A private gauge of Australian inflation slowed during July, adding more weight to suggestions the Reserve Bank will keep the official interest rate at 4.5% at tomorrow’s meeting.

The TD Securities-Melbourne Institute revealed today its consumer price inflation gauge rose 0.1% in July, down from June when it rose by just 0.3%. The annual pace of inflation slowed to 2.8%, within the RBA’s 2-3% target band.

The data comes after official figures revealed a slowdown in annual underlying inflation to 2.7%.

"The soft CPI report allows the RBA to remain on hold for several months as mortgage lending rates have already been restored to average levels," Annette Beacher, a senior strategist at TD Securities, said in a statement.

The inflation gauge reveals utilities, health services and alcohol and tobacco prices all rose, but they were offset by declines in food, holiday travel and petrol, which actually dropped by 2%.

Meanwhile, Australian manufacturing activity increased in July with new orders and output both expanding, although employment has declined.

The Australian Industry Group-PriceWaterhouseCoopers performance of manufacturing index rose by 1.5 points to 54.4 during July, above the 50-point level separating expansion from contraction.

Story by Patrick Stafford www.smartcompany.com.au

A new survey confirms high-income property investors have returned to the Australian property market with the intention to buy, a considerable shift from the same time last year. There has been a nine per cent increase in demand by investors looking to buy a property at the upper end of the market, according to the realestate.com.au’s Consumer Insights Report (Buy).

Twenty-five per cent of investors were searching for properties to buy in the $500,000 or more price range, up from 16 per cent in April 2009.

General manager of sales and operations for realestate.com.au Peter Wright says the research findings paint a promising picture of the property market.

“The report revealed one in two property seekers now believe the market is rising – a result not observed for two years,” he says. “Of those who believe the market is rising, the perceived reasons for growth include a seven per cent increase in investors returning to the market (35 per cent), a shortage of properties (54 per cent) and a growing economy (40 per cent).

“Investors were also one of the top three homebuyer groups (39 per cent) that have sought pre-approval for finance with the intention to buy or build. First homebuyers and investors were also more likely to say they had thoroughly researched the market – up by 16 per cent and eight per cent from the last wave respectively,” Wright says.

The report also showed that investors were more likely to be male, aged 50 to 64 and living in high income households, while female investors were more likely to be younger, aged 25 to 34 years (30 per cent), compared to males (21 per cent). Both male and female investors were more inclined to come from double income households (54 and 50 per cent respectively).

The report is an in-depth survey that delves into the psyche of the Australian property buyer, covering topics such as buy, rent and share. The survey ran from May 31 to June 3 with 4082 Australians taking part.

Source: Australian Property Investor

It’s a question many parents are facing – do kids really need their own rooms? It seems to have become a community norm that even very young children will sleep in separate bedrooms unless parents are "forced" to put them together because their home isn’t big enough and they can’t afford something with more bedrooms.

In fact, families upgrading into bigger homes have underpinned much of the market activity in Australia’s capital cities this year. Having sold off their first or second property to an eager first home buyer during last year’s rush to cash in on the Federal Government’s boosted grant, upgraders hit the leafy suburban streets, looking for something bigger and better to house the kids.

The usual profile is of a family that has one child on the ground with another on the way, or recently landed, that wants to get something a bit bigger where each can have their own bedroom. But maybe someone forgot to ask the kids? It seems, given the choice, many young children would prefer to share a bedroom. I found this out recently when I was pondering how to shrink the extended going-to-bed hours of my three-year-old and one-year-old, who were in their own rooms with their own bedtime routines.

Having them in the one bedroom seemed a sensible answer. And when asked for his opinion, my son’s immediate response was "Yes". So how’s it going? No more extended patting to sleep of the one-year-old who is now happy to lay in her cot and listen as I read to her brother. And my three-year-old isn’t feeling so scared to be left alone in his room, either.

