by Alan Thornhill
What’s happening with home prices?
Few questions are more basic to family finances than that.
Or more urgent, given the sharp rises seen in both the Sydney and Melbourne markets over recent times.
All this, of course, makes a report, just published by the Housing Industry Association, all the more relevant.
The overall conclusion of this study called Perspectives on Australian Dwelling Prices will, however, surprise many.
For the report concludes that “dwelling prices in Australia are proportionate and balanced in the broader economic context.”
What’s behind that bold claim?
The study notes that there is a significant gap between the high growth markets (Sydney and Melbourne) and those cities experiencing falling prices.
It says, too, that the national dwelling price growth rate of 10.1 per cent in the year to October 2015 masks these variations.
“That said, the current position of dwelling prices with respect to fundamental economic indicators like incomes, earnings, interest rates and rental streams remains largely balanced at the national level and across a majority of the capital cities,” it adds.
There is a bit of economist speak, there.
Basically, though, what the economists who wrote this paper are pointing out is common sense.
That is, if you want one of the high incomes, available in the Sydney job market, you might find yourself paying a little more for a home than you would in, say, Hobart.
Besides as the HIA economists, who wrote this report also say: “it is important to stress that price to income ratios are very sensitive to the particular income metric used.
Accordingly, the selection of an unsuitable income measure will result in unreliable price to income multiples being estimated.
Since mid-2012, home prices in Sydney have increased by 50 per cent.
But the HIA economists add:”Despite the strong price growth over the past three years, Sydney prices remain in a ‘normal’ range with respect to fundamental indicators like rents, earnings and interest rates.”
But the sums, on which this report are based, are more complex than might, at first seem necessary.
What, though, of the broad overall picture with home prices?
The HIA report puts its answer to that question very forcefully.
It says:-”Since bottoming out in May 2012, dwelling prices have increased by 32.1 per cent across Australia’s eight capital cities.”
That’s impressive, particularly at times of low inflation in many other areas.
Once again, though, the HIA concedes that the price growth you are likely to see, on your property, depends very much on where you choose to live.
Or as the report itself says:” The distribution of price growth is increasingly polarised with double-digit growth in Sydney and Melbourne and prices declining in several capital cities.”
A mixed picture, indeed
by Alan Thornhill
Some of Australia’s best scientists say the nation’s economic prospects are bright.
But they also caution that our prosperity in future will depend on the choices we make now.
This advice is offered in the Australian National Outlook report which the CSIRO published today.
Standing back from their test tubes for a moment, these scientists warned bluntly that Australia’s future will be shaped by innovation and technology uptake and the choices we make as a society will be paramount.
They are proud of their report, describing it as “, is the most comprehensive quantitative analysis yet of the interactions between economic growth, water-energy-food use, environmental outcomes and living standards in Australia.”
CSIRO Executive Director Dr Alex Wonhas said the report focuses on the ‘physical economy’ that contributes to about 75 per cent of natural resource use and produces about 25 per cent of Australia’s GDP.
“The National Outlook is a first attempt to understand and analyse the connections in Australia’s physical environment many decades into the future,” Dr Wonhas said.
“It has a particular focus on understanding two aspects: The ‘water- energy-food nexus’ and the prospects for Australia’s materials- and energy-intensive industries.”
National Outlook finds a number of key insights and potential opportunities across the Australian economy.? ?“For example, we find strong growth prospects for Australia’s agri-food production, which are forecast to increase at least 50 per cent by 2050, provided long term productivity improvements can be maintained in line with historical rates,” Dr Wonhas said.
So are we to do?
Dr Wonhas says:”“There’s a ….possibility of a win-win for farmers with potential growth in agri-food exports and new income sources for rural landholders through carbon farming on less productive land.”
What about water?
The report acknowledges that demand for water will grow with population.
But it adds:“Despite projections of a doubling of our water use, Australia could meet this growth as well as enhance urban water security and avoid increased environmental pressures through increased water recycling, desalination and integrated catchment management.”
It says too, that energy and other resources could remain a pillar of the Australian economy well into the future.
And it says our energy intensive industries could be well positioned to continue to grow, even in scenarios where the world is taking global action to significantly limit greenhouse gas emissions.
