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The US Federal Reserve has set key interest rates to a record low zero to 0.25% in a desperate bid to stimulate the US economy which is looking increaingly sick

Rates are likely to remain this low for quite some time, the Fed stated.

The cut brings the federal funds rate to the lowest level since July 1954.

Wall Street rallied after the announcement, whilst oil dropped 2% to $US44 a barrel

The Fed has also stated that it will expand purchases of debt issued by mortgage agencies to support the housing market in it’s efforts to promote the resumption of sustainable economic growth and to preserve price stability

Simon Turner

More information: The Federal Reserves statement.

How’s this for short-sightedness: The New South Wales Government’s infinite wisdom to increase taxes by $3.6 billion AUD to compensate for their years of inept mismanagement of states coffers will have a huge impact on the property sector at a time when it can least afford it.

NSW Labor Premier Nathan Rees and Treasurer Eric Roozendaal plans to raise $680 million by increasing the land tax rate from 1.6% to 2% for properties over $2.25 million in land value, essentially a 25% increase, which will increase holding costs for land owners, discourage developments and lead to an increase in rental charges.

The flow on from this will lead to further job losses in the property industry, which is already shedding staff at more than one hundred per week.

We argue that this is not the time for tax hikes, but for the government to show some innovative thought, boost confidence and stimulate the economy. Or at least start spending NSW tax payers money wisely. But then again, given the churn of Premiers in the state and thus their lack of accountability, what do they care?

Simon Turner

FYI: Read more articles on the Credit Crunch; or the NSW Government; or Interest Rates

The Reserve Bank has slashed interest rates to the lowest level in history to 4.25%. The Reserve Bank cut rates by a full 100 basis points (1%), making property an attractive option for those in search of investment options given the volatility of the stock market.

Australian interest rates have averaged over 8% for the last 59 years and the Bank has signaled that it is serious about avoiding a recession. It is projected that Australia will continue to grow in 2009 and avoid recession, one of the few nations predicted by the Organization for Economic Cooperation and Development (OECD) to perform positively.

The massive rate reduction should give buyer confidence a boost and increase the level of buyer enquiry across all price ranges. We have started to see increased levels of enquiry from the United States with the current exchange rate hovering at $0.65-$0.66 US.

I believe that ex-pats and foreign investors will increasingly recognize the benefits of investing in the Australian property market.

Michael Marquette

Australia’s economy will avoid a recession next year, helped by lower interest rates, government spending and exports.

A recent Report (Economic Outlook No 84) by the Paris-based Organization for Economic Cooperation and Development (OECD) stated that the Australian economy will grow 1.7 percent in 2009 from 2.5 percent this year, before accelerating to 2.7 percent in 2010, despite the depressed international economic environment, the impact of the financial crisis and the fall in the terms of trade should be relatively contained within Australia.


Furthermore, the OECD expects the Australian unemployment rate will increase to 6% from 4.3% by 2010 but inflation will ease.

The forecast is relatively glowing for Australia when compared to the other major economies of the world, stating that 21 of the 30 member economies of the OECD will go through a protracted recession of a magnitude not seen since the early 1980s.

In recent weeks new property listings have shown a substantial decline and this is likely due to the proximity of the Christmas period. Michael Marquette

FYI: Read related articles on Interest Rates; the Economy; and the Credit Crunch

More information: OECD Economic Outlook No 84

Here are Australia’s auction clearance rates for the capital cities for the weekend ending 23 November, 2008, courtesy of RP Data.

Simon Turner

FYI: Read related articles on Auctions; or Buying Real Estate; Credit Crunch; or Interest Rates

The Reserve Bank of Australia’s (RBA) decisions to decrease interest rates over the last few months were welcomed by borrowers and lenders alike, most recently with the 0.75% cut in October and the 1% cut in September.

The reality is, however, that most of Australia’s lending institutions have chosen not to pass on the full cuts, citing the increases in their funding costs.

