MyGreenway.com.au

June 15, 2009

The decision by the CBA to raise it's standard variable interest rate by 0.10% will add approximately $6 a week to the average mortgage holders repayments or $300 a year. That's like having to buy an extra greenslip and donate it to the CBA each year. On that note it is a little bit rude don't you think?

But where is that money going?

Some will say it will go the CBA's bottom line. Some if it will that's true. But some if it will be going to overseas lenders where the CBA is sourcing its funds from. That in turn will be making it into the bank account holders of those holding the cash in faraway lands. Places such as the Middle East and Asia.

Why does our bank have to source its funds from overseas? Simply because there is not enough money in Australia to lend.

However, there would have been if the Howard government had the foresight to follow Paul Keating's lead. Something I woul dlike to hear Peter Costello's response to. Costello trumps his financial credentials and paints himself as the economic messiah, but sadly Costello really missed the boat here and ought to carry some of the pain that he has indirectly inflicted on home buyers.

Had Costello followed on with Keating's plan to rasie the super annuation guarantee to 15%, largely funded by tax cuts, Australian banks would have had access to the necessary funds locally and would not be held to ransom by overseas banks.

In fact, Australia would have been totally insulated against the global financial crisis. Just by having the necessary savings plan in place.

Furthermore, the increased savings plan would have also matched our increased foreign debt further protecting Australia from the debt crisis. Completely. The opposition cries of budget deficits would indeed be just grandstanding and irrelevant to the whole political argument.

For more information read MyGreenway's Superannuation page here for more information or go to our Unfinished Business Televised Book Review here for more information direct from the horse's mouth.

David Love's book tells the story behind the story and Paul Keating gets to discuss in great detail how and why he did what he did and the meaning of the plan.

It can still be fixed, but we need to plan for an increase in Super to 15%. It need not affect business, so don't panic.

What's needed is leadership and vision.

Finally the RBA has reduced interest rates for home buyers albeit by a paltry 0.25%. But it should be a sign of things to come. The banks owe borrowers 0.55% that they 'borrowed' from them since rates rose from January this year. This should be refunded immediately. Borrowing costs have come down and banks, who have not made a loss in this declining market, rather, they hit those hurting the most, just to MAINTAIN their profits to the shareholders...seems we should all go around to the shareholder for dinner a few nights a week then!

The RBA needs to reduce rates by 0.5% in October and then 0.25% in November. The banks by then should have returned the 0.55% they took as well effectively reducing the retail lending price of 9.65% last month to a more reasonable 8.1% P.A.

Combine this with large mortgage, say, 300k or more and most lenders will offer a 0.7% discount as well. So by early 2009, it would seem fair that many homebuyers could actually be paying less than 7.5% for their mortgage. How does that sound?

For those who are not getting the best deal, it would have to be worth thinking about getting a broker to show you some options. Just when you do this is something to consider in the lead up to Christmas as rate are sure to fall. It may be a good time to talk to financiers in this traditionally quiet period too, when you may be able to get more expert advice.

It's your money and you have worked damn hard for it over the past 7 years. It would seem that home buyer may be getting their time in the sun.

I wonder though as to what might happen to property prices. Most experts are predciting slower growth than the past. This makes sense. Property prices are linked to affordability obviously, and with the economy still struggling wages have not being growing much at all.

So the only thing affecting house prices this time around is the cost of money, so logically house prices wont move so fast.

It may also be a timely warning for some who may wish to borrow against the home for other purposes. Extensions, a business, a much needed new car or holiday - temptations sure, but fiscal discipline at home may have been the great lesson learnt from the current stresses and mortgage belting many have and still suffer.

Today’s decision by the Reserve Bank not to raise interest rates is some relief to home buyers. However, this leaves interest rates just one 0.25% increase less than in 1996 when John Howard first took office.

“Despite all the huffing and puffing about being better economic managers, The Howard government has all but given back its interest rate savings,” said Jason Olbourne of the community website mygreenway.com.au, a site originally set up for the residents of the Federal Electorate of Greenway in North Western Sydney but now gaining a wider audience.

