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Times are difficult – sale volumes are down and the process of selling your home is taking longer than it has for years. Today we have heard that Australia may be heading toward a recession – the first in 18 years! The US Federal Reserve has cut official interest rates by 0.5%, the Japanese Government has announced a $50 Billion stimulus package, the Chinese have cut rates by 27 basis points and we in Australia have only a few days to go until our Reserve Bank announces what it will do with interest rates.
My prediction is that the Reserve Bank will cut rates by another 1% and I wouldn’t be shocked if they cut rates by an even greater amount. At this point in time the real estate market is crawling along and anything that can add confidence to the market will be welcomed. The fact is that money (for those fortunate enough to have it) must be invested somewhere. The stock market is proving volatile and difficult and as interest rates are cut on home loans, so too will be the interest rates offered on cash deposits – property starts looking better and better.
Property has been the safest investment in Australia for more than 100 years and with our currency devalued against the US dollar, Euro, British Pound and the Yen there is an enormous opportunity presenting for vendors to sell their homes to foreigners. We at Marquette Turner Luxury Homes are excited about the opportunity to attract international buyers and as members of the Who’s Who in Luxury Real Estate, are working hard to showcase Australian Luxury Homes to a worldwide audience.
The best advice for vendors – be patient (although it will be difficult), trust your agent and most importantly choose the right agency to represent your home right from the start. It’s important to have the very best representation – our worldwide recognition is something that we are very proud of.
Michael Marquette: In what can only be described as a momentus day for Australian real estate, most of the country’s largest lenders have already chosen to pass on the majority of the 1% interest rate cut to borrowers.
The Commonwealth Bank, National Australia Bank and Westpac have reduced their variable rate by 0.8% of the full 1% and Aussie Home Loans signaling that it will pass on a 0.75% reduction, this is the stimulation that the Australian property marketed needed. Therefore, we welcome this fantastic news.
With Treasurer Wayne Swan demanding that Banks pass on the rate cut in full once prevailing conditions allow the magnitude of the cut cannot be understated.
It is clear that the United States, Japan and the European Union are staring down the barrel of recession and the bold move by the Reserve Bank is aimed at doing everything possible to avoid recession in Australia.
With the price of oil plummeting in line with fears of a global recession, inflationary pressures which have existed in the economy are reducing.
With the largest interest rate cut since 1992 and confidence in the stock market eroded, real estate is well placed to benefit as the chosen investment strategy for many. Falling interest rates, increased rental yields, scarcity of housing and the poor performance of the stock market are all positive indicators for property owners and investors.
I believe there will be an increase in the number of self managed super funds (SMSF) set up to invest in property. Many people are concerned and frustrated that so much money has been lost by funds and are determined to be able to exert influence in investing money in the future. This will certainly assist demand in all real estate sectors. Australian property is well placed to do well in spite of prevailing world conditions.
After the comments both Simon Turner and myself made earlier in the week both predicting and welcoming the Reserve Bank of Australia’s cut to interest rates by 25 basis points, I have received many thoughts from vendors, buyers, agents and other consumers all agreeing that such respite is indeed welcoming.
One response, however, stuck out. A suburban agent who shall remain nameless, in an exceptionally long email to me stated that the cut would make “no difference” to any Australian.
I do not wish to get into a pointless to-and-fro match with someone with whom I will not add credibility to his opinion which was clearly just a cheap attempt at scoring a few visits to his blog, and is ultimately not in touch with reality, but I do wish to reaffirm the positive effects that the RBA’s decision will bring and make clear that negative naysaying is lazy, un-inspiring, and of no help to Australian’s that simply are looking to get-ahead and make ends meet.
The facts are clear – a cut to the interest rate of a home loan of course makes a difference. The major banks had already passed on a quarter of a per cent to fixed rate home loans in the last fortnight, and indeed equaled the RBA’s cut this week, with St George cutting theirs by 30 base points.
Based on a 25-year loan on a new rate of 8.65 per cent, mortgage holders will make the following savings:
Loan Amount Monthly Saving
A saving is a saving, and more will be welcomed to relieve mortgage stress. I’m sure an increase by 25 basis points rather than a cut would have made a huge difference to many hip-pockets. Enough said!
From a global perspective, Australia is looking in pretty good shape. Australian households have cut their spending for the first time since the country was last in recession, whilst business investment has continued. Furthermore, all Australian State and Territory economies have grown, with the added exception of New South Wales (which probably says about as much as the state of Morris Iemma’s hapless government).
We’re not out of the woods yet, but Spring is here and it’s a breath of fresh air!
The Reserve Bank of Australia will hold what could be a historic meeting tomorrow, Tuesday 2 September 2008. Should they decide to lower interest rates, it will be the first time in seven years that the cash rate has fallen after 12 successive rate rises.
Most economists are suggesting there will be a cut by 25 basis points, however, the most bullish are even suggesting 50 basis points for the current cash rate of 7.25%.
The Convenient Truth
So why is this? Without getting too analytical, there are many factors that are leading to such a situation:
The Australian economy is slowing
Current business conditions are tightening
Credit markets are being squeezed
Inflation pressures are easing
Global conditions have snuck up upon the Australian economy probably a little more readily than the RBA expected, which will allow it to loosen its grip on monetary policy somewhat: cutting interest rates therefore mitigates the impact of a deteriorating global economy.