“The key to this success will be innovation and application of smart technologies,” Dr Wonhas said.
“We hope the National Outlook will help Australia chart its future in an increasingly complex and interconnected world,” he added
The National Outlook explores over 20 possible futures for Australia out to 2050 against the backdrop of the past 40 years.??The work was undertaken by a team of 40 CSIRO experts and university collaborators, and draws extensively on observed data and analysis.
It utilises a world-class suite of nine linked models, includes input from more than 80 experts and stakeholders from over ten organisations and has undergone rigorous international peer review.
National Outlook is underpinned by more than 10 journal papers including a Nature paper published today. The report is available at www.CSIRO.au/national outlook
by Alan Thornhill
The Reserve Bank board kept its cash rate on hold again today,
but its Governor, Glenn Stevens, hinted that there might be
at least one further cut in future.
In a statement issued after a board meeting today, the Bank’s
Governor said the bank had decided to leave the cash rate
unchanged at 2.0 per cent.
In that statement, Mr Stevens said the global economy
is expanding at a moderate pace, despite some further
softening in conditions in the Asian region.
He said US growth is continuing, as is the recovery
But he added: ” Key commodity prices are much
lower than a year ago.”
He said that, in part, this reflected increased supply,
including from Australia.
“Australia’s terms of trade are falling,” Mr Stevens
“The (US) Federal Reserve is expected to start
increasing its policy rate over the period ahead
, but some other major central banks are continuing
to ease monetary policy,” he said.
” Volatility in financial markets has abated
somewhat for the moment,” he said.
At today’s meeting the Board judged that the prospects
for an improvement in economic conditions had
firmed a little over recent months and that leaving the cash
rate unchanged was appropriate at this meeting.
Members also observed that the outlook for inflation
may afford scope for further easing of policy, should that
be appropriate to lend support to demand.
He said “The Board will continue to assess the outlook,
and hence whether the current stance
of policy will most effectively foster sustainable growth
and inflation consistent with the target.
In a statement issued, with the bank’s decision,
Mr Stevens also said that
while credit costs for some emerging market
countries remain higher
than a year ago,
global financial conditions overall
remain very accomodative.
In Australia, the available information suggests that moderate
expansion in the economy continues, Mr Stevens said.
While GDP growth has been somewhat below longer-term averages
for some time,
business surveys suggest a gradual improvement in
conditions over the past year.
This has been accompanied by somewhat stronger
growth in employment and a
steady rate of unemployment.
Inflation is low and should remain so, with
the economy likely to have a degree
of spare capacity for some time yet.
Inflation is forecast to be consistent with the target
over the next one to two years
, but a little lower than earlier expected.
“In such circumstances, monetary policy needs
to be accomodative,”
Mr Stevens said.
“Low interest rates are acting to support borrowing and spending.
While the recent changes to some lending rates for housing will reduce this
support slightly, overall conditions are still quite accommodative.
Credit growth has increased a little over recent months, with growth in lending
to investors in the housing market easing slightly while that for owner-occupiers
appears to be picking up.
Dwelling prices continue to rise in Melbourne and Sydney,
though the pace of growth has moderated of late.
But Mr Stevens added :”Growth in dwelling prices has remained
mostly subdued in other cities.
“Supervisory measures are helping to contain risks that
may arise from the housing market.
“In other asset markets, prices for commercial property
have been supported by lower long-term interest rates,
while equity prices have moved in parallel with developments in global markets.
“The Australian dollar is adjusting to the significant declines in key commodity prices,” Mr Stevens said.
At today’s meeting the Board judged that the prospects for an i
mprovement in economic conditions had firmed a little over recen
t months and that leaving the cash rate unchanged was appropriate at this meeting.
Members also observed that the outlook for inflation may afford scope for further
easing of policy, should that be appropriate to lend support to demand.
“The Board will continue to assess the outlook, and hence whether the
current stance of policy will most effectively foster sustainable growth
and inflation consistent with the target,” he said.
by Alan Thornhill
Australia’s inflation remained moderate in the September quarter, with prices rising by just 0.5 per cent in that time and 1.5 per cent over the year.
These broad consumer price index figures, which the Bureau of Statistics published today, leave inflation below the Reserve Bank’s target rate of 2-3 per cent, over the course of a business cycle.