It’s a step that’s freed up a spare room, and really broadened our housing options. Granted, given they are a boy and a girl, there will come a time in a few years when it won’t be appropriate for them to share but for the mean time we think we can easily get away with a three bedroom or even two bedroom house for a few years.

It makes you think, do we really need all the space we think we do? We know Australians build the world’s biggest houses, pipping even the US. Along with media rooms, home gyms and offices, we’ve also been adding extra bedrooms. As previously pointed out by CommSec economist Craig James, about 20 years ago only one in every six homes had four or more bedrooms. By 2006 it was one in every 3.5 homes – which seems a little counterintuitive given family sizes have for a long time been shrinking.

Let’s not be too harsh on parents. Going by the many tortured discussions on internet forums about whether parents should put their children in a shared bedroom, parents are not just blindly assuming their ankle biters need privacy from the time they are a month old. And it might not be just about the number of bedrooms.

One of the factors that families who are fleeing two-bedroom homes or units to bigger properties often talk about is the lack of living space, because, like it or not, lounge rooms big enough to accommodate toys, books and kids’ other paraphernalia are generally found in big houses with three or four bedrooms. Not in the cramped conditions offered by two-bedroom semis or terraces. That could start a whole new discussion on housing design, and whether we need to shrink bedrooms and make room for more space that you actually spend time in when you are awake.

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

Top tips to get you home sooner
It is estimated that 469,000 households will be suffering some degree of mortgage discomfort by December and the number of those in severe stress (facing a potential sale, foreclosure or forced refinance) could be as high as 267,000*.

How can borrowers at risk of mortgage stress reverse the trend, save money and own the property sooner?

Spokesperson for Mortgage Choice, Kristy Sheppard said, “There are shortcuts that can help borrowers avoid mortgage stress, reduce their loan term and the interest paid. It’s about taking control of their finances by managing their mortgage instead of letting it manage them.”

“Avoiding mortgage stress is often a greater challenge for new borrowers, many of whom are adapting to a budget for the first time. Of course, some common causes of mortgage stress are higher interest rates and rising living costs. However, another very common cause is over-indulgence in post-mortgage debt.

“Mortgage Choice’s 2010 Recent First Homeowner Survey revealed 15% of respondents had taken on within the first two years what they saw as ‘significant’ post-mortgage debt. Of those, 70% had spent between $0 and $20,000, 26% had racked up between $21,000 and $50,000, and 4% had really splurged, with extra debt of $51,000 or more.

“If these borrowers and others facing a similar situation want to better their mortgage situation they need to be proactive in their repayment strategy. By maintaining regular repayments above current interest rates, being disciplined in keeping to budget, making extra contributions, fully utilising the loan facilities available and regularly ‘shopping around’, borrowers can potentially fast track their way to outright ownership.”

Australia’s largest independently-owned mortgage broker, Mortgage Choice recommends these top tips:

Contribute to your change
Paying a little extra every month can have a big impact in the long run. Based on a loan of $300,000 at 7% over 30 years, if you round the monthly repayments of $1,996 up to $2,050, the loan will be repaid approximately one year and eight months earlier, saving you over $25,000 in interest.

Make a dent
Making a lump sum payment (big or small) into a loan can make a substantial difference. If you deposited your tax return of, say, $500 into the above mentioned loan, it would reduce the overall term by one month and the total repayments by just over $2,350. Doing so annually would make a significantly larger dent.

Make the most of loan features
Loans with offset accounts enable borrowers to link a savings account with their home loan account and ‘offset’ or use that amount to reduce the interest accumulated on their mortgage. For example, if a borrower has $5,000 in an offset account, then on a $300,000 loan (at 7% interest pa) the term would be reduced by around 1 year and the borrower would save over $33,000. It’s worth enquiring about but be aware there could be an ongoing cost for keeping the account, such as a monthly fee.

Don’t settle for second best
If you went for a premium loan you may be repaying at a higher interest rate for facilities and features you don’t need or use. Consider refinancing to a more basic product offering a lower interest rate – your repayments will be lower, and therefore you’ll be able to afford to pay your loan off quicker. When refinancing to a new loan and/or lender, be aware you may incur exit fees.

