Homes:a good time to buy

A fresh look at the market might be worthwhile,  if you have been thinking of buying a new house.

Reliable figures show that homes have become more affordable, in many parts of Australia, over the past year.

Two rate cuts have helped.

And there may be more to come, even though the big four banks recently raised their rates.

A survey, conducted jointly by the Housing Industry Association and the Commonwealth Bank, shows that  housing affordability has now risen over four consecutive quarters.

The survey partners say this shows conditions for home buyers are steadily getting better.

Their affordability Index improved by 2.2 per cent in the  three months to the end of December.

This took the cumulative improvement over the year to 8.3 per cent.

“A decrease in mortgage lending rates and continued earnings growth more than offset a modest increase in the median dwelling price to further improve housing affordability in the December 2011 quarter,”  HIA’s Senior Economist, Mr Andrew Harvey said.

“As expected, the interest rate cuts in November and December of last year saw housing affordability continue to trend in the right direction.

” When the recent improvements in affordability are considered alongside the easier access to skilled trades as home building activity has eased, it increasingly looks like a good time to buy a new home for those financially able to do so,” he added.

In the most recent quarter average weekly ordinary time earnings posted growth of 0.5 per cent and mortgage lending rates were down by a sizeable 0.25 percentage points.

And although home prices rose by 0.5 per cent in the December quarter, they were still down by 1.8 per cent over the year.

The survey showed that home affordability had improved in all Australian capitals – except Adelaide – in the final three months of last year.

Affordability in Sydney improved by 3.5 per cent.

Melbourne saw a 4.6 per cent improvement.

Brisbane’s affordability rose  by 7.9 per cent, Perth’s by 4.1 per cent, Hobart’s by 3.1 per cent and Canberra’s by 6.1 per cent.

Affordability in  Adelaide, though, fell by 3.6 per cent over the quarter.

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Lend wisely:Australian banks urged

The Reserve Bank is urging Australia’s home lenders to maintain “prudent” standards, when the good times return.

Luci Ellis, who heads the bank’s Financial Stability Department, delivered the warning, in a speech to home lenders in Sydney.

“If lenders were to ease lending standards beyond the point of prudence, they would not be doing anyone any favours,” Ms Ellis said.

“Their customers, the borrowers, would be overburdened by their debts.

“The firm themselves would face difficulties if loan defaults were to rise.

“And financial stability would be much harder to maintain.”

She said she understood the temptation.

“It must be hard to resist the disappointed customers who just want to borrow that bit extra to purchase their dream home,” Ms Ellis said.

“Especially when the loan officer is also trying to make budget on new loan approvals.”

“But in the experience of the United States, we have seen what can happen when lenders yield to that temptation,” Ms Ellis said.

She said she did not presently see any signs of lax lending in Australia.

“But there will be times – good times, when everything seems rosy – when lenders will find it hard to maintain the necessary prudence,” Ms Ellis said.

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More rate cuts possible:RBA

The Reserve Bank is leaving the door open for further cuts in Australia’s interest rates.

It made this clear in the just published minutes of its board meeting earlier this month.

The minutes reflected a cautious but broadly optimistic assessments for both the global and Australian economies.

But the bank also explained that its board’s decision, earlier this month, to leave rates on hold might be changed in the months ahead.

The minutes said board members had “…judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy.”

That is an unusually frank admission, for the Reserve Bank.

The bank said, too, that while the financial situation in Europe remains “fragile,” the risk of an extremely bad outcome “seemed to have diminished somewhat over the previous couple of months.”

It said this partly reflects actions by the European policymakers.

“This, together with stronger economic data from the United States, had provided a mild boost to confidence in financial markets,” the bank added.

However the bank also admitted that “significant differences” still persist between different sectors in the Australian economy.

It said a big build up, in the nation’s investment queue, would play a key role in its economy, over coming years.

The bank said that  view of all this, its board had decided, earlier this month, to keep its cash rate on hold.