This means the bank is not likely to cut its 2 per cent marker interest rate, when its board meets next Tuesday to review that rate.
Even though the bureau also reported that its annual trimmed mean inflation rate – at 2.1 per cent – and its weighted median rate 2.2 per cent – were closer to the figure the Reserve Bank actually uses, when assessing its marker rate.
The bureau said the most significant price rises this quarter were for international holiday travel and accommodation which went up 4.6 per cent and fruit, with an 8.2 per cent rise.
Property rates and charges also rose, by 4.6 per cent.
However these rises were partially offset by falls in vegetable prices , which went down 5.9 per cent and telecommunication equipment and services, which eased by 2.0 per cent.
The price of automotive fuel also fell by 1.7 per cent.
by Alan Thornhill
The ANZ bank became the last of Australia’s big four to raise its interest rates this afternoon, when it announced that it will increase its home loan interest rates by 0.18 percentage points.
This is expected to add about $36 a month to repayments on an average home loan.
The National Australia Bank had made a similar announcement earlier in the day.
The Westpac led the present round of rate rises, when it announced last week that it would increase the rates it charges on its home loans by 0.2 per centage points.
The rises are being blamed, primarily, on Federal government requirements that the banks increase their capital holdings.
This has been done to put the banks in a stronger position if there is a downturn in financial markets.
However the new Federal Treasurer, Scott Morrison, said the banks have been making their own commercial decisions.
The ANZ Group has raised interest rates by 0.18 percentage points, becoming the last of the major banks to increase mortgage rates independently of the Reserve Bank of Australia.
Its standard variable rate for owner-occupiers will rise to 5.56 per cent and its standard rate for property investors will rise to 5.83 per cent.
Westpac led the Big Four in raising home loan rates last week, when it hiked its variable rate by 0.2 percentage points.
The Commonwealth Bank followed with a 0.15 percentage point rise. Then National Australia Bank joined in this morning with a 0.17 percentage point increase.
All four banks blamed the increases on a requirement for banks to hold more capital to cover their mortgage loan books.
NAB’s standard variable home loan interest rate will rise to 5.6 per cent and the change will take effect on November 12.
NAB said its decision was a response to “market conditions” and policy changes that have forced the big banks to hold larger capital buffers for absorbing losses on mortgages.
NAB’s executive in charge of personal banking, Gavin Slater, pointed to the bank’s move to raise $5.5 billion capital from shareholders earlier this year, which was partly in response to the tougher rules
“There are a range of factors that come into consideration in interest rate decisions. The home loan market is dynamic, with multiple changes being seen across the industry,” Mr Slater said.
The Reserve Bank board will meet on Tuesday, November 3, to review rates.
by Alan Thornhill
Industry has welcomed the Federal government’s broad acceptance of the recommendations of the Murray Committee’s review of Australia’s financial system.
Kate Carnell, Chief Executive officer of the Australian Chamber of Commerce and Industry said the reforms it recommends would strengthen growth and jobs.
“The set of balanced reforms announced today will help deliver a stronger, more competitive and resilient financial system to underpin greater business investment and personal retirement savings,” Ms Carnell said.
She said business could be seen as the engine room of the economy and the financial system as its fuel pump.
“And we need to keep it finely tuned for the best performance,” she added.
”The government has set out a clear plan for strengthening the resilience and effectiveness of Australia’s financial system to help underpin stronger business growth and job creation.
“We welcome progress on long awaited proposals and urge the Parliament to support this important reform agenda, including ensuring robust capital adequacy for banks,” Ms Carnell said.
“The Australian Chamber noted earlier this year that merchant service fees were the largest component of bank fee growth for the second year in a row.
“This highlights the importance of action to improve regulation of banking fees,”she added.
We are pleased to see Treasurer Scott Morrison’s statement that future credit card surcharging will need to pass a type of ‘fair dinkum test’ and urge the government to extend similar reforms to bank interchange fees.”
“Business welcomes the Government’s intention to secure crowd sourced equity funding legislation through the Parliament by the end of 2015.
“This will give greater scope to widen its focus to crowd sourced debt funding, which done correctly would also be very positive for small business growth and start-ups.”