This has left a gap between the fall in official interest rates and the rate reductions for a standard variable mortgage by most banks. The banks obviously have responsibilities to their shareholders, but the simple fact is that the RBA did not make these cuts out of a flight of fancy. The cuts were made with the intent that the banks would pass on the full rate decrease.

As the Acting President of the Real Estate Institute of Australia (REIA), Chris Fitzpatrick recently stated:

The banks really need to think about their corporate responsibility to their customers and pass the entire rate cut to where it is needed and where the RBA have intended the cuts to go, the people. The RBA does not cut interest rates without reason, they are doing what they see fit to take the financial pressure off households around Australia and to stabilize the economy while keeping inflation in check.’

Obviously, the increase in the banks “bad debts” have not helped, with exposure to companies such as the Lehman Brothers, Allco Finance Group, ABC Learning weighing them down. Bloomberg report that Bad debts jumped to A$930 million in fiscal 2008 from A$496 million a year earlier. Bad debts as a proportion of loans increased to 0.26 percent from 0.14 percent a year ago. Australian banks have investments totaling A$7.4 billion in troubled companies and it is predicted that Australia’s four biggest banks will record about A$7 billion in bad debts this year.

Quite simply, however, it is in the long-term interests of lending institutions that homeownership is affordable and an attractive investment option. The will have a positive effect on the overall Australian economy, which is something that right now is what everyone is looking for.  Simon Turner

FYI: Read more articles on Interest Rates; or the Australian Economy; or Housing Affordability

More information: Go to the RBA; Bloomberg and REIA’s websites

Barack Obama has changed the face of a nation by winning the US Presidential Race, and has already etched his name in history.  The mammoth task ahead of him should not be understated, but the boost of confidence that American’s and global citizens will take from his win should also not be underestimated.  Belief and hope can certainly contribute to positive change, and injections of both right now certainly can’t hurt.

Australian interest rates have been cut, as have those of Britain (by a whopping 1.5%) – clearly showing that there’s very few corners of the Earth that didn’t under-estimate the pace of the global economic slowdown.  And, having just returned from London where consumer sentiment is miserable, we all have a long way to go yet.  Right now, hope is a very attractive asset.

Always look on the bright side and stay as well informed as possible. Knowledge is the best currency right now.  We’re here to bankroll your brain: go the Nov 7 MTLH e-mag or browse through our blog.

Regards, Michael Marquette & Simon Turner


“If you stand for nothing, you’ll fall for anything”

FYI: Read previous MTLH e-mag’s or Subscribe

Part 1 of a 2 Part Report (read Part 1)

Yesterday’s rate cut of 75 basis points 0.75%) was the right decision by the Reserve Bank of Australia (RBA). Fifty points (0.5%) definitely would not have been enough after the release of some of the worst economic data in many years. I had predicted in an earlier E Magazine that the cut would be approximately 100 basis points (1%) but the Reserve Bank chose the 75 point cut – maybe concerned that two consecutive monthly cuts of 100 basis points (1%) would look like panic.

After the October rate cut of 100 basis points (1%) the markets enjoyed a short lived spike but since then shares have fallen 11%, the dollar 8.2% – in fact since July the Aussie Dollar has been in freefall from around US98 cents to around US66 cents and every piece of economic data since has shocked on the downside.

So, the October interest rate cut was a huge success – just no Australian seems to have benefited. The new conversation points from the Reserve Bank Governor are China’s economic slowdown, significant weakness in industrialized countries and weaker domestic spending than expected. “.

The Reserve Bank has blood on its hands – they have run monetary policy with a single inflationary vision. Australia has been exceptionally fortunate to benefit from the age old reliance on digging up the country – the resources boom.

The problem is that metal prices are down about 35% this year and coal is down around 50%. Given that entrepreneurship is barely encouraged in Australia and schools teach children to get a job and become employees, what is next for the country?

