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from rpdata:
25 basis point rise…
but what about the banks?
The Reserve Bank of Australia has lifted the official cash rate by 25 basis points. With bank margins deteriorating as wholesale credit costs rise, there is speculation the nations lenders may raise mortgage rates even further than the official rise.
It was no surprise that the Reserve Bank of Australia took the bold step of increasing interest rates another 25 basis points today, taking the cash rate target up to 6.75 per cent. I use the word ‘bold’ because this is the first time the Reserve Bank has moved interest rates during an election campaign, which is a strong endorsement of the Banks independence from government. The rate hike was certainly not surprising given the barrage of indicators that made an increase unavoidable:
* underlying inflation increased by 3 per cent over the year – at the outer limit of the RBA’s ‘target range’
* retail sales grew faster than expected during September
* housing approvals were also higher than expectations indicating solid demand for new private housing
* expanding lines of credit debt despite earlier rate rises, particularly in the business sector
* unemployment remaining at record lows which is placing upwards pressure on wages
What remains to be seen is how Australia’s banks will react to the rise. At the very least the banks will pass on the quarter of a per cent rise, however many analysts are expecting the banks to raise their interest rates even further. Australia’s leading banks have been very public in refusing to rule out increasing mortgage rates beyond the .25 per cent hike, stating higher costs due to the US sub prime mortgage market crisis. Many of the smaller banks including Macquarie Bank, Bluestone and Adelaide Bank, have already increased their mortgage rates due to increasing credit costs eroding their margins.
There is not doubt that bank lending margins have been whittled away. Increased competition in the lending sector has contributed to this, as has government pressure to keep mortgage rates in line with cash rate target movements, despite the costs of wholesale funding increasing.
Looking towards the next six months, it appears another official rate rise is very likely. A survey of 25 Australian economists by the Australian Financial Review found that almost three quarters were expecting another rate rise within the next six months, bringing the official cash rate up to 7.0 per cent.
With the average housing loan size in Australia being $239,000, an additional quarter of a percent means an extra $600 per annum to service the loan. This increase is only an additional $11.50 each week, however, this latest increase is the tenth consecutive rise since May 2002, meaning official interest rates have increased by 2.5 per cent since this time. When viewed in this context, the average Australian mortgage payment is up by around $6,000 per annum or $115 each week. When we also take into account higher consumer prices for essential items such as food and fuel, it can see why many home owners are struggling with finances. The fallout comes in the form of lower and lower levels of housing affordability which is compounded by the fact that real estate markets across Australia are now increasing in value at the rate of 12.3 per cent per annum.
It is expected that both the Federal Coalition and the Labor party will be releasing their housing policy in the coming days. Little has been said about housing policy and strategies to combat the affordability crisis from either party during the campaign. With the latest interest rate rise, and potentially more to come, together with increasing housing prices and a shortage of rental stock, we would expect some significant budget allocations and creative strategies to be directed at this important issue.
Market Movements
House prices around the country increased by 12.3 per cent over the year ending September 2007, the highest growth rate since the market was booming four years ago. Growth across the nation has been accelerating each month during 2007, apart from the Perth and Darwin markets which are slowing. Australia’s most affordable capital city, Adelaide, has been the stand out performer, with real estate prices increasing at just under 25 per cent over year. The latest RP Data / Rismark hedonic index release results are tabled below. For detailed information see http://www.rpdata.net.au/indices.
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This is trance...
Jose Amnesia - The Eternal (Pulser Remix) / Chicane - Saltwater / Photon Project - Illumination / Gouryella - Tenshi / Altitude - Altitude (SHOKK Remix) / Rank 1 - Airwave / The Thrillseekers - Synaesthesia (En Motion Mix)
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not sure i can really take on any more at the moment though 
i could just scrape by i guess, but no more gaming or drinking and im not sure i could cope with life if that were the case 
