Australia’s housing sector has called on the reserve bank to deliver a 50 basis point interest rate cut after a survey showed new home sales have fallen to their lowest level in more than a decade.

The Housing Industry Association (HIA), which represents the residential building industry, says new home sales dropped 9.4 per cent, seasonally adjusted, in March 2012, their lowest level in more than 10 years.

Multi-unit sales slumped 6.4 per cent over the same period.

HIA chief economist Harley Dale called on the Reserve Bank of Australia (RBA) to deliver a 50 basis point interest rate cut at its board meeting on Tuesday.

An AAP survey of 16 economists on Friday showed all expected the RBA to cut the cash rate 25 basis points, to 4.00 per cent, this week.

However, Mr Dale said a larger cut was needed to revive the housing sector.

"The bank needs to send a clear signal that it is back on the case of assisting an economy that is clearly weaker than it anticipated in 2012," said Harley Dale.

"It is not too late to turn the situation around and prevent new housing from revisiting a GFC (global financial crisis) low.

"Interest rate cuts, while no panacea, can provide substantial assistance in restoring confidence and activity."

The survey of Australia’s 100 largest builders found Queensland suffered the biggest decline with new home sales down 15.3 per cent, followed by Western Australia, down 12 per cent, and New South Wales, down 9.7 per cent.

Story source: http://finance.ninemsn.com.au

The Reserve Bank of Australia (RBA) has spared borrowers an interest rate rise, leaving the cash rate at 4.75 percent in a widely expected move.

The Reserve Bank last increased the overnight cash rate in November 2010 to 4.75 percent from 4.5 percent and most economists still expect a rate rise this year.

“We expect that the Reserve Bank’s decision to leave the official cash rate unchanged at 4.75% today will fuel a new trend emerging where we’re starting to see Australians saving less and borrowing more money for home loans," RateCity chief executive Damian Smith said.

Prior to the announcement the Australian Chamber of Commerce and Industry warned that an official interest rate rise today would "punch a hole" in business and consumer confidence. The chamber’s latest expectations survey, released on Monday, again highlighted the pressures businesses are facing, it said.

"We are particularly concerned about a pre-emptive rate increase, or an early increase," the chamber’s director of economics and industry policy Greg Evans told reporters in Canberra.

"That that could be very damaging and punch a hole in both business and consumer confidence."

A professional association for real estate agents in Victoria is calling on politicians to address housing affordability in the state as data show the number of first home buyer numbers has fallen sharply as a result of rising property prices, shortage of stock and higher state government taxes.

A professional association for real estate agents in Victoria is calling on politicians to address housing affordability in the state as data show the number of first home buyer numbers has fallen sharply as a result of rising property prices, shortage of stock and higher state government taxes.

Real Estate Institute of Victoria (REIV) chief executive Enzo Raimondo said that it is incumbent on all political parties contesting the election to outline how they will deal with housing affordability in Victoria and assist first home buyers.

“In four other Australian states most first home buyers pay no stamp duty; the question is why can’t that happen in Victoria.

“When the First Home Owners Grant was introduced in 2000 it provided buyers with $7000, an amount that went a long way to paying the stamp duty on most homes and, in the case of 30 suburbs, left buyers with extra to go towards the home purchase.

“Ten years later the failure of the state government to control escalating stamp duty bills or increase the grant means that now the grant is little more than a small subsidy on the stamp duty.

“The state government is giving with one hand, taking more with the other and leaving most first home buyers out of pocket.

“According to the ABS, 10 years ago first home buyers represented 28 per cent of the market. A year ago it was 27 per cent and in August this year it had dropped to 17 per cent.

“Ten years ago a first home buyer in Broadmeadows who received the $7000 grant had nearly $5,000 remaining after stamp duty; now they have to pay an extra $6,600. In Box Hill if they purchased a modest unit they would have had $1,200 left over; now they need to pay another $10,870.

“Stamp duty revenue has more than trebled in 10 years and is adding significant financial burdens at a time when buyers can least afford it.

Mr Raimondo concluded that the answer to improving affordability is reducing stamp duty, building more homes and increasing first home buyer assistance.

Story by Sharon O. www.ibtimes.com

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The Australian housing market has begun to slow as predicted by analysts last month. House prices reviewed across eight major cities increased by an average of 0.1 percent from July to September, the lowest increase per quarter since the start of 2009, the data, provided by the Australian Bureau of Statistics has said.

