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The Reserve Bank of Australia board has kept interest rates on hold, leaving the official cash rate at 4.25 percent.

The shock move comes as many parts of the economy continue to struggle with the side effects of the mining boom.

Data published yesterday showed retail trade contracted 0.1 percent in December, traditionally the sector’s strongest month.

In anticipation of a rate cut, the Prime Minister and Treasurer earlier urged banks to pass on the cut in full.

But the board’s decision means mortgage holders and borrowers will have to wait another month in hope of further interest rate relief.

The CEO of mortgage comparison company RateCity, Damian Smith, told ninemsn the surprise announcement does not spell impending doom for mortgagees.

"Borrowers shouldn’t be disheartened that the Reserve Bank kept the cash rate at 4.25 percent today because the sluggish home loans market means the ball is in your court," Mr Smith said.

"We’re seeing lenders offering discounts of up to one percent off their standard variable rates for basic home loans and many lenders — including the big four banks — have said they are willing to negotiate to retain their share of the home loan market."

The Australian dollar rose sharply immediately after the news, up more than 0.7 of a US cent.

At 1432 (AEDT), the currency was at 107.79 US cents, compared with 107.06 US cents just before the RBA announced its decision at 1430 (AEST) today.

Source: www.ninemsn.com.au

Ongoing discount loans lose momentum

Borrowers’ preference for fixed rate home loans is continuing at an unrelenting pace regardless of recent cash rate cuts, national loan approval data from Mortgage Choice has revealed.

Fixed rate loans accounted for 24% of all new home loan approvals during December 2011, up from 21% in November and well above the 12-month average of 15%. Demand for this loan type has risen for seven consecutive months, increasing 13 percentage points since May 2011.

Company spokesperson Belinda Williamson said, “Consecutive cash rate cuts in November and December 2011 have not swayed Australian borrowers’ desire for fixed rate loans.”

“It is possible borrowers’ need for certainty around their home loan repayments, coupled with the affordability of fixed rate loans are the driving forces behind demand for this loan type.

“During December fixed rates were significantly lower than variable rates, in some cases the difference was one percentage point or more.

“Our loan data shows fixed rates are now more in demand than they have been in over three and a half years at the expense of variable rates, which have lost popularity among new borrowers.

“Customer demand for variable rate loans fell from 79% to 76%, well down on the 12-month average of 85%. The most popular variable rate home loan with new borrowers, ongoing discount rate loans, slipped from 44% to 41%, also well below the 12-month average of 35%.”

Basic variable loan demand rose marginally to 15% of all approvals in December, up from 14% in November while standard variable loan demand fell slightly to 16% from 17%. Interest in line of credit loans dropped to 3% from 4% and the uptake of introductory rate loans was steady at 1%.

For more information visit: www.mortgagechoice.com.au

Home loans by value fell in October and remained flat over the year, suggesting the housing sector remains stagnant.

The Australian Bureau of Statistics (ABS) said on Monday that total housing finance by value fell 2.5 per cent in October, seasonally adjusted, to $20.458 billion.

The ABS data also showed that the value of home loans was largely unchanged from October 2010, when it was reported at $20.593 billion.

The number of home loans approved in October 2011 rose 0.7 per cent.

National Australia Bank chief economist Robert Henderson said Monday’s data showed the housing market was still deteriorating.

Mr Henderson said it was a fairly dismal report on the housing market, with falling lending in value terms and construction and investment lending both weak.

Recent data, including the national accounts figures released last week, have highlighted the weakness of the housing sector.

"It is clear that over the foreseeable future Australia will fall well short of building the number of new homes required for both owner-occupiers and renters," Housing Industry Association chief economist Harley Dale said.

"Amidst the growing risks to our economy from the situation in Europe, now is the time to be providing stimulus to the new home building sector while at the same time reinvigorating the housing supply reform process, which currently lies dormant."

Commonwealth Bank of Australia senior economist Michael Workman said Monday’s ABS figures were a little softer than he expected.

"If you go back and look at the data over the last 15 years or so, housing credit growth still remains exceptionally weak.

