Wednesday, July 27, 2011

Why we're not that stupid

Over the past couple of years, there is no doubt a change in the air. On its way out is the idea that you must get a house as soon as possible. So is the idea that house prices always go up. Generation Y is getting more savvy with their money and have come to realise a debt trap in mortgage is not necessarily the wisest move. Especially when house prices have been stagnant at best.

Many Australians don't realise that we are now home to the highest interest rates in the developed world. Whilst the interest rate is not 17% like in the 80s, high interest rates mean that we need to pay more than everyone else in the world when borrowing money.

However, the flipside is that we receive more interest revenue when we invest our money instead. For every day that the house prices stay flat, people who are owning houses who could have deferred their decision to buy, are losing money through interest payments. Times like these, many first homebuyers have decided to tuck their savings into high interest accounts so that later, they can put in a larger deposit and pay no interest in the meantime.

For example, if you invest a savings of $80,000 in a high interest account which pays 6.51% and buy a place in a year's time, you would have an extra $5200 to add towards your deposit.

So the decision not to buy can be the best thing you can do but of course, homeowners who are seeing their house prices drop from record highs would not be happy with this. But you have to do what's best for yourself.

Edit: An article recently said that the median house price for WA dropped $33,000 over the past year. If you  took out a loan of 80% of a $500k house a year ago, assuming your house dropped $33,000 in value,  you would have also paid $28,000 in interest. This might not be completely scientific but $51,000... that's a lot of money to lose in a year!

Friday, July 22, 2011

June Shows Another 2% Drop for WA

WA has experienced the longest stretch of monthly house price falls since the global financial crisis, with the month of June recording a 2% fall in the median house price. There have been 15 months of price drops but the total % drop has not been as much as in 2008, just for a longer period of time according to Alan Bourke from REIWA.

$350,000 to $500,000
For houses between $350k and $500k, there has not been much change in house prices as there is a consistent demand for cheaper housing in Perth. However, in other price ranges, there have been falls. There are around 17,000 houses on the marked in June which was a drop from 18,200 in April.

Tuesday, July 5, 2011

RBA keeps cash rate at 4.75%

Official quote from the RBA statement:



At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.
The global economy is continuing its expansion, but the pace of growth slowed in the June quarter. The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity prices on income and spending in major countries have both contributed to the slowing. The banking and sovereign debt problems in Europe have also added to uncertainty and volatility in financial markets over recent months.
A key question is whether this more moderate pace of growth will continue. Commodity prices have generally softened of late, though they remain at very high levels. Despite the challenging international environment, the central scenario for the world economy envisaged by most forecasters remains one of growth at, or above, average over the next couple of years. A number of countries have tightened monetary policy but, overall, global financial conditions remain accommodative and underlying rates of inflation have tended to move higher.
Australia's terms of trade are now at very high levels and national income has been growing strongly, though conditions vary significantly across industries. Investment in the resources sector is picking up strongly in response to high levels of commodity prices and the outlook remains very positive.  A number of service sectors are also expanding at a solid pace. In other areas, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended.
A gradual recovery from the floods and cyclones over the summer is taking place, though the resumption of coal production in flooded mines continues to proceed more slowly than initially expected. The recovery will boost output over the months ahead, and there will also be a mild boost to demand from the broader rebuilding efforts as they get under way, but growth through 2011 is now unlikely to be as strong as earlier forecast. Over the medium term, overall growth is still likely to be at trend or higher, if the world economy grows as expected.
Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.
Credit growth remains modest. Signs have continued to emerge of some greater willingness to lend and business credit has expanded this year after a period of contraction. Growth in credit to households, on the other hand, has slowed. Most asset prices, including housing prices, have also softened over recent months.
Year-ended CPI inflation is likely to remain elevated in the near term due to the extreme weather events earlier in the year. However, as the temporary price shocks dissipate, CPI inflation is expected to be close to target over the next 12 months. In underlying terms, inflation has been in the bottom half of the target range, though a gradual increase is expected over time.
At today's meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

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