Government struggles as business improves: Robert Simeon
As we predicted, two Reserve Bank of Australia meetings have passed and the cash rate has not budged from 3%.
One only has to read the statement by RBA governor to see: "In Australia, most indicators available for this meeting suggest that growth was close to trend over 2012, led by very large increases in capital spending in the resources sector, while some other sectors experienced weaker conditions. Looking ahead, the peak in resource investment is approaching. As it does, there will be more scope for other areas of demand to strengthen."
I stated in previous posts that I can’t see the official cash rate going below 3% and I now lean towards no rate cut in April as HSBC pencils in rate hike towards end of the year.
HSBC chief economist Paul Bloxham says low inflation (currently well within the the RBA’s target of 2% to 3% band at 2.2%) means an easing bias still remained and the RBA could cut rates if necessary, but he highlighted the following comment by RBA governor Glenn Stevens in the monetary policy statement, which suggests a brighter outlook.
"During 2012, there was a significant easing in monetary policy. Though the full impact of this will still take more time to become apparent, there are signs that the easier conditions are having some of the expected results."
Australia is fortunate that the RBA has a positive cash rate, with which they can act where necessary. This is in contrast to other central banks that have no room to stimulate their economies given their cash rates are stuck on zero.
The debate has now turned to major banks can and should cut variable rates independently of RBA: Bernie Fraser, which I don’t believe will happen as it is becoming increasingly obvious that the big banks are doing private sweetheart deals with clients.
Borrowers should not be paying more than 6% on their home loan: RBA charts. Further proof is that one in four looking to split their home loan between fixed and variable: Loan Market. The mortgage-broking group says that over the past four weeks 27% of their inquiries have been from borrowers wanting to split a portion of their loan between fixed and variable. This is a 70% increase on the number of borrowers looking to split their home loan a year ago. On that basis it would be reasonable to suggest that we can expect this number to increase further in the months to come.
Economic optimism ‘unjustified’: Westpac economist is an amazing commentary, in which Westpac Banking Corp Ltd's senior London economist James Shugg says: “We have a situation where $US 85 billion ($A82.6 billion) a month is being pumped into the US economy, interest rates are at record lows and the economy is only growing at 2%.”
Canberra facing long – term budget deficits: report states that “Australia faces deficits until 2025 without policy changes, as modelling for the Minerals Council of Australia shows the impact of the removal of higher commodities prices and changes in the economic cycle on the budget.” One only has to see how this proposition is fractured due to massive bungles by Wayne Swan and Treasury (Five fractures in Swan’s treasured friendship). It should be noted that Australia’s public debt – which has grown 150% since 2007 – currently sits at $265 billion, third only to Iceland and Ireland.
To put this into perspective, BCA warns Labor that its budget plan is failing – the federal government risks damaging economic growth if it stoops to ad hoc new taxes and revenue grabs in this year’s budget. This would be further explained in the latest edition of CEO Pulse where the CEO’s scorecard for the government’s performance in managing the economy is up slightly to 3.3 out of 10. A woeful score!
In the March 2012 quarter Mosman houses peaked at 144; now we see volumes are already declining to 103. It is just not Mosman – the pattern is common for all of our demographic markets.
Source: Domain Property Monitors
MOSMAN – 2088
• Number of houses on the market this time 2012 – 144
• Number of houses on the market last week – 105
• Number of houses on the market this week – 103
• Number of apartments on the market this time 2012 –115
• Number of apartments on the market last week – 76
• Number of apartments on the market this week – 76
CREMORNE – 2090
• Number of houses on the market this time 2012 – 19
• Number of houses on the market last week – 17
• Number of houses on the market this week – 17
• Number of apartments on the market this time 2012 – 25
• Number of apartments on the market last week – 20
• Number of apartments on the market this week – 15
NEUTRAL BAY – 2089
• Number of houses on the market this time 2012 – 20
• Number of houses on the market last week – 15
• Number of houses on the market this week – 14
• Number of apartments on the market this time 2012 – 65
• Number of apartments on the market last week – 39
• Number of apartments on the market this week – 43
For this week’s sales in Cremorne real estate, Cremorne Point real estate, Mosman real estate, Beauty Point real estate, Clifton Gardens real estate, Balmoral real estate, Neutral Bay real estate, Cammeray real estate, click here.
For this week’s open for inspections, click here.
RBA quietly increases banks’ bailout buffer is a fascinating read for those intrigued by the new Basel III requirements.
The only institution that I see defaulting at this point of time is the federal government on its latest spending promises. The CEO’s competency score of 3.3 out of 10 says it all.
Robert Simeon is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.