Give your loan a check up
If you already have a home loan, look at doing a home loan health check regularly because the mortgage market changes all the time. You might be able to get a better package now.

Keep your eye open for bargains
You might also investigate your eligibility for a ‘professional package’ home loan, where you can receive a reduced interest rate, no application or other fees, gold credit cards, and home insurance and other product discounts and benefits.

Homes will be where the easy access is, says new building code to promote mobility.

A minimalist step-free shower; a corridor wide enough for a sofa; and a front entry you don’t have to wrestle the pram up.

These features are part of a voluntary building code to be released today by the Parliamentary Secretary for Disabilities, Bill Shorten. The code would improve a home’s value and also make life easier for Australians with mobility issues, advocates said.

An ageing population of baby boomers who dislike stairs and young parents wanting better safety for toddlers are key targets for the Liveable Housing Design, the consumer-facing brand of the code developed with the property industry.

The national convener of the advocacy group Australian Network for Universal Housing Design, Amelia Starr, said the fashionable step-free shower was already standard in homemaker magazines, while wider corridors were useful to anyone moving furniture.

US research showed 90 per cent of newly built homes would at some point have someone with a mobility issue residing there. Too many Australian homes were unable to adapt to a family’s evolving needs, let alone wheelchair use, Ms Starr said.

”We hope people will say I want that brand in my home because then it can be sold off to the widest range of people possible,” she said.

The Property Council of Australia chief executive, Peter Verwer, said: ”It makes good sense to design homes so they evolve with their users. It works as well for mums to be as it does for senior Australians.”

The new standards grew from several meetings between Mr Shorten and Therese Rein with industry groups including the Master Builders, Australian Institute of Architects, the Property Council and the Herald journalist Cynthia Banham. The last meeting was held two days before Kevin Rudd stepped down as prime minister.

The code will be launched today by Mr Shorten at a Penrith housing development that already adopts its features.

The Master Builders chief executive, Wilhelm Harnisch, said: ”Improving the safety of kitchens and other areas means people can stay longer in the home instead of going to an aged care facility.”

Story by Kirsty Needham www.smh.com.au

HALF of Australian households are worried interest rates will rise but only one in five expect their debt levels to increase in coming months.

Dun & Bradstreet’s latest survey of the consumer credit expectations of 1,205 adults across Australia found 49 per cent anticipated a further rise in interest rates would put a dent in their household finances.

The credit reporting agency completed the survey in June, one month after the Reserve Bank of Australia (RBA) lifted the official cash rate to 4.5 per cent, its sixth rise in eight months.

Households with dependent children will face more stress, with 55 per cent of respondents with children saying another rate rise would have a negative impact on their finances, compared with 43 per cent of households without children.

However, more financial stress would translate into more debt for just 20 per cent of households, Dun & Bradstreet said in a statement on Wednesday.

Expectations of spending in the September quarter show almost half of respondents aged under 50 intended to use credit to pay for planned expenses over this period.

One quarter of Australians aged over 50 years planned to do the same, Dun & Bradstreet said.

The RBA’s credit and charge card statistics for May 2010 showed the average credit card balance reached $3,248 in May, an increase of five per cent in 12 months.

Despite a second consecutive rate reprieve from the RBA this month, economists believe the ongoing strength in the domestic labour market could result in an interest rate hike as early as August.

Australia’s unemployment rate was unchanged at 5.1 per cent in June, from a downwardly revised 5.1 per cent the previous month, according to an Australian Bureau of Statistics (ABS) report.

It is the lowest jobless rate as well as the fewest number of unemployed workers, 598,400, since January 2009.

A total of 45,900 jobs were created in June, triple the market forecast of 15,000, statistics revealed.

Part-time positions rose by 27,500 in June, while full-time staff increased 18,400.