“With growth expected to be close to trend and inflation consistent with the target, the Board considered that this setting was appropriate for the overall macroeconomic outlook,” it said.

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The elephant joins the rate revolt

Australia’s biggest home lender, the Commonwealth Bank, has joined a rate revolt which threatens a recent recovery  in the nation’s troubled home building sector.

The National Australia Bank followed suit, shortly afterwards.

The ANZ bank, which led the result, is also to cut 1,000 jobs.

So, too, has one of Australia’s smaller regional lenders, the Bendigo and Adelaide Bank.

Australia’s banks have, traditionally, followed interest rate decisions made by the Reserve Bank.

However the ANZ bank and Westpac rejected a decision the Reserve Bank made last week, to keep rates on hold.

Instead, they announced that they would raise their home lending and small business rates, to offset the higher costs they now have to meet, to raise funds offshore.

The Commonwealth will increase its rates by 10 basis points while the Bendigo and Adelaide bank jacks up its rates by 15 basis points.

The Treasurer, Wayne Swan, had pleaded with Australia’s banks to keep their rates on hold, describing them as “hugely profitable.”

However the Commonwealth Bank – and the Bendigo and Adelaide Banks – announced that they, too, would raise their rates.

Meanwhile the Housing Industry Association warned that rate rises could put a small recovery, evident in figures the Australian Bureau of Statistics has just released at “risk.”

Andrew Harvey, a senior HIA economist, warned that the rises, announced by the ANZ bank and Westpac, “could dash more than four months of work on improving (home buyer) sentiment.”

“…the last thing we need is this additional weight in the saddlebags…” he said.

His statement was released before the Commonwealth and Bendigo banks made their announcements.

Figures the Australian Bureau of Statistics had released earlier showed that Australia’s housing market started to move again in December, with both investors and first home buyers increasing activity.

The Bureau said housing finance commitments rose by 2.3 per cent on seasonally adjusted figures that month.

This followed two consecutive rate cuts, by the Reserve Bank, late last year.

However the Reserve Bank decided last week to keep its marker rate on hold.

The ANZ and Westpac, though, later decided independently to raise their home loan and small business rates, to offset higher funding costs, in overseas markets.

The National Australia Bank is  also reviewing its rates.

The Bureau noted that the value loans take out for investment housing rose by 7.5 per cent in December, on seasonally adjusted estimates.

It said, too, that on original figures, first home buyers took 20.9 per cent of the new loans granted in December.

This was up from 20 per cent the previous month and 16.9 per cent a year earlier.

The Bureau said the average size of home loans taken out by first home buyers rose by $700 in December to $283,100.

However the average size of all home loans taken out in December fell by $700 to $294,100.

That appears to reflect some softening in Australia’s capital city house prices over recent months.

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ANZ customers “rightly angry” Swan

The Federal government says Australian families, with ANZ home loans, will be “rightly angry” with the bank for raising its interest rates.

The Federal Treasurer, Wayne Swan, who delivered that verdict,  also said what he would do, if he was an ANZ customer.

“…I’d be going down the road and seeing where I could get a better deal,” he said.

As expected, the ANZ today became the first of Australia’s big four banks to increase the rates it charges on most of its home and small business loans.

It increased its variable rates on most of its mortgages and small business loans by 6 basis points, even though the Reserve Bank decided, earlier this week, to keep its marker interest rates on hold.

But Westpac quickly followed suit, with a bigger rise.

Its customers will face a 10 basis point rise.

Builders, too, criticised the ANZ, with the Housing Industry Association describing its decision as “unfathomable.”

“The (ANZ’s) decision to increase rates in the same week as the RBA left official cash rates on hold is an immediate blow to families, small business and the economy,” the HIA’s Managing Director, Shane Goodwin said.,

“And the universal condemnation that the bank can expect is justified,” Mr Goodwin added.

His statement  was issued before Westpac’s announcement.

The Commonwealth and the National Australia Bank are studying the ANZ’s decision very closely.