Last night a US central banker used the word “deflation” and told Bloomberg that there would be no growth in the US next year and that inflation had been “vaporized” – meaning that prices are likely to fall for a period of time. Our Reserve Bank couldn’t see this coming and see that this might affect us?

The fact is that the RBA has been caught with rates way too high and their obsession with controlling inflation is now backfiring as Australia “suddenly” heads toward a recession. The foresight of these people are in line with the “fat cat executives” who suddenly work out that their companies have no money – with all of the models and supposed analytical data at their disposal they seem to find it difficult to look out the window let alone ahead several months..

The official cash rate should be another 1.5-2% lower (at least) than it is now. NSW is a basket case of a State and is in recession – the only Australian State that is – but who will be next to follow? New Zealand is in recession, so is Japan – but the RBA was caught off guard. How?

Michael Marquette

FYI:  Read Part 1, or more stories on Interest Rates, the Australian Economy, or the Credit Crunch

The Reserve Bank of Australia (RBA) has cut its key interest rate for the third month in a row as it attempts to prevent Australia’s economy stalling. The central bank trimmed three-quarters of a percentage point – or 75 basis points – off its key cash rate, reducing it to 5.25%, the lowest level since December 2003.

For a typical 25-year, $250,000 home loan, today’s cut if passed on in full by lenders will save the borrower $112.63 a month in payments or some $33,791 over the life of the loan.The move, announced after today’s monthly board meeting by the RBA, exceeded economists’ predictions of a 50 basis-points cut. Today’s cut brings the RBA’s cuts to 2 percentage points since the central bank reversed course in September, retreating from a 12-year high rate of 7.25%.

The RBA will be hoping that the big commercial banks will repeat last month’s feat of passing on the entire official rate cut to borrowers. Lower lending costs help spur the economy by encouraging more individuals and businesses to purchase houses or make other investments, stoking demand that in turn prompts more orders.

Almost all the latest economic figures point to a sharp slowdown in demand as the effects of the global financial crisis spread to Australia. Falling commodity prices are already dimming the outlook for the mining and export sectors. Retail sales shrank 1.1% last month from September, the largest drop since April 2005, as consumers start to pull back on spending.

House prices, another measure of the economy’s health, fell 1.8% in the September quarter, the sharpest slowdown since the 1970s, according to some reports.

Housing is becoming more and more attractive as an asset class as the year progresses. Opportunistic investors are in for a feast – especially those from abroad in countries with exchange rate advantages (United States, United Kingdom and the countries of the European Union using the Euro) – exciting times!

Michael Marquette

This is a question on many people’s lips and our colleague in San Fransisco, Jim Walberg, has some great points worthy of noting.

THE key to our economic recovery is real estate values and consumer confidence. Real estate is the oil that fuels our economic engine. Generally, real estate is having a similar feel that we are seeing in the stock market today. Volatility!

  • New home building starts are down to a trickle
  • Interest rates are GREAT and will get even better in the coming weeks.
  • Rentals are now commanding premium prices.

At some point, consumers will be the driving force that stabilises the real estate market, which will in turn send the message to the markets that the bottom of the market has been found.

In fact, Warren Buffet made a comment recently that when people bail out of the markets because of FEAR, he gets greedy. There are companies valued at 50% of their true value today. Warren Buffet is buying up these values with BILLIONS of dollars today.

Again, we will know the roller coaster ride of the markets is over when real estate hits the bottom and starts to the bounce back up. Pay attention to that event and you may well have timed the market perfectly to participate in some of the best values we will see for years to come.” Wise words indeed. Simon Turner

FYI: Read more articles on Real Estate, Stock Markets, Warren Buffet, and Luxury Homes

Tuesday 4 November 2008 is shaping up to be a historical day:  

  • The US Presidential Election will either see the first African-American President (Obama) or the first female Vice-President (Palin) together with the eldest first-term President (McCain).
  • The Reserve Bank of Australia will meet and, all things being equal, will almost certainly cut interest rates.
  • It’s Melbourne Cup flutter fever throughout Australia. 

