Summer Economic Wrap

The Reserve Bank of Australia (RBA) has shown some Christmas spirit, with a second consecutive cash rate cut coming just in time for the festive season.
The RBA cut the official cash rate on 6 December by 0.25 per cent, bringing the official rate down to 4.25 per cent.
The central bank shocked the nation in November, when it reduced the cash rate from 4.75 per cent to 4.5 per cent on Melbourne Cup Day – the first reduction in more than two and a half years and a stark contrast to 2010’s Melbourne Cup Day rate rise upset.
Benign inflationary growth, slow employment growth and poor consumer confidence all contributed to the November rate cut and with similar conditions persisting into December, many economists were not surprised that the RBA moved downward once again. “The rate cut should not come as a surprise from a housing market perspective, considering that the soft market conditions that first became evident in June of last year
have created no inflationary pressures and have persisted,” commented RP Data’s Cameron Kusher. “In fact, capital city home values are down four per cent from their December 2010 peak and rental rates have increased by just 4.6 per cent over the 12 months to September 2011.”
In addition to flagging the soft property market conditions, the RBA noted in its monetary policy statement that growth in the global economy has moderated in 2011.
Europe’s sovereign debt and banking problems are also “likely to weigh on economic activity there over the period ahead”, the statement said. With more difficult financial market conditions ahead and both businesses and households remaining cautious, “the likelihood of a further material slowing in global growth has increased”, the RBA said.
The November and December rate cuts might actually be a taste of things to come, with many economists predicting another reduction on 7 February 2012 (with no RBA Board
meeting scheduled for January).
National Australia Bank chief economist Alan Oster said the outlook for global growth is bound to be worse when the Board meets in February, providing good grounds to bring the cash rate down to four per cent. A cut could be delayed for a month or two – or not happen at all – if the local economy holds up. Alternatively, an economic meltdown in the eurozone could see an out-of-cycle emergency reduction.

Economic wrap

The Reserve Bank of Australia (RBA) now seems quite content to sit tight on rates for the remainder of 2011. At its September rate meeting, the RBA Board said it could not find enough evidence to support a rate reduction. While the conditions in global financial markets have been very unsettled over recent weeks, the Australian economy remains resilient – with new data showing sound GDP growth.

The economy grew by 1.2 per cent in the quarter, exceeding the market’s expectation of a 1 per cent expansion, showing there was strength in sectors outside of the powerful mining boom. In addition, the 1.2 per cent contraction in the first quarter caused by the Queensland flood crisis in January, which slowed major coal production, was revised to a better 0.9 per cent slowdown.

There was also a surprising 1 per cent bounce in consumption, which occurred despite the recent wave of consumer caution. It was the fastest quarterly growth in consumer spending in more than a year.

Speaking about the current Australian economy, Royal Bank of Scotland chief economist Kieran Davies says while there has been a lot of talk about our two-speed economy, and the potential of a “recession double dip”, the future looks surprisingly positive. “With all the talk of a two-speed economy in Australia, you would be forgiven for thinking that the economy outside of mining was in recession,” Mr Davies says.

“That certainly isn’t the case, as there was strong growth outside the resources sector.”

Mr Davies says he expects to see resurgence in consumer spending over the coming months, which would be good news for industry sectors the nation over who have struggled under challenging conditions for the past 12 months.

In terms of home loans, while consumer caution has plagued the mortgage market for some time, recent data suggests buyers are starting to return to the property market.

According to Veda’s quarterly Consumer Credit Demand Index (CDI), mortgage enquiries grew 6.3 per cent over the June quarter as borrowers took advantage of a highly competitive lending environment.

This data was supported by the Australian Bureau of Statistics (ABS), which recorded a 1.7 per cent increase in the number of finance commitments in July. In trend terms, increases were recorded in all states and territories. Queensland recorded the largest increase, up 2 per cent, Real Estate Institute of Australia (REIA) acting president Pamela Bennett says.

