northern) $158,500, White Beach (Southern) $167,000, George Town (Northern) $167,750, Strahan (Mersey-Lyell) $187,500, East Devonport (Mersey-Lyell) $188,500

English rates have fallen to their lowest level since 1939 as the Bank of England battles recession.

With a reduction of 100 basis points the official cash rate now sits at just two per cent.

The BoE said business surveys suggested the country’s downturn had gathered pace and commented that consumer spending, business investment and residential investment had all continued to stall.

The British central bank already slashed the cash rate by 150 basis points last month, and has now made reductions totalling 375 basis points since December last year.

Retail spending improved surprisingly in October, ABS data released yesterday revealed.

According to the figures, retail spending rose by 0.7 per cent seasonally adjusted in October compared to September to total $18.4 billion.

The slight improvement was likely the result of September and October’s combined 125 basis point interest rate cut and the substantial decrease in petrol prices.

The result has pushed annual retail spending growth to 2.2 per cent.

The Reserve Bank of Australia (RBA) has cut official interest rates by 100 basis points to the lowest level in six and a half years, amid signs of a significant moderation in domestic demand.

The central bank on Tuesday lowered the cash rate to 4.25 per cent, from 5.25 per cent, for the first time since May 7, 2002.

It is the fourth month in a row the RBA has cut interest rates in a bid to head off the impact of slower world economic growth on an already soft Australian economy.

The reduction was more than financial market economists had been expected. Most were looking for a 75 basis point reduction.

However, debt futures markets were more optimistic and had factored in a 100 basis point cut.

RBA governor Glenn Stevens said the bank’s board had judged that a further significant fall in the cash rate was warranted this month to create a more expansionary setting for the economy.

“As a result of today’s decision, the cash rate will be at its previous cyclical low point,” he said in a statement.

“Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels.”

Commonwealth Bank of Australia Ltd (CBA) and Westpac Banking Corp and National Australia Bank Ltd moved quickly to cut their variable home loan rates within minutes of the RBA move.

CBA and NAB each lowered their standard variable rates by 100 basis points.

Westpac cut its rate by 80 basis points.

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“There has now been a major easing in monetary policy over the past few months,” Mr Stevens said.

“Together with the spending measures announced by the government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead.

“The board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the two to three per cent inflation target over time.”

Mr Steven said Australia’s inflation rate was likely to start to fall soon.

“Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise have been the case,” he added.

Mr Stevens said the Australian economy had been more resilient than the economies of other countries, some of which had already fallen into recession.

But recent domestic economic data show a significant moderation in domestic demand is occurring.

“With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term,” Mr Stevens said.

“With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall.”

Mr Stevens also noted recent falls in global commodity prices and that financial market sentiment remained fragile.

Macquarie Group interest rate strategist Rory Robertson said the RBA had, with its latest cut, reversed some six years of monetary policy tightening in just four board meetings.

“The RBA has reversed some six years worth of monetary tightening - from 7.25 per cent - in just four board meetings over just three months,” he said.

Economists believe rates still have a way to fall, with some looking for a cash rate of 3.25 per cent next year.
(AAP klm)

Last month’s one per cent rate cut and the government’s tripling of the First Home Owners Grant in mid-October has hit the mark as new house sales leaped 6.7 per cent in October.

Victoria and Queensland saw the biggest impact where new house sales jumped more than 20 per cent in October.

The result saw an increase in new home sales among Australia’s largest builders and developers for the first time since June.

Activity in the multi-unit sector failed to spark, with sales down by more than 8 per cent, indicating that investors remain on the sidelines.

HIA’s New Home Sales Report showed a 4.5 per cent increase in total sales volumes in October 2008.

Detached house sales increased by 6.7 per cent and were responsible for the aggregate lift in sales. Multi-units sales dropped by 8.6 per cent in October and have now only risen in three out of the last ten months.

HIA Chief Economist, Harley Dale, hoped that an improvement in new home sales in October could mark the beginning of a stabilisation, however he warned “it will be a long road back”.

The merger between Westpac and Australia’s fourth largest bank, St George, passed the final hurdle yesterday with the ‘yes’ vote of St George shareholders. Meanwhile, media reports say thousands of jobs may go as a result of the merge.

A Westpac spokesperson told The Australian newspaper that no target has been set for redundancies but there would be job reductions “where there is duplication in the back office and head office.”

Finsec’s sister union the FSU has said that up to 5000 jobs could be lost in total. National secretary Leon Carter says the merger is a move towards a monopoly. “This is Westpac deciding to grow its market share by taking over a competitor.”

(finsec)