You don’t need to be a gambler to have an opinion on the outcome of at least two out of three events, and broadly speaking one could achieve a hat trick by betting that “a horse” will win the Emirates Cup in Melbourne. 

Where the interesting debate lies is in the margin of change. If Obama wins, how many Electoral College Votes will it be by? And, should the RBA cut interest rates, how much will the reduction be?

Let’s hone in on the Australian interest rate debate. Current factors influencing the RBA are:

  • The Australian dollar is weak, hovering around US60 cents to the Australian dollar and having fallen 40% since July;
  • Inflation is high (around 5%);
  • Consumer and business confidence is lowering;
  • Global growth prospects are poor;
  • World oil and commodity prices are becoming more sensible;
  • Unemployment is marginally on the increase;
  • The government’s intervention by guaranteeing some deposits has not created the market stability intended.  

So, given that it’s pretty much a given that interest rates will be cut, how much by? Well, the Marquette Turner team, in taking the above conditions into account, believe that the cut will be between half of one percentage points and three quarters of a percentage point. This will be an important shot in the arm for home owners and home buyers alike – whether it will be a silver bullet for the Australian housing market is probably on par with the likelihood of the eldest horse in the race winning from mid-stream.    Simon Turner

FYI: Read other articles on interest rates, or housing affordability, or the US Presidential Election

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

Keeping up with the ever-changing commentary and realities of the Australian and worldwide economy (which don’t necessarily work in-congruence) can be pretty daunting. Whilst no economist myself, I nonetheless happily offer my opinion on “the real state” of play as I see them.

There have been a number of moves taken by Kevin Rudd of late to primarily ensure that confidence in the Australian banking system is not tested, and to prevent any panic (short or long-term) which could cause irrevocable damage.

His recent package of $A10.4 billion recognises when an economy is tinkering on the edge of a debt-induced recession, government spending both boosts demand, stimulates consumer confidence and thus spending; and provides the private sector with cash flow needed to meet its debt repayment commitments.

As such, I believe the following aspects of the package are positive:

  • Assisting pensioners and families;
  • Guaranteeing deposits at Australian banking institutions

On the other hand, I fail to see how increasing the First Home Buyers Grant and increasing the number of grants will have any long-term positive help to the real estate market. It really is like Nero fiddling whilst Rome burned.

Quite simply, the root cause of this crisis is excessive debt that drove house and share prices to unsustainable levels. Times appeared on a never-ending high as the housing bubble continued, but this was only fuelled by the money was adding to demand.

An increase in $7000 is marginal at best:

  • given that it only represents a small percentage of current house prices:
  • given that most first home buyers are likely to be located in areas where prices have already begun to soften significantly;
  • if increasing unemployment will leads to lower demand;
  • if perceptions of increased demand lead to increased supply

Debt servicing became prohibitive as house prices rapidly outstripped incomes and this lead to an increase in the size of the bubble. And whilst a drop in interest rates has taken some of the pressure off mortgage holders, consumer prices remain prohibitive, particularly when the flow of money and confidence throughout the market is not looking good.

Increasing the amount of money that first home buyers can play-with on a home may help those who can’t afford to get into the market do so is not very productive, particularly if it is factored in by all parties involved, which simply negates its use.

This at a time when the dollar’s fall has put at risk predictions of falling inflation from the current unacceptable 5%, and Australia’s international debt is climbing.

What is needed is not a boost to the First Home Buyer’s Grant, but a 1% cut in interest rates by the Reserve Bank on Melbourne Cup day, while Government’s of all levels must stimulate business with tax cuts otherwise business will be forced to stop hiring new workers and lay-offs of existing workers will increase substantially. The bubble must be deflated, not stretched to the point of no return. Simon Turner

More information: Interest Rate articles & Henry Thornton (our favourite Economic Advisor)

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.

Michael Marquette

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