What Goes Down Must Go Up

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What Goes Down, Must Go Up..

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Boost Your Borrowing Power

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Signs of growth in housing sector

It’s too early to be jumping for joy, but the latest housing loan figures support hopes for better times in the home building industry.

The two per cent bounce in February was not enough to restore the number of home loan approvals to the 2012 average. It fell fractionally short of the mark.

But things aren’t quite as dreary as that suggests.For the wider economy; it’s not just the number of home loans that matters.The value of home loan approvals is important. And then there are investors, not generally mentioned when the “home loan” figures from the Australian Bureau of Statistics are reported every month.

But counting investors along with home buyers, the total value of housing finance approvals to both investors and home buyers in February was $21.83 billion, compared with the 2012 average of $20.61 billion.

In other words, the value of housing loans being pumped into the Australian economyis running at more than 2 billion a month above the average for last year.

Last month the Reserve Bank of Australia was cautiously optimistic about the prospects for the home building sector. “Overall, recent housing market developments pointed to a further moderate increase in dwelling construction in the period ahead,” the central bank said in the minutes of its board’s monetary policy meeting earlier in March.

The housing market is dominated by established homes, but sustained strength in demand for established homes can usually be counted on to boost demand for new housing, which then generates a cascade of activity through the rest of the economy.

The value of lending for new housing, including those investor loans identified by the ABS as going into construction, was $2.70 billion in February, 24 million or five per cent above last year’s average.

There is a long way to go before the housing sector is running quickly enough to beable to grab the baton as the resource investment boom tops out. But it does seem at least to be heading in the right direction.

Source: Garry Shilson-Josling, AAP Economist courtesy of Shaw Stockbroking

Home prices up 0.3 per cent in February

Home prices across Australia’s capital cities rose for the second consecutive month in February.

Home prices rose by an average of 0.3 per cent in the month, following a 1.2 per cent rise in January, according to the monthly RP Data/Rismark Home Value index released on Friday. RP Data research director Tim Lawless said that while the results were positive, further gains were needed to offset recent falls. “While the housing market is staging a demonstrable recovery, we need to see values rise a further 4.3 per cent before we can say that a technical recovery has been achieved, ” he said.

“That amount of value appreciation is likely to be at least six months away”. He said the figures made it less likely the Reserve Bank of Australia would cut the cash rate, currently at three per cent, at its March 5 board meeting. “The quarterly trend rate of housing value growth is slightly higher than inflation and pretty much in line with wages growth, which is arguably exactly what the RBA is hoping for,” Mr Lawless said.

According to the survey, Melbourne, up 1.5 per cent, Darwin, up 2.3 per cent and Canberra, up 1.9 per cent, all recorded rises during the month. But those gains were partially offset by falls in Brisbane, down 1.1 per cent, Adelaide, down 0.8 per cent, Perth, down 0.8 per cent, and Hobart, down 0.9 per cent. Home prices rose by 0.1 per cent in Sydney, which remained the most expensive capital with a medican house price of $600,00 and a median unit price of $475,000. Hobart was the cheapest capital with a median house price of $325,000 and a median unit price of $248,000.

Source: Brett Thompson, Shaw Stockbroking

‘Big school’ means a lot of things, however from a financial perspective it can mean No More Childcare Fees!

Did you know that it is not unusual for parents to spend $10,000 or more per year on long day care per child?

That equates to more than five months of repayments every year on their mortgage!2

For many families, the start of primary school is an opportunity for a parent to increase their hours of work or return to the workforce on a part or full time basis. This can have a significant effect on family income, lifestyle and relationships.

If you are one of the 270,0001, what are you planning to do with the extra cash to ensure it does not simply disappear into your everyday spending?

Time to review

When your children start school (or your employment circumstances change) it is a great time to re-assess your overall financial situation. Over the years, having worked with many clients who have young children, we have observed (either intentionally or maybe unknowingly) the following:

  1. mortgage payments reduced to minimum levels,
  2. personal debts and/or credit cards built up,
  3. limited refinancing options due to lower income levels, and/or
  4. investments being placed on hold.

We have also observed that when our clients re-enter the workforce, most forget that they actually managed quite well on lower income levels. Instead of investing, saving or paying off debt, the additional cash flow has been absorbed in their new daily lifestyle.

What are some of the options to secure a strong financial path?

  1. Increase mortgage repaymentsUsing any money previously assigned to your childcare facility to make additional mortgage repayments. These additional repayments have a compounding effect and can significantly reduce the term of your loan, thus saving you thousands in interest over the lifetime of your loan.
  2. Review your debt and consider new optionsWhen living on a single income it is not uncommon for additional expenses to be added to credit or store cards. Unfortunately these types of credit facilities typically accrue very high interest. We recommend that you take the time to review all your debt and talk to us about consolidation options to reduce your overall interest (and mostly lower your repayments).
  3. The deal gets better…Refinancing your home loan can be difficult when children are young as lenders are hesitant to lend on a single income or consider part time earnings. When you re-enter the workforce, refinancing your home loan becomes easier as your ability to repay improves. There are currently some very attractive interest rates available.

    As your spare time now becomes so much more important, if you have not reviewed your home loan for a while, we would recommend that you allow us to do so while rates are at their all time low.

  4. Plan your investment strategyInvestments are typically the first item that we see families put on hold while their children are young. With both parents working and the elimination of childcare fees, an investment property may become an affordable option. Remember you don’t need to pay off your own home before considering an investment property.

Ask us for our information guide on how to use your existing equity to start investing sooner.

