Tuesday, July 6, 2021

RBA Keeps Cash Rate at 0.1%

 Here is the statement from the Reserve Bank of Australia - 

At its meeting today, the Board decided to:

  • retain the April 2024 bond as the bond for the yield target and retain the target of 10 basis points
  • continue purchasing government bonds after the completion of the current bond purchase program in early September. These purchases will be at the rate of $4 billion a week until at least mid November
  • maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances of zero per cent.

These measures will provide the continuing monetary support that the economy needs as it transitions from the recovery phase to the expansion phase. The Board is committed to achieving the goals of full employment and inflation consistent with the target. Today's decisions, together with those taken previously, have the economy on a path to achieve those objectives.

The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The outlook for investment has improved and household and business balance sheets are generally in good shape. National income is also being supported by the high prices for commodity exports. Domestic financial conditions are very supportive and the exchange rate has depreciated a little recently. One near-term uncertainty is the effect of the recent virus outbreaks and the lockdowns. But the experience to date has been that once outbreaks are contained and restrictions are eased, the economy bounces back quickly.

The labour market has continued to recover faster than expected. The unemployment rate declined further to 5.1 per cent in May and more Australians have jobs than before the pandemic. There has also been a welcome decline in underemployment and labour force participation is around record highs. Job vacancies are high and more firms are reporting shortages of labour, particularly in areas affected by the closure of Australia's international borders.

Despite the strong recovery in jobs and reports of labour shortages, inflation and wage outcomes remain subdued. While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and modest. In the central scenario, inflation in underlying terms is expected to be 1½ per cent over 2021 and 2 per cent by mid 2023. In the short term, CPI inflation is expected to rise temporarily to about 3½ per cent over the year to the June quarter because of the reversal of some COVID-19-related price reductions a year ago.

Maintaining the target of 10 basis points for the April 2024 bond will continue to keep interest rates low at the short end of the yield curve and support low funding costs in Australia. The yield on this bond is consistent with the target and the RBA remains prepared to operate in the market to achieve the target.

The bond purchase program is playing an important role in supporting the Australian economy. The Bank will continue to purchase bonds given that we remain some distance from the inflation and employment objectives. However, the Board is responding to the stronger-than-expected economic recovery and the improved outlook by adjusting the weekly amount purchased. It will conduct a further review in November, allowing the Board to respond to the state of the economy at that time.

The final draw-downs under the Term Funding Facility were made in late June. In total, $188 billion has been drawn down under this facility, which has contributed to the Australian banking system being highly liquid. Given that the facility is providing low-cost fixed-rate funding for 3 years, it will continue to support low borrowing costs until mid 2024.

Housing markets have continued to strengthen, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, including first-home buyers. There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.

The Board remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. The Bank's central scenario for the economy is that this condition will not be met before 2024. Meeting it will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently.

Thursday, June 24, 2021

What's life like in.. Subiaco?

When you come home to your castle, do you ever worry whether you will get parking? For many people living in the inner city suburbs, the reality is, you don't want to move your car because someone is going to take your precious parking spot when you leave. Or you need to park three streets down because other local residents have taken your favourite parking spot. When you visit a part of Perth, with manicured local parks and cafes, it's easy to think how much you would love living there. But what is it like for those that have moved in? 

Apart from the parking issues, there are also the narrow lanes and parking bays that you need to fit your brand new SUV in. For some, they've already collected the scars of inner city living on their bumpers and side mirrors. While life in the inner city may suit the young professional, it may not be for everyone. Young families become paranoid about their children making noise, feeling like they have moved into the library during exam time. For others, being so close to their screaming neighbours gives them too much information about their relationship status. So when you pick your castle, remember that not every one of them comes with a moat, or a parking spot for that matter. Sometimes, you need to weigh up how close you really need to be in the city vs how much you value your personal space.

Friday, June 4, 2021

Perth Beating 2014 House Price Peaks as Cottesloe rises 22% in 7 years

 Perth house prices have started to eclipse the boom time prices of 2014 with Cottesloe rising 22% in the last seven years. Floreat and City Beach joined it's beachside neighbour with 19% and 15% respectively. The top 20 suburbs that have eclipsed their 2014 median house prices are listed below. 