“Increases were evident for the construction of new dwellings (up 1.3 per cent), the purchase of established dwellings (up 1.7 per cent) and the purchase of new dwellings (up 2.3 per cent).

“The upturn in lending commitments reflects stability in interest rates and the housing market as well as increased competition among lenders,” she says.

Improve your financial position by refinancing

Here are a number of ways refinancing can really boost your current financial situation:

• Find a better interest rate: Bank competition, coupled with interest rate stability, has created some real opportunities for borrowers. Refinancing your mortgage to a fixed rate product will give you certainty around loan repayments. However, you should also consider break costs which may apply if you break your term early.
• Unlock the equity in your home: Investors can use refinancing as an effective way to unlock the equity in their home, giving them more funds to act sooner. It is also a terrific way to gain some extra cash when renovating your home.
• Debt consolidation: Finding it difficult to keep track of all your debts? Refinancing can place all your debts, including store and credit cards, into one loan. This will help you manage your debt more effectively and potentially save you thousands in interest rate repayments.
• Which option is best for you, even staying with you current loan, will depend on your circumstances.

Making the switch

Cash rate stability, increased product choice and flexible mortgage interest rates have created the prime environment for consumers planning to renew their home loan. Competition in the mortgage market is certainly heating up.

Major lenders are slashing rates and releasing some enticing mortgage products in a bid to win over your business. As the banks continue to battle over market share, an increasing number of borrowers are realising the potential savings on offer should they decide to make the switch to a new lender.

The mortgage you have now may no longer be the most appropriate or most affordable option available. If you are unable to remember the last time you had a credit check, now may be the time to do so. Whether you are looking to drive down your mortgage balance or reduce your repayments, refinancing may be the ideal strategy. Refinancing refers to the process of switching from one home loan to another. This is a fast and flexible way to keep you abreast of your current financial circumstances and to ensure you are not paying any more than you should on your mortgage. While the federal government abolished exit fees for new loans earlier this year, there are some additional costs that you will need to consider before changing lender.

Switching home loans can carry additional costs such as new application fees, legal fees and mortgage insurance.

However, establishing which home loan best fits your needs can be quick and relatively stress free. Mortgage brokers can help ensure the transition from one home loan to another is as safe and hassle free as possible. Moreover, we can work with you to identify the most appropriate product to meet your needs as well as help you through the application process If refinancing is the way to go for you.

Give us a call so we can work with you on highlighting associated costs and determining the best course of action. Making the switch

Blitzing your backyard

There’s no end of TV shows dedicated to property renovation, but all too often they just concentrate on what’s on the inside. What about what’s outdoors? Australians have a strong affinity with the great outdoors, so it should come as no surprise that the backyard often represents a focal point for many potential home buyers.

Whether you are fortunate enough to enjoy a modest backyard or prefer the simplicity of a smaller courtyard, there are plenty of ways to maximise the space available.

Inside and outside design – Choosing materials, textures and colours that complement or match your interior design is a sure fire way to connect the backyard to your home. This does not mean you have to pull up the entire yard; rather, you need to effectively manage what you already have. If you are new to the renovation game, sticking to natural lighting is your safest bet. Use dim colours wherever your garden is light and light colours wherever your backyard is dim.

Using the space – Add some flare to your backyard with striking features such as fountains, pebbles or landscaping stones. A water feature will add a splash of class to any backyard, while pebbles and stone landscaping will add some extra colour and texture to your outdoor living space.

Keep in mind the layout and design of the backyard when selecting a feature item always choose objects that make the most of the space you have.

Jazz up the garden – Spruce up the yard with some vibrant plants and bushes. The types you select should, again, be determined by the layout and design of your backyard. However, if you find that space is a concern, a raised garden bed will let you fit more plants into a smaller area. Potted plants require little to no space and are a worthy addition to all yards. When choosing plants, keep in mind how much sunlight your backyard receives during the day as nothing looks worse than a neglected garden.

