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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.
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
With news that Germany is now officially in recession, is the domino effect in full swing? Can Australia resist – maybe, maybe not – hopefully New South Wales is not the trendsetter. As the only Australian state in recession, the hapless State government has decided that the best way to stimulate growth and kick-start the economy is…wait for it…put up taxes and hit families and small businesses hard. What planet are they on?
In this issue of our e-mag we’ve tried hard to balance the heavy and light-hearted to keep things running smoothly for you. We haven’t sugar-coated the bad news, but we’ve made sure there’s some luxury and fun included.
It’s no secret that Barack Obama utilized the internet and social networking massively during his election campaign. We note that Australia’s political leaders have taken this onboard too, meaning that as well as Facebook and MySpace, you can now follow Kevin Rudd on Twitter and also Liberal leader, Malcolm Turnbull. See for yourself by clicking on the links, and don’t forget you can follow the Marquette Turner team too (see the bottom of this email for the links, and also more information).
Keep checking our blog to stay informed on life and its luxuries – it’s updated many times a day. You can check out the Nov 14 e-mag, or browse through our blog right here, right now.
“A government big enough to give you everything you want, is strong enough to take everything you have” Thomas Jefferson
The news is moving more quickly than I can keep up with. I have just arrived back to the office after running my dogs and CNN announced that Germany is in recession. So when we look at the world’s largest five economies, three are in recession, the United States is all but in recession and China while not in recession is going to grow at a much reduced rate than has been the case in recent years.
These are the five largest world economies:
1. United States – One more quarter of negative growth and will be officially in recession
2. Japan – In recession
3. Germany – In recession
4. China – Not in recession but growth estimates slashed (October Growth rate down 3.2%)
5. United Kingdom – In recession
It’s difficult to watch the television, read newspapers or generally go outside of your home right now without being bombarded with negative news on the economy. The US economy is all but in recession, New Zealand is already in recession, Japan is in recession and as of today so is the United Kingdom.
The Governor of the Bank of England has predicted no growth in the UK in 2009 and believes that the recession will be as bad as the early 1990’s. The British Pound has hit a six year low against the Euro and inflation in the UK is currently at 5% (the target set by the Bank of England is 2%).
Deflation is now a real threat in the UK which can be just as concerning as inflation. Deflation refers to a general decline in prices, often caused by a reduced supply of money or credit. It can also be caused by a decrease in spending by Governments, consumers or investors. Deflation is simply put as a decrease in price due to decreased demand – therefore the decreased demand results in decreased production and increased levels of unemployment.
With this deflationary threat looming it is likely that we will see interest rates continue to fall with some economists predicting UK interest rates will drop to around 1%. The recent massive 1.5% rate cut in the UK and two consecutive monthly cuts in Australia (1% and 0.75% respectively) are sure signs that central banks have finally seen just how serious the current situation is. I believe it’s a perfect time to purchase property safe in the knowledge that interest rates are going down – this is a wonderful situation.
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?
On my way across to the US yesterday I really couldn’t help but hear people on the plane discussing the state of the US economy. Confidence is very low and it would seem as a foreigner that Americans are looking for change which seems to be Barack Obama. The Americans I have met so far aren’t talking recession – they are talking about a “Depression”.
I spoke with a retired man who discussed how terrified he was of Sarah Palin: he believes that the US needed someone young and energized like Obama and he was genuinely worried that John McCain could die and the US would end up with Sarah Palin as President which would send a terrible signal to the rest of the world about Americans as a whole. He also just wanted George Bush to go and described him as a “lame duck President”.
It made me think just how lucky we are in Australia. Our property market is holding up price wise although sales volumes are taking a beating and are only a fraction of previous years. With interest rates decreasing (the massive 1% decrease this week is key) and more decreases likely to come, property throughout Australia is starting to look very good. I strongly believe that investors both domestically and abroad are already starting to look at Australia as a safe haven for money.
Our banks are safe and deposits are guaranteed. Australian interest rates are decreasing and property pricing is not volatile, with demand from immigration assisting throughout Australia. With rental yields increasing, property as an asset class is looking extremely attractive. Marquette Turner Luxury Homes will be doing all we can during our time in the US to promote Australia a safe haven and with the Australian dollar falling, foreign investment in our wonderful country is looking very attractive.
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!
Even though the Reserve Bank this week kept interest rates on hold, it still faces a tricky balancing act in bringing inflation back to its 2-3 per cent target band as it risks pressing too hard on the rate brakes and driving the economy into recession.House prices grew at their slowest quarterly pace in a year during the March quarter – one sign that interest rates are having their desired impact.
And the number of job advertisements published last month jumped after a slow start to the year, in a sign that while the economy may be slowing, there is still plenty of strength in demand.
A senior strategist with TD Securities, Joshua Williamson, said a broad array of goods and services were contributing to inflation, not just higher petrol and food prices.
The Bureau of Statistics’ house price index rose just 1.1 per cent in the first three months of this year, compared with a 4.1 per cent increase in the December quarter.
Sydney posted the sharpest decline, with average prices falling 1.5 per cent, followed by Darwin and Hobart, with falls of 1.3 and 0.7 per cent, respectively.
Property markets in Brisbane and Melbourne remained buoyant, with prices rising by 2.8 and 4.1 per cent respectively.