  1. Cottesloe: $2.262 million, $1.85 million, 22%
  2. Floreat: $1.565 million, $1.312 million, 19 %
  3. City Beach: $1.927 million, $1.67 million, 15%
  4. South Perth: $1.35 million, $1.2 million, 13%
  5. Nedlands: $1.75 million, $1.575 million, 11 %
  6. Mount Helena: $545,000, $492,000, 11%
  7. Mosman Park: $1.55 million, $1.4 million, 11%
  8. Bicton: $1.11 million, $1.005 million, 10%
  9. Bedfordale: $820,000, $749,500, 9%
  10. Shenton Park: $1.3 million, $1.2 million, 8%
  11. Rossmoyne: $1.2 million, $1.13 million, 6%
  12. Glen Forrest: $615,000, $580,000, 6%
  13. Woodlands, $1 million, $945,000, 6%
  14. East Fremantle: $1.222 million, $1.167 million, 5%
  15. Mt Nasura: $472,500, $455,000, 4%
  16. Sorrento: $1.045 million, $1.01 million, 3%
  17. Hilton: $583,000, $565,000, 3%
  18. Connolly: $720,000, $700,000, 3%
  19. Karrinyup: $861,000, $842,500, 2%
  20. Bull Creek: $770,000, $755,000, 2%

Tuesday, June 1, 2021

RBA keeps cash rate at 0.10%

At its meeting today, the Board decided to maintain the current policy settings, including: the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond; the parameters of the government bond purchase program; and the rate of zero per cent on Exchange Settlement balances.

The global economy is continuing to recover from the pandemic and the outlook is for strong growth this year and next. The recovery remains uneven, though, and some countries are yet to contain the virus. Global trade in goods has picked up strongly and commodity prices are mostly higher than at the start of the year. However, inflation in underlying terms remains low and below central bank targets.

Sovereign bond yields have been steady recently after increasing earlier in the year due to the positive news on vaccines and the additional fiscal stimulus in the United States. Medium-term inflation expectations have lifted from near record lows to be closer to central banks' targets. The 3-year government bond yield in Australia is consistent with the Board's target and lending rates for most borrowers are at record lows. The Australian dollar remains in the upper end of the range of recent years.

The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The Bank's central scenario is for GDP to grow by 4¾ per cent over this year and 3½ per cent over 2022. This outlook is supported by fiscal measures and very accommodative financial conditions. An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated.

Progress in reducing unemployment has been faster than expected, with the unemployment rate declining to 5.5 per cent in April. Job vacancies are at a high level and a further decline in the unemployment rate to around 5 per cent is expected by the end of this year. There are reports of labour shortages in some parts of the economy.

Despite the strong recovery in the economy and jobs, inflation and wage pressures are subdued. While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and modest. In the central scenario, inflation in underlying terms is expected to be 1½ per cent in 2021 and 2 per cent in mid 2023. In the short term, CPI inflation is expected to rise temporarily to be above 3 per cent in the June quarter because of the reversal of some COVID-19-related price reductions.

Housing markets have strengthened further, with prices rising in all major markets. Housing credit growth has picked up, with strong demand from owner-occupiers, especially first-home buyers. There has also been increased borrowing by investors. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.

As foreshadowed last month, at its July meeting the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond. The Board is not considering a change to the target of 10 basis points. At the July meeting the Board will also consider future bond purchases following the completion of the second $100 billion of purchases under the government bond purchase program in September. The Board continues to place a high priority on a return to full employment.

The date for final drawings under the Term Funding Facility is 30 June 2021. So far, authorised deposit-taking institutions have drawn $134 billion under this facility and a further $75 billion is available. The facility is providing low-cost fixed-rate funding for 3 years and so will continue to support low borrowing costs until mid 2024.

The Board is committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target. It will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.