The Reserve Bank of Australia has indicated a review of interest rates in light of the apparent cooling of the housing market.

Paul Braddick, a senior economist at Australia and New Zealand Banking Group Ltd said “Rising interest rates have seen housing affordability deteriorate,” and that “Further rate hikes in 2010-11 will hurt affordability and maintain a cap on prices.”

Part of the influence on these statistics is the data in yesterday’s news story. With the four big banks in Australia controlling such a large percentage of the housing market there is little consumer choice and prices are being kept relatively high.

Following this trend the housing market in Tasmania is also suffering, sales fell by 11.7 percent across the board. However, despite this drop in sales the most expensive properties have not been affected with sales staying roughly on track.

he Real Estate of Tasmania has said that third quarter sales were down 23.2 percent on the same period last year. Despite the decline in sales the average house price has continued to rise over the last year, this is in part due to the demand for second homes.

The banking system needs reform to ensure that consumers have enough choice, that first time buyers are not shut out and that the housing market does not stall altogether.

Story by Robert Pearce www.embraceaustralia.com

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Not so long ago investors were hearing warnings to expect less spectacular returns from shares, but now the same warning applies to housing.

After a decade of strong gains, including pre-tax returns averaging 21 per cent per annum for stocks in the S&P/ASX 200 in the five years to December 2007, investors were being warned routinely that they should not be getting their hopes too high for the future.

The argument was based on earnings fundamentals.

Earnings yields on Australian stocks were higher at the end of 2007 than for almost all of the time since the early-1990s recession, but further big gains in share prices depended on big rises in corporate profits continuing year after year.

Since the end of 2007, thanks in large part to the global financial crisis (GFC), the S&P/ASX200 has lost investors and average of six per cent annually.

Even in the absence of the GFC, the warning would have been appropriate – outsized increases in share prices and profits cannot continue forever and it would be a mistake to assume they might.

It is a warning that translates easily to the housing market at the moment.

The latest figures from the Australian Bureau of Statistics (ABS) show established house prices rose by 0.1 per cent in the September quarter.

Annual growth is still a strong-looking 11.5 per cent, but virtually none of that was in the most recent quarter and the latest half-year has accounted for only about one fifth of the increase over the whole year.

There is plenty of debate about whether or not the housing market is in a bubble.

The most recent salvos in the verbal battle have been fired by prominent investment manager Jeremy Grantham and the Real Estate Institute of Australia.

Last week, in a newsletter, Grantham reiterated his view that Australia’s housing market was in a bubble.

That assessment is based largely on his observation that housing prices have risen sharply relative to household income.

“The problem is that we live in a mean-reverting world (ie a world where things tend to return to their average level) where all of these things eventually change,” he said in the newsletter.

“In Australia’s case, the timing and speed of the decline is very uncertain, but the outcome is inevitable,” he said.

This latest assertion of Grantham’s view was met with a sharp riposte from the Real Estate Institute of Australia (REIA) on Monday, which dismissed Grantham’s opinions as “outrageous”.

REIA president David Airey repeated an earlier argument from his institute that “if Australia was in the midst of a so-called housing bubble, then we have been there for some time”, saying median price relative to incomes have been “relatively stable for the past ten years”.

What is often missing from this debate is an acknowledgement that housing is a financial asset.

The income to be derived from an investment and its expected growth rate can be used to gauge its value, in the same way a share or a bond can be valued.

The REIA’s own figures show rental yields – making an allowance for expenses but not for income tax – in the capital cities have been steady around three per cent for six or seven years, as strong rental growth has roughly matched price rises.

Ongoing rapid capital gains over the long term will depress rental yields to unrealistic levels, unless there is matching rapid growth in rents, which would in turn make rental accommodation unrealistically expensive.

So while it is debatable that the housing market is in a bubble, there is a strong argument that prices are already so high that another run of price rises measured in double-digits is highly unlikely.

Investors will most likely just have to get used to lower returns from rent and capital gains than they have enjoyed in recent years.

A run of big price rises could still happen, of course, if investors throw caution to the wind and buy in at lower and lower yields.

But if prices do undergo another boom, the argument that there is no housing bubble will become truly unsupportable.

By Garry Shilson-Josling, AAP Economist www.tradingroom.com.au

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Australia’s second biggest home lender has joined the biggest in arguing there is no housing bubble.

