Interest rates on the rise

Yesterday's decision to take the official cash rate from 3.75 per cent to 4.0 per cent was not a big surprise, but how the Reserve Bank proceeds from here will be very interesting.

Most borrowers would be happy to see interest rates left on hold for the next few months, but what the RBA will be asking is, how confident is the Australian community, the Australian public, and Australian business about the future?

Many economists predict the OCR will hit 5 per cent by the end of this year, so mortgage holders should be mindful of these upcoming rises and budget accordingly. If you are concerned about pending rate rises or would simply like to ensure your current home loan is the best it can be contact your local mortgage broker to arrange a confidential, professional analysis of your current loan options from our large panel of banks and secure lenders.

Additionally, if you are considering borrowing money to purchase or renovate property, or to refinance your current loan, ask about getting a free property report for the suburb you are interested in. You could save time and money simply by knowing the worth of the property and better understanding the trends occurring in the local area.

Source: The Insider, Peter Sullivan, Home Finance Broker. Contact on peter.sullivan@loanmarket.com.au

Home sales at a 13-month high

New home sales rose by 4.2 per cent in March – hitting a 13 month high. New home sales have now jumped over 20 per cent since December.

Detached house sales rose by 4.2 per cent in March. All states noted a pick up in home sales over the March quarter – the best result since early 2007.

What does it all mean?


There is no doubt that with interest rates at 49 year lows the additional first home owners grant is having a amplified impact on the housing sector. New home sales have jumped once again in the latest reading hitting a 13 month high. In fact since the grant was initiated new home sales have jumped over 20 per cent from the lows set last December.

In recent weeks there has been a lot of discussion regarding the possible extension of the additional grant. There is no doubt that first home buyers are certainly active in the market but investors are still reluctant, so a scaling back of the grant could stem momentum in a market that is just gaining pace. The grant has helped to promote housing activity however further construction and investor interest needs to be promoted. It maybe that the grant remains on board for new home and gets scaled back for existing homes.

In the near term the domestic economy is expected to weaken and unemployment is expected to rise substantially over the next year, suggesting that the complete removal of the additional grant will remove a crucial support to house prices and overall economic activity. For the government it becomes a matter of massaging the housing sector to ensure that housing activity and prices remain resilient to the short-term downturn in the economy while ensuring that an asset bubble is not created in the longer run.

The lower mortgage rates and the June 30 deadline for first home buyers is likely to boost the demand for property in coming months, however property prices are going to be held back to a large extent by worries about job prospects. CommSec expects the unemployment rate to rise to 6.5 per cent over the next year, no doubt ensuring that house prices remain subdued in the near term.

What do the figures show?

New home sales rose by 4.2 per cent in March after rising by 3.9 per cent in February. Detached home sales rose by 4.1 per cent. Detached new home sales rose by rose in all five states in the March quarter – the best result since early 2007. But pre-contract sales of apartment fell by 3.4 per cent – the fifth straight fall.

Detached home sales rose by 15.2 per cent in NSW, 14.6 per cent in Victoria and 7.3 per cent in Western Australia. Sales fell by 4.6 per cent in South Australia and 16.9 per cent in Queensland.

What are the implications for interest rates and investors?

The rise in home sales is encouraging news for the building sector. But further action by the Federal Government is likely to be necessary to prevent investors staying away, further exacerbating the rental crisis.

Source Craig James, Chief Equities Economist, CommSec