Employment has increased in nine of the past 10 months, with 356,300 jobs added to the national economy since June 2009.

JP Morgan economist Helen Kevans said the improvement in the labour market could accelerate wage rises and add to pressures on inflation.

“Further evidence of building wage pressure will add to an already worrisome inflation outlook, with headline inflation likely to remain above the RBA’s 2-3 per cent target range this year and next, and core inflation to be above target by year end,” Ms Kevans said.

“We believe an elevated print on the upcoming second quarter CPI on both the headline and core measures will be enough to trigger another rate move, with our forecast calling for a further 25 basis point hike to the cash rate in August, providing conditions do not deteriorate offshore.”

The RBA’s decision to hold the interest rate steady recently, followed six increases from 3.0 per cent to 4.5 per cent between October 2009 and May 2010.

National Australia Bank senior ?economist David de Garis said the jobs data reflected the strong local economy against a backdrop of weak Atlantic economies and brought into focus the consumer price index (CPI) report on July 28.

For the RBA, this reasserts the importance of the upcoming second quarter CPI,” Mr de Garis said.

If underlying inflation is running at a year to 3.0 per cent or more (rather than the RBA’s 2.75 per cent forecast) then the RBA would have to seriously consider another rate hike to crimp interest s?ensitive? demand to make room for the resources boom that now looks to be coming to the fore.

Commonwealth Bank senior economist Michael Workman said the mining states had usurped Victoria in ?leading the nation’s employment growth.?? ?

The unemployment rate in Queensland fell from 5.5 to 5.3 per cent and Western Australia dropped 0.1 percentage point to 4.0 per cent.

“So most probably you’d argue here that some of the mining states are starting to show more consistent and stronger jobs growth than the east coast states, Mr Workman said.

In WA, 18,000 part-time jobs were added during the month, ABS data showed.

Mr Workman said if inflation and the jobs market remained strong, the RBA could possibly lift interest rates twice by year end.

New research has revealed that Australians are willing to pay more for residential property, despite the likelihood of interest rates rising.

The realestate.com.au Consumer Insights Survey found that around one in six (16 per cent) (1) property seekers were willing to spend 10% or more above the asking price when looking to buy a home.

The findings come despite the fact that two out of three (66 per cent) (1) property seekers who took part in the survey believed interest rates were likely to rise in the next three months.

Realestate.com.au spokesperson Peter Wright said the survey findings reinforced the boom the property market had experienced recently and peoples’ willingness to achieve the great Australian dream of home ownership.

“The most common perceived reasons for growth include a shortage of properties for sale (54 per cent) that has driven up demand, a resurgence in a growing economy (40 per cent) and the fact that household incomes are rising (11 per cent) (1),” Mr Wright explained.

“While we are now starting to see some stability, the realestate.com.au Consumer Insights Report reinforces the buoyancy the property market experienced in the first half of 2010.

“The report also indicates that consumers expect the property market to remain strong (50 per cent) (1) well into the second half of this year,” he added.

The survey also saw a positive trend in the job market with confidence growing by 11 per cent from April 2009 from 45 per cent to 56 per cent (1) during the May-June 2010 period.

* (1) The realestate.com.au Consumer Insights Report is an online survey conducted on a regular basis to investigate the attitudes of buyers, renters and sellers. The survey ran from 31 May to 3 June 2010 with 4,082 Australian property buyers taking part.

When June-quarter property prices are released in the next two months, it’s likely we’ll see house price growth down markedly from the rates we saw in March and December.

The figures probably won’t show falling prices but growth will be a lot closer to zero than it has been for more than a year.

That in itself would be an unusual result. The fall in housing finance figures compiled by the ABS has been steep and would normally suggest falling prices, not just a fall in the rate of growth.

Overall, the number of housing loans for owner occupation, excluding those for refinancing, is down more than 30 per cent year on year for NSW.