With international investors looking at Australia’s housing market as one of the few among developed economies not to experience significant price falls, Westpac has joined the Commonwealth Bank in trying to allay their concerns.

In arguing against the possibility of a house price collapse, Westpac’s report concedes that Australia’s housing market is expensive historically and relative to other nations, something the CBA presentation attempted to deny by a creative use of figures (as I explained in a previous report).

Westpac does suggest (as did CBA) that certain widely-used international figures by Demographia overstate the ratio of house prices to income (a commonly used measure of affordability), but even the more conservative RP Data figures Westpac cites would place Australia as a whole on the cusp of being what Demographia describes as “severely unaffordable”.

Cities such as Sydney and Melbourne would still be well into severely unaffordable territory whatever measure you used, no matter how conservative.

Instead, Westpac’s chief economist Bill Evans says the woeful shortage of new housing construction means that Australians are likely to continue having to pay too much for a place to live compared with people in other countries, keeping house prices stable.

“[There is] an imbalance between the demand for housing, which is associated with strong population growth, and the supply of housing,” he said.

“And basically the growth in new housing supply hasn’t changed much for quite a few years, so we expect that imbalance to widen further.”

The bank’s figures (sourced from the ABS) show that Australia’s new dwelling production dropped from 120,000 a year in the 1990s to about 105,000 a year in the 2000s, despite annual population growth rising from 210,000 to 305,000 over the same period.

It says that has left a shortage of around 200,000 dwellings.

While construction of new homes has fallen short of demand, the ability of many households to pay more to compete for the dwellings that are there has increased.

This is firstly because there was a structural shift in the economy towards lower inflation and therefore interest rates (also assisted by competition from non-bank lenders) and, secondly, because there are more two income households.

But both of these factors present other problems and risks.

The structural decline in interest rates looks like it is in rapid reverse, with the official cash rate heading up and banks looking to recoup the higher cost of funding now that financial markets are again requiring a risk premium for money lent.

Add to that the absence (as independent entities) of most of the major non-bank lenders that existed before the financial crisis, and it is not hard to conclude that there is a structural shift back towards mortgage lending rates being consistently higher than they were pre-crisis.

The second factor of increasing reliance on two income households to pay higher housing costs presents several obvious problems.

Bill Evans succinctly summarises the first:

“If we look at say a single income [household] attempting to purchase a house in Sydney with little equity then it’s quite unaffordable, but what we find is it’s very much the dual incomes that tend to purchase the detached homes and the single incomes tend to purchase the apartments.”

The message – if you want to buy anything other than a shoebox in Sydney or Melbourne, go out and find a partner (or sibling, parent, cousin or friend) quickly. This is a message several of my friends have already heeded.

Another problem is that Australians are working more (two people instead of one in a household) just to pay more for housing.

It is a zero sum game for everyone – except the banks that get to make bigger loans with larger interest bills, the real estate agents who get fatter commissions, and property investors who might get some capital gains the Federal Government taxes at a discount rate to those of us who actually work for a living.

The reliance on two incomes just to meet the bills also increases the vulnerability of households to rising unemployment – if you are using the majority of both incomes to pay the mortgage and bills, what do you do if one person loses their job for three months?

The over-pricing of Australia’s housing is further indicated by the emerging trend back towards bigger households, as people stay at home longer and share houses are no longer confined predominantly to uni students.

Westpac reports (from ABS figures) that the number of ‘children’ over the age of 35 still living in the family home nearly trebled from 65,000 in 1996 to 187,000 in 2006.

The bank says this has left a larger pool of potential first home buyers who are ready to step in at the first sign of falling prices and lower interest rates (as happened during the global financial crisis, assisted by federal and state government incentives).

Bill Evans cites this response to the financial crisis as further evidence that Australian house prices are unlikely to collapse like those in the US, UK or New Zealand.

“Bubbles are things that emerge quickly and burst. If this level of high prices has existed since 2003, and given that the Australian economy has been subject to some extreme shocks during that period, if it was a bubble it would have burst by now,” he told me.

He may be right about the absence of what he defines as a bubble, but that does not mean Australian homes are reasonably valued.

It seems clear that the problem of falling house prices is only being averted through the worse problem of housing shortages that are forcing many people into living arrangements they are uncomfortable with, and some people into homelessness.

Bill Evans could only agree when I suggested that Australia is caught in a Catch-22, where genuine moves to increase housing supply will undermine the exorbitant values existing home owners have put on their properties.