The ANZ insisted, though, that its rates would remain “competitive.”

It said its 6 basis point rise add  just $6.50 a fortnight to repayments on the average home loan of $280,000.

“For small-to-medium sized business customers, the increase will add $3.00 per fortnight to an average loan of $130,000,” it added.

                                        ” We’re rock solid” Swan

Mr Swan also welcomed a detailed statement on monetary policy, that the Reserve Bank has just made, saying it shows that Australia’s economic fundamentals are “absolutely rock solid.”

“We have contained inflation, we have solid growth, we have low unemployment, “ Mr Swan said.

“And we have a huge pipeline of investment.

So I think the message from the RBA today is a reminder to all of the doomsayers and naysayers that we do have a strong economy.

“ We have low unemployment.

“We have bright economic prospects .

“But we do understand that in this environment, particularly with what’s going on globally there are also pressures in our economy…” Mr Swan said.

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Rates:up they go

As expected, the ANZ today became the first of Australia’s big four banks to increase the rates it charges on most of its home and small business loans.

The bank said it would increase its variable rates for mortgages and small business increase by 0.06 per cent.

However the bank also said it would reduce the rate it charges on its three year fixed rate package mortgages by 0.15 per cent.

These figures reflect a carefully measured response to the higher funding costs the ANZ – and Australia’s other big banks -  now have to meet as a result of pressures arising from the European debt crisis.

The Commonwealth, Westpac and National Australia Bank will be studying the ANZ’s announcement very closely.

But the Federal government won’t be impressed.

The Treasurer, Wayne Swan, says the big four banks have “huge profitability.”

He is advising customers of banks which raise their rates  to “walk” to get a better deal from credit unions, smaller banks or other financial institutions.

The ANZ insisted, though, that its rates would remain “competitive.”

“ The 0.06% increase would add $6.50 per fortnight to the average home loan of $280,000,” the bank said.

“For small-to-medium sized business customers, the increase will add $3.00 per fortnight to an average loan of $130,000,” it added.

“ Most customers will not need to make additional repayments with 85 per centof ANZ mortgage customers already ahead on their repayments,” the bank added.

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Property:Time to buy?

Home loan interest rates are likely to rise, but house prices are still “soft.”

The Reserve Bank acknowledges both trends, in its latest statement on monetary policy.

The big four banks, which have been eager to raise their home loan rates, to cover “increased” funding costs received further support from the Reserve Bank, today.

It reviewed continuing disruption in the European debt market and said: “these global developments have had an effect in Australia where there has been a step-up in the banks’ overall cost of funding relative to the cash rate.”

The Treasurer, Wayne Swan, has taken a different view, speaking instead of the big fours’ “huge profitability” and predicting a public outcry if they raise  rates.

The ANZ bank is expected to make a statement on its home loan rates later today.

Meanwhile, the Reserve Bank said: “The housing market remains soft, with turnover rates around the lowest they have been over the past two decades.

“ Nationwide measures of prices recorded modest declines over 2011, although there were signs of stabilisation in some markets at the end of the year,” the RBA added.

It noted also that building construction activity “remains subdued.”

The bank said this is, in part, due to “ the earlier pullforward of demand from the boost to first home buyer grants.”

However, the RBA said slower population growth, tight access to credit for developers and lowered expectations of capital gains, had also contributed.

It noted, too, that retail spending remains subdued, but said demand for services has been growing relatively strongly.

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Room for more rate cuts:RBA

The Reserve Bank says it  still has room for more interest rate cuts.

It made the observation in a statement on monetary policy, just days after it surprised markets by keeping interest rates on hold.

In a key passage, the bank said: “The current inflation outlook would….however provide scope for easier monetary policy should demand conditions weaken materially.

“Over the months ahead, the Board will continue to monitor information on

economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation,” the bank added.

Analysts said it is unusual for the Reserve Bank to be as frank as this, about its intentions.

The bank lowered its marker interest rate twice, late last year.

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