"So, for the housing market, it’s strongly biased towards the buyers rather than sellers and it looks like it’s going to stay that way."

Mr Workman said the Australian dollar and local bond futures were largely unaffected by the data.

RBC Capital Markets fixed income and currency strategist Michael Turner said the October housing figures were a little dated.

"China has already reported trade data for November, and the finance data do not reflect the November and December (monetary) policy easing (in Australia)," he said.

"As such, there are limited implications for markets.

"We expect more timely domestic data to better reflect the softening in global growth in coming months, which should justify further easing (of interest rates) and a move to accommodative territory in 2012."

ICAP senior economist Adam Carr said the housing data showed the Australian lending market was recovering even before the Reserve Bank of Australia (RBA) cut interest rates.

The cash rate is now at 4.25 per cent after two consecutive 25-basis point cuts in November and December.

"The 50-basis points worth of cuts we’ve seen will likely see lending growth accelerate over coming months, which will start to add to the strong private demand numbers we’ve seen to date," Mr Carr said.

Story source: www.ninemsn.com.au

The Reserve Bank of Australia board has cut the official interest rate by 25 basis points to 4.25 per cent, giving mortgage holders and borrowers a pre-Christmas reprieve.

The RBA announced the rate cut at 2.30pm AEDT today following the board’s final meeting for the year.

It’s the second interest rate cut in as many months after the RBA lowered the cash rate on Melbourne Cup day in November.

In a statement issued with the announcement, RBA Governor Glenn Stevens said there had been "considerable turbulence" in financial markets and said financing conditions had become more difficult.

"This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased," Mr Stevens said in a statement accompanying the decision on Tuesday.

Economics analyst Ross Greenwood said Europe’s debt crisis would have been a significant factor in the RBA’s decision.

"The Reserve Bank indicated that it is still concerned about the European economic situation and the prospects of a global slowdown hurting Australia and its export markets," Greenwood told ninemsn.

While it’s good news for mortgage holders and borrowers, Greenwood cautioned consumers not to expect the banks to pass on the full interest rate.

Analysts were divided about whether the RBA would cut the rate today, with a survey of 14 economists conducted by AAP revealing seven tipping a cut, and seven predicting rates would stay on hold for another month.

Story source: www.ninemsn.com.au

Economists are divided on whether borrowers will get a second interest rate cut in as many months on Tuesday.

Seven of the 14 economists surveyed by AAP say the RBA will cut the cash rate to 4.25 per cent from 4.5 per cent on December 6.

On Melbourne Cup day, the Reserve Bank of Australia (RBA) cut the cash rate from 4.75 per cent, saying that recent information suggested inflation had been contained.

With inflation no longer a problem, the bias for the RBA is now firmly leaning towards rate cuts, with 10 of the 14 economists forecasting rate cuts by the middle of 2012.

Citigroup head of economics Paul Brennan is expecting the RBA to cut rates on Tuesday, despite expectations of strong economic growth in the September quarter.

"We see this as a policy of least regret given that the outlook for global growth has continued to weaken in the past month to well below trend," Mr Brennan said.

"We see scope to lower the cash rate to the bottom of the neutral range over the next few months, which would imply a cash rate of four per cent over the next three months."

The biggest risk to economic growth comes from Europe, which may well go into recession, or start another financial crisis, as several members of the euro struggle to meet debt repayments.

There are also local risks to economic growth.

In the past month the RBA, Treasury and the Organisation for Economic Co-operation and Development (OECD) have cut economic growth forecasts for 2012.

In addition to that, official figures for October showed a 10.7 per cent fall in building approvals and retail spending only rising 0.2 per cent.

On the other hand Australia’s mining boom is still going strong, with the sector making its biggest ever contribution to economic growth.

Nomura Australia chief economist Stephen Roberts said he doesn’t expect the cash rate to move for the foreseeable future unless something bad happens overseas.

"My forecast is that they are going to leave it at 4.5 per cent," he said.

"I’m assuming they will hold it neutral all the way through to the end of 2012 but my proviso is if Europe generally does go to hell in a handbasket, then they can drop interest rates a long way."