John Osborn, the Chamber’s Director of Economics & Industry Policy, said: “A more open and competitive superannuation system with greater choice for employers and employees will foster innovation and deliver better value for businesses and consumers.
“The current default superannuation fund rules are outdated and not in keeping with the demands of a modern and competitive finance industry. This includes forcing default fund selection though a Fair Work Commission process and the treatment of employees covered by agreements,” he added.
“Currently, an employee who is subject to an enterprise agreement cannot redirect contributions to a personally nominated fund. It no longer seems appropriate or necessary to supress personal choice and we cannot ignore the broader competition implications of limiting the ability of people to vote with their feet.”
“We welcome the government’s commitment for the Productivity Commission to examine this issue more closely. Super funds already require approval by the Australian Prudential Regulation Authority – the body with the expertise to assess product suitability – and whatever comes from the Productivity Commission’s process must keep duplication to an absolute minimum.”
“We continue to support the proposal that requires superannuation fund trustee boards to have a minimum of one-third independent directors – including an independent chair – and believe this strikes the right balance for superannuation governance,” Mr Osborn concluded.
by Alan Thornhill
Credit rationing aimed at investors is threatening home construction, which is still the star performer in the Australian economy.
The Housing Industry Association sounded that warning today, while commenting on the latest building commencement figures produced by the Bureau of Statistics.
Its Chief Economist, Dr Harley Dale, said that: “despite a modest decline in new dwelling commencements in the June 2015 quarter, there was still a record number of 211,976 new homes started in 2014-15.”
This was a 16.9 per cent rise over the result seen in the previous 12 months.
“That is a phenomenal result which caps three consecutive years of growth for new home building – only the fifth time in the last 60 years that this feat has been achieved,” Dr Dale said.
“Through its broad reach the new home building sector has delivered a strong economic dividend to Australia during a period when many other sectors of the economy have struggled,” he added.
“New dwelling commencements will fall in 2015-16, but should remain elevated at what would still be the second highest level on record,” he said.
“The key to the short term prospects for new home building is how much work in the pipeline is converted into actual activity – it’s not coming through as quickly now,” Dr Dale said.
But he added: ” an orderly decline in commencements in 2015-16 remains the most likely outcome.
“However, the credit rationing aimed at curbing investor activity is having a broad impact and risks generating a sharper fall.”
The ABS figures show there were 53,314 dwellings commenced during the June 2015 quarter, a decline of 3.2 per cent from an upwardly revised March quarter.”
“ Detached house commencements fell by 2.9 per cent in the June 2015 quarter to 28,046, while ‘other dwelling’ commencements declined by 4.9 per cent to 24,482.”
by Alan Thornhill
Westpac today became the first of Australia’s big bank to lift its home loan interest rates, announcing a 20 basis point rise that will take effect from November 30.
This is expected to end the property boom in Sydney.
In its statement announcing its decision, the bank said:“Westpac today announced an increase in its variable home loan (owner occupied) and residential investment property loan rates by 20 basis points.
The new rates take effect from 20 November 2015.
The bank said this decision followed its earlier announcement that it is raising an additional $3.5 billion in ordinary equity in response to new regulatory requirements that will increase the cost of providing mortgages.
It said:”Headline owner occupier home loan variable rates increased by 20 basis points per annum to 5.68 per cent .
Headline residential investment property variable rates increased by 20 basis points per annum to 5.95 per cent per annum
Most Westpac variable home loan customers who receive a Premier Advantage Package discount of 0.70 per cent will move to a discounted package rate of 4.98 per cent.
There are no changes to fixed rates,
Depositors will benefit from a 25 basis point increase on selected new term deposits, effective from 16 October, 2015.
George Frazis, Chief Executive, Consumer Bank, said that following regulatory changes, the amount of capital that needs to be held against mortgages will increase by over 50 per cent.
“To meet these new rules, including the significant amount of capital that we must now hold against residential mortgages,” he added,
Westpac has also announced today that it is raising an additional $3.5 billion in CET1 capital.
This means the total amount of capital raised this year in direct response to regulatory changes is about $6 billion.
“As we have always said publicly, while Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers,” Mr Frazis said.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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