Given the major banks have such a big stake in house prices remaining stable or increasing, it makes one wonder whether the lack of loans to developers is only about increased risks after the financial crisis, or if there is a secondary benefit to them of restricting extra supply.

Either way, every indication is that Australia’s housing market is far from healthy, both for those investing in it and for those of us who just want an affordable place to live.

For owner-occupiers, there is a desperate need to get out of the mentality that rising house prices are good – if the value of your house rises because of a general rise in prices, so too will the cost of the next house you need to buy to live in.

For investors, there is a need to seriously re-evaluate what kind of returns are coming from the investment.

The Reserve Bank looks to be aiming for a few years of house price stagnation to allow incomes to catch up a bit, and Bill Evans expects that to happen.

He could only laugh when I suggested that prospective property investors might be better off lending their money to the bank (through a deposit) for it to lend out to someone else to buy a house.

If the Federal Government did not subsidise housing investment so heavily, the decision would be a no brainer.

Michael Janda is the ABC’s online business reporter.

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ALMOST two out of three consumers expect a rise in house prices during the next 12 months, new data suggests.

But that’s fewer than the 80 per cent who thought likewise earlier in 2010.

The Westpac-Melbourne Institute consumer house price index dropped to 51.1 in October, compared to its previous reading of 58.8 in July, and well below a its January peak of 80.3.

Westpac senior economist Matthew Hassan said 63 per cent of consumers expect house prices to rise during the next year, down from 70 per cent in July and a peak of 84.4 per cent in both April and January.

"Consumers have continued to pare back their expectations for house prices despite interest rates staying on hold since May," Mr Hassan said, releasing the data on Friday.

That may be in response to recent softer sale results.

The spread of expectations in October points to an average expected price rise of 2.6 per cent during the next 12 months, down from 3.6 per cent in July and 5.7 per cent in April.

"The fact that most still expect prices to rise suggests that those looking to sell properties will be more inclined to postpone selling until a later date than accept materially lower price offers now," Mr Hassan said.

Source: www.gympietimes.com.au

AUSTRALIAN capital city house price rises are set to remain weak, a survey suggests.

The September quarter survey conducted by National Australia Bank (NAB) found expected annual price rises averaged just 1.5 per cent.

That’s the same as in the June quarter survey, but well down from the 6.0 per cent average rise expected in the March quarter survey, the first in the new series.

Canberra was expected to post the strongest rise of 5.0 per cent, while Brisbane was at the back of the pack, with an anticipated increase of only 0.1 per cent.

Elsewhere, expected rises were 3.3 per cent in Adelaide, 2.7 per cent in Sydney, 1.6 per cent in Perth and 1.3 per cent in Melbourne.

The survey found properties selling for less than $500,000 were expected to post the biggest price gains, while the those going for more than $2,000,000 were expected to rise by the least.

Foreign buyers were expected to account for five per cent of existing property sales and seven per cent of purchases of new developments, down from nine per cent in both categories in the June quarter.

For existing residential properties, access to credit and rising interest rates were about equal at the top of the list of constraints on demand, although the existing level of prices and uncertainty about employment security were also seen as significant.

For new developments, tight credit was the most important constraint, but rising interest rates and housing affordability were also significant constraints.

Even so, the survey found residential property was the strongest-performing category, classed as "good".

All other property categories were seen as only "fair", with infrastructure and offices the best of the rest, and hotels, retail and industrial property the weakest.

The survey also found residential rents were expected to rise by "around 2.5 per cent" over the coming year on average across Australia.

Tighter rental markets in Sydney and Melbourne meant rent rises were expected to be larger in NSW and Victoria, at 3.3 per cent in both states.

In Western Australia and Queensland, rises were expected to be weaker, at 1.4 per cent in WA and and 1.7 per cent in Queensland.

The survey respondents represent a range of players in the commercial and residential real estate market – real estate agents and managers (48 per cent), property developers (18 per cent), owners and investors (15 per cent), asset and fund managers (12 per cent) and valuers (7 per cent).

Story Garry Shilson-Josling, AAP Economist

  The CEO of Australia’s largest independently-owned mortgage broker, Mortgage Choice, says the latest ABS housing finance data* highlights that warnings of interest rate rises are having a dampening effect on home loan demand.