NAB senior economist Spiros Papadopoulos said the RBA won’t cut on Tuesday but by early next year the pressure will build for another rate cut.

"Obviously there’s a risk that they might cut interest rates next week, given everything that’s been happening offshore in the last couple of weeks," he said.

"On balance, given the fact that the domestic economy has been holding up okay we don’t think they need to rush in to cutting rates."

Story source: www.ninemsn.com.au

It was a case of steadying the ship as expected when the Reserve Bank met today and decided to keep interest rates on hold at 4.75 per cent.

The move comes on the back of comments by the Reserve Bank Governor Glenn Stevens last month that rates would stay on hold in the near future.

Each 0.25 per cent interest rate rise adds another $60 to the monthly cost of an average Australian mortgage.

The official interest rate is currently 4.75 per cent. Mortgage holders on variable interest rates are being charged a standard variable rate of about 7.83 per cent by their lenders.

By keeping rates on hold the Reserve Bank has presented borrowers with an opportunity to beat their lenders at their own game, and pay more off their mortgages before the next rate rise, which is now expected to be quite late in the year.

Australia experienced one of the strongest housing markets in the world during 2010, new research shows.

But likely interest rate hikes will slow the market in 2011, the Global Real Estate Trends report predicts.

The report, released by Canada’s Scotiabank, tracked the housing markets in 12 advanced economies throughout 2010.

Home prices increased in Australia, Canada, France, Sweden, Switzerland and the United Kingdom.

They remained flat in Germany and the United States, and fell in Ireland, Italy, Japan and Spain.

Australia led the pack, thanks to relatively-low unemployment and tight housing supply.

But interest rate hikes and a cut to the first homeowners grant slowed a "red-hot" property market in 2010 to some degree, the report said.

Economist Adrienne Warren anticipates the Reserve Bank of Australia will lift interest rates by an additional 75 basis points in 2011.

Australia’s close trade ties with Asia and resource wealth would continue to underpin a solid pace of domestic activity.

"Higher interest rates will worsen already strained affordability," Ms Warren said in a statement.

Canada’s market also fared well, but was "one of the most volatile" expected to be tempered by more moderate employment and income growth in 2011.

The UK property market staged a strong early-year recovery while Germany’s decade-long housing slump also came to an end.

But it was a different story in Spain, Ireland and Italy, where the market continues to fall.

Japan’s two-decade long property slump continued in 2010, and is expected to slump further in 2011 on the back of a weaker economy.

The surprise result came from the US where the housing market stabilised.

That trend is expected to continue, with the report predicting the US Federal Reserve to maintain its record-low 0.25 per cent rate through the end of 2011.

Source: www.ninemsn.com.au

Investors in the real estate investment trust (REIT) sector are preparing for a bumpy last quarter of calendar 2010 caused by rising interest rates and the next round of office and retail property valuations.

Property trust analysts have predicted another round of consolidation among the trusts is not far away as predators look to take advantage of the continued low share prices for many of the listed trusts.

Deutsche Bank’s Matthew Bertram has earmarked Mirvac’s residential business as a prime target for any consolidation within the REIT sector.

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”In our view, Mirvac’s residential brand would be saleable, if REITs were to enter a consolidation phase,” he said.

”If Mirvac’s return on capital remains below its weighted average cost of capital in the medium term, on our estimates a sale of the residential division would be accretive to funds from operations, reduce debt and potentially facilitate a return of capital to shareholders.”

Other deals being worked on are the sale or internalisation of the management rights of the ING Group’s listed trusts, while Stockland is closer to securing the retirement group Aevum.

Investors are debating whether Stockland will launch a bid for FKP’s retirement assets.

Reflecting the fluctuating sentiment among REIT investors was the S&P/ASX 300 A-REIT Accumulation Index, which underperformed the broader equity market by 5.5 per cent, returning a negative 0.9 per cent for September. That compared with August, when the same index outperformed the broader market by 3.5 per cent, returning 3.5 per cent over the month.

The managing director of Maxim Asset Management, Winston Sammut, said over the past year to 18 months, Australian REITs had been concentrating on improving their balance sheets as well as refinancing their debt facilities.