“It’s an area of Sydney where many residents are already buckling under the highest interest rates in 6 years coupled with falling property values, many families now have negative equity meaning they cannot even sell their houses”.

Significantly, the greatest drop in the price of money occurred after the tragic events of September 11 sparking one of the greatest housing booms in Australia’s history.

“People I talk to everyday through the website or at the shops tell me how they are barely hanging on by their fingertips” said Olbourne

Ray White Kellyville was reported as saying their mortgagee sales have gone from 6 to 25 a year.

Olbourne suggests that either the government or opposition would be well served developing policy that helps out those battlers belted by these rate rises.

“Rather than increasing incentives for first home buyers to enter and attempt to stimulate the housing market, policy makers could issue tax relief in the form of true income splitting, or allow tax deductible interest on mortgage repayments or even partial access to superannuation funds before defaults occur. These practices would help families reduce debt and even establish better household management of finances crucial to surviving the shifting economy” he said.

By Jason Olbourne, mygreenway.com.au 28/03/07

People are hurting as their Australian dream crumbles before their eyes. Some are luckier and can call on the help of relatives to keep the wolves at bay.

We have chosen to follow the following stories

New home sales slump reflects rates struggle

smh.com.au 28/03/07

SYDNEY'S traditional new year boom in new home sales has been reduced to a whimper this year, as high prices and rising interest rates crimp affordability.

A survey by the Housing Industry Association of sales by Australia's 100 biggest residential builders suggests NSW buyers are struggling. While new home sales picked up in the three months ending in February, sales were 21.4 per cent lower than last year.

"Buyers are still acutely aware that they are not out of the woods yet following the most recent interest rate pressure," said the association's director of housing and economics, Simon Tennent.

A report from the Reserve Bank this week argued that Australians were coping with higher mortgage repayments, despite some stress in western Sydney. This has been interpreted as a sign the bank would be fairly relaxed about the impact on households if it decided to raise interest rates again to curb inflation.

As borrowers brace for the possibility of another rate rise as soon as next week - the fifth since the last federal election - a recently formed group called Australians for Affordable Housing visited federal politicians in Canberra yesterday to lobby for a co-ordinated federal and state government response to the "housing crisis".

David Imber, a spokesman for the group, said the lack of affordable housing for low-to-middle-income families was the biggest problem facing the Australian community. "People are genuinely concerned that their children won't be able to purchase their own home and will be stuck paying off someone else's mortgage forever,"

Of the $24 billion set aside in the Commonwealth budget for housing, 80 per cent was spent on tax breaks for "the big end of town" such as capital gains tax exemptions and negative gearing, the group estimates. Just $933 million would be spent on public and community housing, $1 billion on the first home buyers grant and $2 billion on rent assistance.

The Deputy Prime Minister and Nationals leader, Mark Vaile, cautioned his Coalition colleagues yesterday about the need to be "empathetic" to concerns about housing. However he said it was a state government responsibility to reduce property taxes.

The ALP is expected to campaign vigorously in this year's federal election on the assertion that the Coalition broke an election promise to the public to keep interest rates low.

Average mortgage repayments have risen by $500 a month since the Government took power a decade ago, Mr Imber said.

The Opposition's spokeswoman on housing, Tanya Plibersek, said that, if elected, Labor would appoint a minister for housing. "There should be someone in the federal government responsible for deciding on ways to make housing more affordable for low-income Australians," Ms Plibersek said.

Equity sharing

A separate survey of 1500 potential first home buyers by Fujitsu Consulting found 30 per cent said they could not afford to enter the market. Two years ago the figure was 10 per cent.

Half of the potential first home buyers surveyed said they would consider an equity share deal. These schemes involve a lender stumping up part of the cost of buying a home in return for a share of any capital gain on the property.

One in four first home buyers was considering moving to a different area to buy.

About 23 per cent of respondents in the February survey of 2,500 consumers said they had to cut their spending. The survey was undertaken as part of the Fujitsu/JPMorgan Australian Mortgage Industry Report. That compares with only two per cent of respondents in the same period a year earlier.