The August ABS Housing Finance report 5609.0 shows a reduction in both the number and value of housing finance for investment housing, while the value remained steady for owner occupied housing finance. The total value of dwelling commitments dropped 1.3% from July to August 2010.

The number of owner occupied loans increased 1.0% and the number of loans for the purchase of established dwellings increased 1.4%. However, the number of loans for the purchase of new dwellings dropped 2.0% and the number of loans for the construction of dwellings dropped 1.0%.

Mortgage Choice CEO Michael Russell said, “It is no secret that winter delivered a slowed pace for housing finance demand, particularly from investors.”

“There is no doubt the Reserve Bank’s hold on the cash rate will shortly come to an end. What is just as worrying for potential and existing borrowers is how lenders will react to the news.

“To counteract any out of cycle rate movements, potential borrowers need to factor in higher loan repayments, create a savings buffer as early as possible and research their loan options thoroughly. It is important to know all the ins and outs before entering the mortgage maze.

“Some good news is that we have witnessed a dozen or so lenders announce product changes over the past couple of months. In a further sign that lender competition for home loans is rapidly returning, some lenders are offering special discounted interest rates and higher loan to value ratios.

“With a close eye on interest rates, potential and existing borrowers need to knuckle down now to prepare for rises by assessing their household budget, repayment strategy and the suitability of any home loan.

“A professional mortgage broker will introduce a borrower to a range of options, work to secure interest rate or fee discounts and put forward a solid case for loan approval. These are major reasons why 40% of all new home loans in Australia are sourced through brokers.

“Looking forward to the spring housing finance data, we will be keen to see if demand heats up.”

*All figures quoted are seasonally adjusted.

Source: www.australianhousehunters.com.au

The International Monetary Fund has warned that Australian real estate prices might be overvalued.

In its latest World Economic Outlook, cautions that a reversal in prices could hit consumers who have speculated on rising values.

"Given assessed mild overvaluation, a potential correction in house" prices "could hit household wealth and consumer confidence," the IMF has warned.

The cautionary language follows recent comments from the Reserve Bank that Australia’s property market shows "welcome signs" of cooling after earlier interest rate rises and the withdrawal of government stimulus.

Early fears of a property bubble have emerged after housing prices rose in the year to June.

The Reserve Bank’s head of financial stability, Luci Ellis, said yesterday that the Australian property market did not appear to be overheated.

However she said: "Buying an asset because you expect the price to rise in the future, well, that is actually the academic definition of a bubble. So that would be undesirable and seen as a problem."

In an earlier development, the Fitch ratings agency said it planned to "stress test" the impact of any downturn on banks and insurers.

Story by Peter Ryan Yahoo 7 Finance

A confluence of building approvals, housing price and population figures this week are likely to all point in one direction: the failure of housing policy in key markets to keep pace with the nation’s needs.

And there’s no sign of that changing. In just three weeks, the Australian Bureau of Statistics population clock will quietly tick over the 22,500,000 mark. On Wednesday the March quarter ABS demographic release is likely to show population growth continuing to ease from last year’s peak (the one beaten up by the Coalition during the election campaign) but is still decidedly strong.

The Federal Treasury’s Red Book briefing to the new government spelt out that strong population growth was probably inescapable, but added that it “is not necessarily unsustainable … it need not adversely affect the environment, the liveability of cities, infrastructure and service delivery", so long as governments planned well.

Well there’s not much sign of that. Federal and state housing policies have demonstrably failed but there’s no meaningful change. Tax treatment is a no-go area, infrastructure investment to make the most of what we have is lagging, social housing experiments are pretty much just that, experiments, and co-ordination of the three levels of government remains a rare exception rather than a rule.

The scariest story in yesterday’s press was the Sun Herald property watch column by SQM Research managing director, Louis Christopher. He was specifically addressing the Sydney market but this has plenty of relevance elsewhere:

“SQM’s vacancy rate series also reveals a tight rental market with only some slack at the very affluent end of the market place. Vacancy rates are at 1.3 per cent and ever tighter in Sydney’s west at a dire 0.7 per cent. And from what I can see there are no significant increases in new housing developments in the next two years for the local market.

“This is scary stuff and means only one thing for rents. Our forecast is for a Sydney-wide average rise of 5-7 per cent a year for at least the next two years. The west could record an even higher growth rate of 8 per cent-plus.”