One reason the downward effect on house prices hasn’t been as pronounced as we’ve seen historically is that it was accompanied by a rise in the proportion of housing purchases not involving mortgages.

Or another way to think about it, the lack of a significant fall is partly due to a fall in the proportion of first home buyers, who recently have had a much greater propensity to use mortgages for their purchases.

The other reason is the increased level of investor activity, reported separately to the owner-occupied numbers that are usually considered to have the biggest link to prices.

Nationally, the value of loans taken out by investors is up nearly 30 per cent year on year, according to the ABS, and brokers and financing groups are reporting strong upswings in investor activity as the competition from first home buyers and upgraders continues to dissipate.

This has helped cushion the effect of the withdrawal of first home buyers and upgraders from the market as interest rate concerns dominate.

Matthew Bell is the economist for the Fairfax-owned Australian Property Monitors.

Overall lending for property is on a slide and on the surface that looks like bad news for property investors. But a deeper look at the numbers suggests there is an upside.

Australian Bureau of Statistics figures show the number of home loans dropped by 3.4 per cent in March, following a 1.8 per cent fall in February. It’s the eighth fall in the past nine months.

Approvals for investment loans, however, are going the other way with a 3 per cent jump in March. Looking over the longer term, the trend becomes clearer with investment loans up by 24 per cent on this time last year and home loan approvals down by 30 per cent from six months ago.

When combined with a demographic analysis of an area, lending patterns can give us a very good indication of what is likely to happen to property prices in these markets.

For example in a suburb such as Glebe in Sydney’s inner west about 55 per cent of all property is owned by investors.

Investors target this kind of area because there is a strong tenant demand due to the closeness to the city, university, shops and cafes.

A significant jump in investment lending is a clear sign investors are active in the market. When this happens they compete for property in places such as Glebe and put significant upward pressure on prices.

About 45 per cent of people in Glebe own the property they live in so there will be a level of softening demand from buyers but it will be compensated for by the investors.

This differs greatly from an area such as Kellyville in Sydney’s north-west. Investors control only about 13 per cent of property in this area.

Although it is a great area to live and raise a family in, Kellyville does not have the kind of infrastructure that tenants are looking for. Therefore demand from investors is weak and will have minimal impact on property values.

However, about 85 per cent of property in Kellyville is owned by people who live in their property so the drop in owner-occupier loans is likely to have a significant impact on demand.
If interest rates continue to climb and demand continues to soften, the chances of property values falling are increased.

The property market is made up of various sub markets that can be pulling in different direction at the same time. As an investor, it is vital to understand which market you are getting yourself into and how to interpret the raw data that will affect the growth pattern of the property you wish to buy.
America’s favourite investor, Warren Buffett, once said: "I’d rather be vaguely right than precisely wrong."

Once you get your head around how to interpret raw data you will have a greater chance of being "vaguely right" and therefore a successful investor.

Mark Armstrong is a director of Property Planning Australia, www.propertyplanning.com.au

Revelations that foreign property buyers bought $14.9 billion worth of houses and land in Australia last year, including $2.49 billion worth of existing homes, is resulting in more calls from curbs on overseas investors.

The Federal Government refused to release these figures recently when asked to by journalists but they were in quietly posted on the Foreign Investment Review Board (FIRB) website last week.

They show that the Government issued 4827 real estate approvals to foreign investors last year for commercial and residential properties. About half the approvals were for temporary residents wanting to buy a house as their principal residence.

A further 988 approvals were granted to investors to buy vacant land for residential subdivision or to build a houses. The report also shows Victoria is the most sought after state by foreign investors wanting residential real estate, followed by Queensland and New South Wales.

But the figures are incomplete because the Government changed the rules in April last year so foreigners no longer had to notify the FIRB if the property was to be their principal place of residence.

Under foreign investment laws, non Australian residents can buy a dwelling for their principal place of residence but the Government has been criticised for relaxing foreign investment laws and they are being blamed for driving up house prices.