As other living costs such as petrol are on the rise, and with economists expecting another interest rate rise by mid year, it would be lower to average income earners who would struggle the most to repay their mortgages, said Fujitsu Australia managing director Martin North.

"Home affordability is at a bit of tipping point," Mr North said. "If rates go up, there will be some pain," he said.

Mr North said his research found that six per cent of respondents had been more than 30 days late with a mortgage payment. That percentage may double if interest rates rise another one percentage point, Mr North said.

Of the 1,500 people who were contemplating buying a property for the first time, 30 per cent said they could not actually afford it. That's up from 17 per cent at the same time last year. About 24 per cent of respondents said they were willing to consider relocating to another city to afford their first home.

One way development to boost home affordability may be the launch of shared equity mortgages where lenders own a portion of the property. Adelaide Bank this month unveiled a mortgage that allows up to 20 per cent of the purchase value to be held by the bank in exchange for 40 per cent of any capital gain.

The lender would absorb 20 per cent of any loss. "There is a significant opportunity for lender to develop a shared equity product for first-time buyers," Mr North said.

According to a data from the Real Estate Institute of Australia last month, home affordability slumped 3.9 per cent during the fourth quarter of 2006 and by eight per cent for the calendar 2006 year.

The Reserve Bank of Australia raised interest rates three times last year to 6.25 per cent. "Last year's interest rate rises have had a significant impact on household spending," Mr North said.

smh.com.au March 17, 2007

Daily Telegraph, 22/03/07

THE Reserve Bank of Australia's suspicion that wage pressure is accelerating is being confirmed by economic data, placing more pressure on interest rates.

The Australian bank bill futures market yesterday put the chance of a rate rise at the next Reserve Bank board meeting at 50 per cent, while a rate hike in the next 12 months is considered a certainty.

Early assessments by private sector economists suggest that March quarter inflation will push the annual rate higher, rather than lower as expected. 

The RBA set interest rates to keep inflation between 2 and 3 per cent.

The Australian Industry Group's March quarter manufacturing survey, out next month, shows rising cost pressures on business.

AIG chief economist Tony Pensabene said yesterday that companies were also pushing up selling prices, although profit margins were still being eroded.

"Skill shortages and shortages of labour generally are putting pressure on companies to deliver wages either to reward or retain staff. There are also clear signs that the drought is having an impact on supply chains, and that has put some pressure on particular food sectors.

The AIG survey is consistent with the findings of the National Australia Bank and the ACCI business surveys.

The monthly NAB survey shows that both wages levels and spare capacity are at levels to raise concern at the Reserve Bank.

It shows the average wage rise increased from 4.5 to 4.75 per cent in the second half of last year, and moved to 5.25 per cent in both January and February.

NAB chief economist Jeff Oughton warns that the survey figures are typically about a percentage point higher than the official national wage price index, but they underscore the rising wage pressure.

Both the NAB and the AIG surveys show companies are running out of spare production capacity. These surveys are the only direct measure of how closely the economy is approaching the limits of its capacity and are closely followed by the Reserve Bank. The NAB survey shows business is operating at a record 83.9 per cent of its capacity.

The latest ACCI-St George survey shows that in the December quarter wage and other cost pressures were at their highest level since the survey began in 1994.

However, the business surveys show that cost pressures are not fully reflected in sales prices. The NAB survey shows retail prices are only rising at an annual rate of 1.9 per cent. Both AIG and ACCI surveys show a moderate lift in selling prices.

Westpac inflation expert Anthony Thompson said the headline rate of inflation for the quarter was likely to be 0.8 or 0.9 per cent, compared with the December quarter's 0.1 per cent fall in consumer prices.

"Petrol prices have ratcheted higher, whereas early in the quarter it had looked as though they might fall by an average of 4.5 per cent."

He said a very preliminary estimate suggested the core inflation rate for the quarter might rise from the December quarter's 0.5 to 0.7 per cent.

"Domestic demand, particularly from consumers, is proving extremely resilient to last year's rate hikes."

The monthly inflation index compiled by the Melbourne Institute and TD Securities shows that, excluding volatile items and housing rent, price pressure in February was the most intense in the past four years.