Where possible, a number have been actively disposing of ”non-core assets”. As a result, most of the A-REITs have moved back to basics, becoming the traditional defensive asset class it should always have been.

Mr Sammut said that as a consequence of these changes, the longer-term outlook for A-REITs was positive.

”Over the short term, we expect the sector to trade around current levels before moving ahead as investors become more comfortable with the reformation of the A-REITs that has taken place over the last year or so,” Mr Sammut said.

He added the recently launched Maxim Income Fund benefited from the volatile financial markets, generating a return of 3.29 per cent from July 15 (the date of the last distribution) to September 30th.

Story by Carolyn Cummins COMMERCIAL PROPERTY EDITOR www.smh.com.au

The Reserve Bank of Australia decided to leave interest rates on hold at 4.5% in June as they observe the impact that recent rate rises are having on the Australian economy. This is particularly important as Europe tries to deal with its sovereign debt issues. The RBA is paying most attention to the health of the global economy and how it may impact Australia.

For the year to March 2010, the Australian economy showed solid growth, expanding by 2.7%. This is significant when compared to the small 0.7% growth in the previous year. Economists predict a positive outlook with growth forecast to be around 3.5% for the coming year.

Property clearance rates in Melbourne have certainly eased in the past few months from the mid to high 80′s to 65% at present. Stock levels are at a record high for the time of the year. Despite this, our Street News subscribers have indicated that property sales and prices are still strong and that buyer levels at opens are still very good.

Leading industry forecaster, BIS Shrapnel, predicts a modest growth in the Melbourne market over the next three years. "Price performance will be patchy, although we expect the overall shortage of dwellings will prevent a fall in the median house price. On the other hand, price growth will remain very limited due to the rising interest rate pressuring affordability.

Our forecast is for Melbourne’s median house price to rise by a total of 11 per cent over the three year period to June 2013, or a modest 3.5 per cent per annum".

By Peter Sarmas, Managing Director, Street News

What is the Government doing with all our money?

This article is a departure for me from what I usually publish on this blog, however,given that at some stage in all of our lives we will head to a bank or financial instituion, borrow money and get into debt, I thought it worth sharing with you. I think it’s also relevant as the news of recent days has shown the Australian economy not in recession and the news that the Queensland government is about to sell off all the states assets.  

When it comes to finances and managing the household budget we all try and stay within your means, not spending more than you earn and not borrowing more than you can pay back. Now, great in theory, but not all of us can manage it, well here is a very interesting article from Ross Greenwood of Money News.

If this doesn’t scare you I don’t know what will:  

“Right now the Federal Government is at pains to tell everyone – including us the mug-punters to the International Monetary Fund that it will not exceed its own, self-imposed, borrowing limits.  How much? $200 billion. And here’s a worry. If you work in a bank’s money market operation; or if you are a politician; the millions turn into billions and it rolls off the tip of the tongue a bit too easily.

But every dollar that is borrowed, some time, has to be repaid. By you, by me and by the rest of the country.

Just after 5 o’clock tonight I did a bit of maths for Jason Morrison. But it’s so staggering its worth repeating now. First though … here’s what Chairman Rudd has been saying about – what he calls – these temporary borrowings.  Remember those words … temporary deficit … but the total Government debt could end up around $200 billion.

So here’s a very basic calculation … I used a home loan calculator to work it out … it’s that simple.

$200 billion is $200,000 million. The current 10 year Government bond rate is 4.67 per cent. I worked the loan out over a period of 20 years.

Now here’s where it gets scary … really scary.

The repayments on $200 billion come to more than one and a quarter billion dollars – every month – for 20 years. It works out we – as taxpayers – will be repaying $15.4 billion in interest and principal every year … $733 for every man woman and child – every year.

The total interest bill over the 20 years is – get this – $108 billion.

And remember, this is a Government that just 18 months ago had NO debt … NO debt. In fact it had enough money to create the Future Fund to pay the future liabilities of public servants’ superannuation … and it had enough to stick $20 billion into the Building Australia Fund last year …”

Money News
Ross Greenwood Presenter 

Thanks to http://www.australia.to/ for the use of this story