The Australian Government has now announced it will adopt a more stringent approval process so that fewer foreigners will be able to buy and acknowledging that they had pushed up residential real estate prices.

Foreign buyers will have to sell when they leave the country and those who ignore the new rules face heft penalties.

Critics say the new rules do not go far enough. Opposition politians are calling for a comprehensive study of foreign real estate investment.

‘In one sense, little has changed. Foreign residents can still purchase Australian properties and, in particular, people in Australia on temporary residence visas can still purchase existing dwellings,’ explained Immigration-law specialist David Stratton.

Foreign owned companies are also allowed to buy properties to house their Australian based staff and a developer can sell an unlimited number of dwellings, either off the plan or newly constructed, to foreigners, provided the properties are advertised locally.

In 2007/08, the main foreign buyers were from the US, Britain and the United Arab Emirates. The following year, Singapore investors topped the list, followed by the US and Britain.

Source: PropertyWire

Sixty per cent of people looking to buy an investment property before mid 2011 planned to access equity in their home to fund all or part of that purchase, according to the latest Mortgage Choice property survey.

This response reveals that there’s still a high proportion of ‘mum and dad’ investors who don’t comprehend how to use equity to buy additional properties, and feel they must first repay their mortgages, said Mortgage Choice spokeswoman Kristy Sheppard.

In addition to using the equity balance, which acts as the loan security and the cash deposit substitute, meeting the lender’s serviceability criteria is also important, said Sheppard. And on loans that equate to more than 80 per cent of the property price, adds Sheppard, lenders mortgage insurance must also be factored into borrowing costs.

Risk is also a consideration when accessing equity, said Sheppard.

"Before accessing your equity it is necessary to establish whether you can comfortably afford higher loan repayments and which, if any, lender is willing to lend to you," she said.

Mortgage Choice identifies three common types of equity finance:

1. Loan top-up – is essentially a mortgage extension to fund another property purchase. Extra funds are usually made available via a lump sum payment with interest payable on the entire top-up amount.

2. Line of credit – allows a borrower to withdraw funds in addition to a home loan amount, up to a limit set by the lender. Interest is also payable on these funds. Line of credit loans generally attract a higher interest rate, are often interest-only and must be carefully managed.

3. Refinancing – allows a borrower to move to a different lender and loan product to increase the home loan amount. It’s important to shop around as lenders offer different features, fees, interest rates and measure borrowing capacity differently.

Source: API Magazine

Important notice for investment property owners in Lennox Head, Bangalow, Ballina and surrounding areas – in fact all of NSW!!!! The draft Residential Tenancies Bill  has been  released by the NSW Government for community consultation.

The proposed changes, if passed, will undoubtedly have an impact on the rental market and will possibly flow on to the sales market as prospective purchasers (with a view of investing in the market and offering their properties to rent) may be deterred by the pending legislation.   Generally speaking landlords and agents are already governed by concise rules and regulations pertaining to leasing and the draft legislation is heavily geared toward tenant’s rights.

In a recent newsletter, David Crombie the Cheif Executive Officer at EAC had this to say:

As you may be aware, the NSW Government recently released for community consultation a draft Bill to reform tenancy laws. The Bill is not law at this time and changes may be made to it as a result of this consultation before it is introduced to Parliament early in the new year. The Office of Fair Trading advises that it is unlikely that this new legislation will commence before July 2010.

• Scope of premises to which the Act will apply
• Abolition of tenant’s contribution to lease preparation cost
• Condition Reports
• Rent Receipts
• Water efficient premises and tenant usage charges
• Alterations by tenants to premises
• ’No grounds’ termination notices
• Rent arrears evictions
• Reduction in bond for furnished premises
When Parliament passes the Bill, it will not come into effect immediately. The existing Regulations, including a revised standard lease and condition report, will need to be re-made and this will involve further public consultation. Given the expected changes to some documents, agents should carry lower levels of stock.
Agents will have ample time to implement changes when they become law and should be cautious of any specific advice given before this occurs.