Rent rises of that order encourage renters to try to buy – but if the new stock isn’t there, it increases price pressure that attracts Reserve Bank attention. While the RBA believes we don’t have a housing bubble, it has no interest in allowing one to develop. Having railed without apparent effect about the importance of increasing housing supply, Governor Glenn Stevens is left with the unpalatable task of heading off housing inflation with his blunt instrument while facing the bigger challenge of the terms of trade wealth surge.

Some real estate markets around the nation – most notably the Gold Coast’s many empty units – may be wobbly, but the Sydney and Melbourne influence remains strong.

The day after its demographics release, the ABS will publish its August building approvals numbers. No-one’s expecting much. While there have been signs the big banks are a little more open to business, property developers generally continue to be persona non grata.

APRA continues to monitor banks’ exposure to property very closely and I’m hearing stories of the big four starting to be more ruthless in clearing out their problem loans in the sector. They’re looking to quit loans that were sharply written down over the past two years. Catch-22 is hard at work though – buyers are scarce as the banks won’t provide the credit to enable them to buy.

The whole process is delaying the increase in housing supply the nation needs to avoid affordability worsening and to gradually wean us off expectations of ever-rising residential real estate. Our spend on dwellings as a proportion of GDP has been more or less flat for the past six years – and an increasing share of the spend has been on extending existing houses, rather than building new ones.

With our population growth, that is not sustainable. The RBA has told us as much a number of times. And now the clock is ticking.

Michael Pascoe is a Business Day contributing editor. Source: www.smh.com.au

Glenn Stevens was out last week sounding loud alarm bells about where interest rates are headed. It seems that as the economy belts full steam ahead into what Stevens has termed the biggest resources boom since the late 19th Century, interest rates are only headed one way, and that is up.

Of course, that is unless Australia is hit by global shocks that put the brakes on our growth, but Stevens isn’t assuming that is going to happen anytime soon.

Stevens know parts of Australia are already hurting, particularly those dependent on tourism, to whom the soaring Australian dollar has done no favours. Unfortunately though, Stevens has only got one stick, and he’s prepared to use it. Even Stevens admits interest rates are a blunt instrument when it comes to keeping the economy in check. It inflicts pain across Australia, even though much of the boom is happening in the west.

It certainly will start to put mortgage holders under pressure. The Real Estate Institute of Australia says we are now heading towards the average mortgaged up household across the nation devoting 35 per cent of their income to meeting loan repayments.

In NSW, mortgage holders are already spending 38 per cent of their income on loan repayments. To put that in perspective, that’s about what people across the nation were contributing to their mortgages back in the late ’80s when interest rates peaked at more than 17 per cent.

Many people were under that same pressure before the GFC hit, as can be seen in this chart, which shows house prices growth and the percentage of income people have been using to pay their mortgage over the last decade.

David Airey, president of the Real Estate Institute of Australia, says most people can comfortably manage paying 30 per cent of their income for housing, and after that things can start to get a little tight. Obviously that depends on how you spend the rest of your money, but throw a couple of kids into the mix, and the budget starts to stretch a bit thin. Airey predicts that if interest rates climb higher, pain will start set in for mortgage holders.

So what do rises mean for you? If you have a variable mortgage, you are most likely to be paying about 7 per cent to your lender. On an average 30-year $373,000 loan, that would be costing you $2482 in monthly repayments.

There’s talk of five rate rises to come from one expert, Paul Bloxham, who recently left a job with the RBA to become the chief economist at bank HSBC. Bloxham has predicted the official cash rate could hit 5.75 per cent next year, and that there will definitely be at least one 0.25 per cent increase before Christmas. The Commonwealth Bank is talking of official rates of 6 per cent, and Westpac is betting on about 5.25 per cent.

Of course, the official cash rate is way below what you pay to your lender. So if your bank was to pass the first predicted rise on in full, you’d see your variable rate jump to from 7 per cent to 7.25 per cent before Santa arrives. That would make your monthly repayment $2545, $63 more than you are paying now.

Is Bloxham is right and are there five rate rises are headed our way? Five rises would spike your rate to 8.25 per cent and on the average new mortgage, your monthly repayments would jump to $2482, $320 more than you are forking out now. Over a year that comes to $3840.

There is always the chance that banks can increase their rates by more than the Reserve Bank does, and at least two big banks are rumoured to be considering this next time around. So you might need to factor in a bit more.