If big school is the on the cards for your little one, then make sure to call the office on 02 8215 1559 to start on the right foot this year!

*Disclaimer: This article is generic in nature. All investment decisions should be considered wisely and based on your personal and financial circumstances. Seek proper advice before committing to any course of investment action. This is not deemed as advice.

1abs.gov.au/ausstats/abs@.nsf/0/93EB4563583425CCCA25773700169C91?opendocument
2censusdata.abs.gov.au/census_services/getproduct/census/2011/quickstat/0 median monthly mortgage repayments $1800

Soft jobs data raises prospect of rate cut

A weak employment report for December has increased the chance of an interest rate cut in February, so economists say. The Australian Bureau of Statistics (ABS) announced that the nation lost 5,500 jobs in December. The result was well below market consensus of a 4,500 gain in total employment. NAB group chief economist Alan Oster said the data showed the labour market was soft. “Generally the message is that the labour market whilst it is OK is softening and therefore unemployment is starting to go up,” Mr Oster said. The ABS said the unemployment rate was at 5.4 per cent in December, up 0.1 percentage points from an upwardly revised 5.3 per cent in November.

The Reserve Bank of Australia has delivered 175 basis points of interest rate cuts since November 2011, sending the cash rate to three per cent and levels not seen since the global financial crisis. Mr Oster said the unemployment data had raised market expectations of more interest rate relief from the RBA in February at the next meeting. However, the release of the December quarter consumer price index (CPI) report due on January 23 would have a bigger bearing on the central bank’s thinking. “This is soft, so this would basically mean that the market would price in a bigger chance of a rate cut,” Mr Oster said. “But I think you really need a low CPI before they actually pull the trigger.”

The Australian dollar also reached negatively due to the jobs numbers. The currency dropped to 105.36 US cents after the data was released at 1130 AEDT, down from 105.64 US cents shortly before.

2012 Wrap Up

Mortgage holders and home buyers received an early Christmas present this year, with the Reserve Bank slashing 25 basis points off the official cash rate and taking it to an all-time low of just 3 per cent.

In terms of interest rates, it has been a good year for borrowers, with more than 125 basis points cut from the cash rate over the past 12 months. In fact, we haven’t seen a cash rate this low since September 2009.

So, while the news came as little surprise to many leading economists, home owners and potential buyers have an extra reason to celebrate this festive season. Several lenders have been quick to pass on the rate cut, with many more expected to make a move over the coming weeks.Whether you are an existing mortgage holder or are looking to enter the property market soon, rate reductions can only mean one thing – savings.

As the new year draws near, some economists are predicting an influx of activity in both the Australian real estate market and retail sectors as recent cash rate reductions filter through to consumers’ wallets. HSBC chief economist Paul Bloxham said the Reserve Bank’s recent decision reflects the country’s need for increased spending in economically sensitive sectors such as retail and housing.

“Lower interest rates are needed to support a pick-up in the non-mining sectors of the economy so that Australia sees a smooth transition from mining investment-led growth to growth that is driven by the interest-rate sensitive sectors,” Mr Bloxham said.

“Australia’s growth needs to switch from being commodity-price driven to being credit-driven, and the 175 basis points of rate cuts the [Reserve Bank] has delivered in the past year or so will help to drive this.”

The question on everyone’s mind now is what’s coming next? Can we expect to see the Reserve Bank lower the cash rate once more early next year, and should we wait and see before considering entering the property market?

According to Mr Bloxham, you may be disappointed if you decide to take the ‘wait and see’ approach.“The labour market remains a key focus for us, as do further signs of a pick-up in the housing and retail sectors over the Christmas period,” he says. “At this stage, we think this may be the last of the Bank’s cuts in this easing phase.”

If you are looking to enter the property market, there may be no better time than right now.

We are seeing an influx of discounted mortgage products currently available in the marketplace– with potential savings offering significant benefits to the hip pocket. Give us a call today if you would like to discuss your situation.

First Time Choices

Should you enter the property market now, or later?

Most first-time property investors find themselves facing the challenge of coming up with sufficient funds for a deposit and so will be torn between two options:

Do they enter the market now and borrow a hefty portion of the property’s value? Or should they bide their time so they can put together a larger deposit?

Keep in mind that the choice you make now can impact greatly on the profitability of your investment, so it pays to consider the relevant factors carefully before entering the market. With property values relatively flat – at least for the moment – and lenders offering considerable discounts across many home loan products, it might be enticing to enter the market now, regardless of how much money you have saved. Many lenders now offer loans of up to 95 per cent of the value of the home, allowing you to enter the market with a deposit of just five per cent. However, it is important to assess your financial situation first. Ask yourself, can I afford to meet the repayments if interest rates increase, as well as put aside some money for emergencies?

Don’t forget that with a deposit of less than 20 per cent, it is highly likely you will be required to pay lender’s mortgage insurance (LMI) to protect the lender if you are unable to meet the repayments. While it will take longer to save a large deposit, there are some advantages in doing so – including being able to avoid paying LMI. Being able to put down a larger deposit will also help minimise your monthly mortgage repayments. However, while you save for that deposit you may be missing out on house price growth and investment returns, and the cost of your potential purchase will likely increase in the meantime.

There is no right or wrong decision here – it is up to you and it depends on your own, unique financial position. The best thing to do is to weigh up your options carefully. If you’d like help assessing your options, come and speak to us. We can assess those options – including calculating the numbers – and can help you get a better picture of what the best opportunities are for you.