Monday, May 31, 2021

House Prices to Fall? Blame Iron Ore in China

 So you may have heard that the iron ore price in the world is falling but why is this important to those looking for a home in Perth? Since Australia is the biggest player in iron ore right now, when the price of iron ore goes up, so does our Australian Dollar. This is because there is an increase in demand for the AUD as the value of iron ore goes up. When the price goes down, so does the dollar. The drop in the Australian Dollar means that overseas investors Australian assets decrease in value as well. When the outlook is bad for the AUD, it means people will consider the risk of buying a house in Australia. 

The iron ore price has been forced down recently by China demanding that stockpiles of iron ore be used first in China while they source for more iron ore from anywhere other than current thorn in their side, Australia. This decrease in demand has driven the price down and there are warnings that the AUD could be greatly impacted in the coming months. On the contrary, with a drop in AUD, couldn't the interest overseas increase in Australian property? only if they think that the AUD won't drop any further and right now, that's no certainty. 


Friday, May 28, 2021

Getting Smart About Where you Buy in Perth

There has been renewed predictions that Perth is going to experience an upturn for real estate prices and as always, now is the best time to buy. As many people go out to look for a home, especially those that have been squeezed out of the rental market, there are some things you need to think about. 

Firstly, you need to think about why you are going to pay the price for the house that you are targeting. Some people buy into a suburb for a particular school in the area and that can bring up the price for the house by $250,000. If you are not moving in for the school, perhaps consider another suburb without such a premium. 

The other thing is how much of the price is based on perceptions from other people. Some suburbs just have a bad name but if you are ok with that, you can save yourself a few hundred thousand dollars. Crime is everywhere and the idea of buying into a safe suburb could just be buying into a false sense of security. If you were a thief, would you just focus on your neighbourhood? 

Also convenience like proximity to a train station or school may look like a good idea, but you might want to think about what else that proximity brings. More people walking past your house, or a logjam every morning and afternoon as the school dropoff turns your street into a car park. The proximity to a train station could also invite more uninvited guests into your street. 

Remember when you are buying a house, why you are buying where you are, and not just follow the Jonses. You might save yourself a huge amount.


Friday, April 16, 2021

Auction-Shy Perth Coming Out of the Shell

An astounding statistic about the real estate market in Perth is that only 1.6% of sales are through auctions, compared to around 30% for Sydney and Melbourne. However, things are changing in the West. A few weeks ago, Caporn Young had a 100% clearance rate for their weekend of auctions in Perth (WAToday). In the week ending 11 April 2021, there were 18 properties on auction in Perth, with a 44% clearance rate. That was compared to Melbourne's 1,035 auctions over that week with a clearance rate of 77% (SmartPropertyInvestment). In the coming week, there are 30 auctions listed for Perth so this is something to watch in the West in the coming months as the rental pressure may move those desperate for a home to consider buying a home in different ways such as an auction. Are you in the market for a home in Perth? 

Thursday, April 1, 2021

CoreLogic reports March Increase Across the Nation

Fresh numbers show that Australia's housing run is continuing with the March figures up in all capital cities. In Perth, there was a 1.8% increase in the CoreLogic Home Value Index last month, contributing to a 6% increase in the year to date. Nationally, the index went up 2.8% in March with Sydney up 3.7% in the month. The average house price in Perth was selling at $505,850. 

In April, we will see the effects of JobKeeper being wound back and the end of the the rent rise and eviction moratorium. 

Monday, March 1, 2021

February sees 1.5% increase for Perth houses

 CoreLogic has reported this morning that their house price index increased 2.1% in February in Australia, the highest increase in 18 years. Sydney and Hobart went up 2.5% while in WA, house prices went up 1.5% in February. 

Monday, February 22, 2021

Perth house prices predicted to increase 20%

Westpac economists have boldly predicted that Perth prices are about to go up 12% this year and 8% next year. With buyers saving more than they ever have during the pandemic and getting wiser about the use of borrowed money, many are in a better position to buy than ever before. Interest rates are low and the rental market is forcing many to make the leap into home ownership. Investors are also coming to the conclusion that money in the bank is going backwards. Some are moving into the sharemarket while others are sticking to real estate. Are you a buyer entering the market for the first time? 

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