Outdoor living – After you’ve spent many hours improving the garden and lighting up the yard, it makes sense to create an area where you can sit back and enjoy your hard work. Unfortunately, outdoor living areas don’t come cheap, but there are ways to avoid the financial strain. Large umbrellas can provide shade and shelter at one quarter of the cost of a gazebo. Moreover, stylish outdoor furniture can be found at most local hardware/gardening stores so be sure to shop around and

grab yourself a bargain. If you’re looking to spruce up the backyard with some solid landscaping, keep in mind they you may be able to draw on some of the equity built up in your home to finance the improvements, rather than using cold hard cash, credit cards or personal loans. Give us a call to discuss financing your backyard renovations and some of the options available.

Capitalising on a buyer’s market

There are real opportunities awaiting home buyers and investors who are willing to take

the plunge. The property market has been relatively flat in some areas. We have seen prices soften across some segments and also new home sales fall.

With the number of listings soaring and fewer buyers around the traps, it is prime time for those armed with a sizeable deposit.

Get your house in order

A buyer’s market, in which the volume of property listings exceeds buyer demand, typically exists during periods of weak or negative consumer sentiment. Understanding the right time to buy is key to successful investment, and while the risks may appear high, the likely returns can make buying a worthwhile decision. With doubts surrounding the global economy beginning to wane and a possible

interest rate cut in the offing, now is the time to strike. Many investors aim to capitalise on a market with fewer buyers actively in search of a new home as this puts greater negotiating power in the hands of those willing to buck the trend.

Investors and home buyers with a sizeable deposit behind them will have greater ability to influence the price of a property. Even more important, buyers that have finance pre-approved can more quickly and

with more authority negotiate with an agent, as they will know that you’re a serious player and will therefore negotiate knowing an outcome can be realised.

If you’d like to assess your current borrowing capacity with view to capitalise on the current market, and to arrange a mortgage pre-approval, give us a call today.

Honing your negotiation skills - Capitalise on market conditions and negotiate yourself a bargain

There are now sections of the property market in Australia that are flat.

Opportunities emerge for a savvy buyer with the finances organised and proactive strategy in place.

Where there are fewer buyers in the market for the number of properties available for sale, and properties taking longer to sell, that is a ‘buyer’s market’. In those circumstances there is greater scope for driving vendors down on price.

Buyers that have sound negotiation skills can score themselves a better deal. Here are some key tactics for becoming a smooth property operator.

• Know the market – Attend as many inspections and auctions as you can to find out what’s on the market, in the area you want to buy, and at what price properties are selling. Talk to agents and compare quoted prices with final prices. You might think a property is worth $500,000, but in that market it may be worth less. By knowing what properties are selling in your market for you’ll avoid over-paying.
• Don’t be afraid to start low – Where there is a buyer’s market, properties will usually sell for less than their quoted price. There is no golden rule, but start seeking a discount upwards to 10 per cent (or more) than the price the vendor has listed. You’ll be surprised what you might be able to drive the price down to.
• Consider a professional valuation – This may help you determine whether you’re paying fair market value.
• Don’t set your limit at an obvious, rounded number, because most people will do the same – Put your final price in at a more unusual number such as $358,500 rather than $360,000.
• Get in quick – The early bird catches the worm… so move fast.
• Know thy vendor – Find out as much as you can about the seller, including why they are selling, why they’ve set the price they have, how long the property has been listed for and how much interest/how many offers they’ve had. The more you know the more power you’ll have in terms of negotiation.
• Keep your cards close to your chest – Play it cool and don’t reveal too much to the agent. If you’re really keen you don’t want them to know it.

How low should you go?
When making your initial offer the trick is to make it low but not so low that your offer is dismissed. You want to offer enough to get the seller interested. If you are making a low offer, afford a decent reason – perhaps there’s no garage or the house needs a paint job, for example.

To get a lower price, you may also need to offer the seller some kind of incentive. One of the best ways to become an attractive buyer is to offer a quick sale, or if required, an extended settlement time. Remember: find out what’s important to the vendor, use it as leverage.