In terms of what you would be paying out of your income onto your loan, this is what could happen to the average mortgage holder at various interest rate scenarios, making some assumptions about wages growth and house price growth.

Rates rises are dependant on the economy zooming along, and there is the chance that it could go the other way. But general consensus among economists seems to be we are headed for growth.

Some people will be asking themselves is it time to fix? Fixed interest rates have been falling for the past couple of months, but are now edging back up. Australia’s largest independently owned mortgage broker, Mortgage Choice, says in the past fortnight, three lenders on its panel increased rates on one or more of their fixed rate products. The company’s weekly interest rate averages for its panel of 24 residential lenders showed a rise in the three-year fixed rate, albeit a small one, to 7.37 per cent from 7.33 per cent. Three years is the most popular fixed term.

The average one-year fixed rate also rose, from 7.02 per cent to 7.03 per cent, while the five-year fixed rate was steady at 7.81 per cent.

Mortgage Choice spokeswoman Kristy Sheppard says this compares to an average basic variable rate of 7.07 per cent and standard variable rate of 7.36 per cent.

Sheppard says choosing between a fixed and a variable home loan is a decision that must be made according to individual financial circumstances, lifestyle and future needs. There are pros and cons to each. Sometimes borrowers hedge their bets by splitting the loan between the two options.

So what to do now? The best thing is to start paying more off your mortgage. See whether your budget can cope with up to five increases, and then you’ll know how you would fare if that prediction does eventuate. Of course, you’ll also pay your mortgage off faster by jumping in with extra repayments now, and build yourself a buffer should your financial circumstances suddenly change.

Source: www.domain.com.au

Carolyn Boyd is a property journalist and keen follower of Australia’s housing market.

IT’S no secret overseas investors have identified Australia as a growth region when it comes to buying property.

The funds are coming in not only to buy direct assets but also via investing in Australian real estate investment trusts, which are now more focused on the local property market than at any time in the past three years.

Jones Lang LaSalle research on global capital flows confirms Australia’s attraction to investors led it to be ranked seventh in the world as a destination for cross-border investment for the first half of 2010.

The report says cross-border investment in Australia increased more than five-fold, at $US1.8 billion, compared with $US319 million at the same time last year. The research reveals Britain has been the most popular destination for cross-border investment so far in 2010, with $US7 billion invested, while Germany replaces the US as the second most popular destination.

The US was in third place (from second in the first half of 2009), despite a doubling in transactions in the American market from $US2.2 billion to $US4.3 billion.

The director of international investments at Jones Lang LaSalle in Australia, Simon Storry, said the country’s ranking confirmed the view that Australia remained a destination of choice for foreign investment.

”We expect Australia to continue to be on the radar of foreign investors for the remainder of this year,” Mr Storry said.

”Commercial real estate in Australia has offered solid and stable returns and an attractive environment for investors seeking stability in their globally diverse portfolios.”

The Jones Lang LaSalle research reveals a near-doubling of global commercial real estate transactions in the first half of 2010, compared with the same period a year ago.

According to the report, total global commercial real estate investment was $US132 billion for the first half of 2010, compared with $US76 billion in the previous corresponding period and, after reaching a low of 31 per cent of total volumes in the first half of 2009, cross-border activity was back above 40 per cent, a trend set to continue.

Mr Storry said this reflected a general market pick-up, a return to the globalisation of real estate investment and a search for value by investors.

Carolyn Cummins Sydney Morning Herald

Would you pay more for an energy-efficient house? Or one that was water-wise? When we polled our readers 62 per cent said they wanted the house they were buying to be eco-friendly, my first reaction was to ask; Are people just saying that? Or are they following through and voting with their wallets.

Here is what you told us. The question posed was: Is the eco-rating of a home a major factor in your buying decision? And the answers were …

Yes, absolutely: I would only buy a house that is designed to have minimal impact on the environment (27%);

Yes, it would be ideal if the house had some energy efficient measures installed such as solar panels or solar hot water: You can really make some good savings on your bill power bill and it also helps the environment (35%).

No, it’s considered after other factors: A good eco-rating is nice to have however I will always first consider price and location (25%);

No, not at all: It’s hard enough to find the right property without considering a property’s eco-rating (12%).

Like I said it got me wondering. My feeling was that with the cost of housing having just leapt ahead in many parts of Australia, and the strong conservatism that has swept through consumer spending, many people would simply be happy to find something they can afford.

Then again, you only need to look at the votes the Greens party received in the last election to know there is concern about the environment out there, so maybe that is translating to housing choice?

The whole question of eco ratings is pretty pertinent, given there’s a move on to make energy rating mandatory across Australia for homes that being sold or leased. It’s already in play for commercial spaces.

See page 26 of this Council of Australian Governments’ document where the council says it wants to "Phase in mandatory disclosure of residential building energy, greenhouse and water performance at the time of sale or lease, commencing with energy efficiency by May 2011." The group reasons that would make credible and meaningful information "publicly and readily available to market participants to assist them in making lease/purchase decisions." The mandatory disclosure process could be modelled on that already enforced in the ACT.

If you take a look at houses for sale in the ACT you’ll see that every one has an energy rating from 0-10. It’s been that way since 1999. A 0-star rating is very poor and means the building shell does practically nothing to reduce the discomfort of hot or cold weather. A 5-star rating indicates good, but not outstanding, thermal performance. People living in a 10-star home are unlikely to need any artificial cooling or heating.

All good but will people pay for more efficient houses? There’s an interesting government study, Energy Efficiency Rating and House Price in the ACT, which found that if you’ve got two houses on the market that are pretty much the same except for their energy ratings, the house with the higher energy efficiency rating will command a higher price.

The study was based on 2005 and 2006 data, and ran various models. One found that "if the energy performance of a house improves by 1 star level, on average, its market value will increase by about 3 per cent (2.5 per cent in 2005 and 3.8 per cent in 2006). Therefore, if a property owner installs R4 ceiling insulation at an approximate cost of $1200 they will, on average, improve the energy performance of a poorly insulated home by at least 1 star. This means that a detached house sold in 2005 for $365,000 could fetch an additional $8979 with only a 1 star improvement in energy rating".

That was before the surge in eco awareness of the last five years, and pre Al Gore’s climate documentary, which seemed to have a big impact on the Australian psyche.

In older areas many buyers accept the houses will have a poor rating, but in newer spots where neighbouring homes tend to perform well, a poor rating will raise eyebrows. You can see why it would be important in Canberra – it gets pretty hot and cold there, and would be an expensive place to keep a draughty house comfortable.

Coventry goes so far as to suggest to vendors, that if they need to do anything to smarten up the home, they considering adding some energy efficient measures as they go. It could be something as simple as rubber-backed curtain and pelmets.

Angus Kell, NSW/ACT manager of building advisory service Archicentre, says its commonsense now that now people are more aware of environmental issues, and the rising cost of energy and water, that it would affect their property choices. He’s says a well-designed house can slice a family’s energy bill by one-third. Energy-saving bells and whistles can shrink the bills even further.

Original story from Carolyn Boyd www.domain.com.au

Housing affordability in Australia has continued to decline over the June quarter, according to a Real Estate Institute of Australia (REIA) report.

The Deposit Power Housing Affordability Report shows that the decline in the June quarter was the sixth consecutive quarterly decline in housing affordability.

REIA president David Airey says what’s of great concern is that the percentage of income required to meet loan repayments is approaching 35 per cent, a level not seen since the third quarter of 1990, when the quarterly average banks’ variable mortgage rates were at approximately 16.4 per cent.

“With the exception of Tasmania and the Northern Territory, housing affordability decreased across all Australian states and territories, with the proportion of income required to meet loan repayments increasing two percentage points nationally,” he says.

Average monthly loan repayments have increased $446 over the year to June 2010 and the average loan is up $26,208 over the same period, according to the REIA report.

National manager of Deposit Power Keith Levy says housing affordability remains an ongoing issue for many Australian homeowners and prospective buyers.

“There is still a shortage of homes for sale and it appears that new development and construction isn’t keeping pace with demand in some areas,” he says.

“As a result the cost of entering the market remains high and the dream of owning a home still appears to be far from reality for many Australians.”

The Australian Capital Territory is still the most affordable state or territory in which to own a home, with the proportion of income required to meet loan repayments increasing to 18 per cent.

Meanwhile, New South Wales remains the least affordable state or territory in which to own a home with the proportion of income required to meet loan repayments increasing to 38 per cent.

Airey says the evidence for action on affordability is clear.

“There should be no further increases in interest rates as well as action from the new government on the supply side factors and an increase in the First Home Owners Grant with indexing to median house prices,” he says.

Story from Australian Property Investor Magazine