New record lows ahead: Your mortgage rate could be slashed further

Thu, 07 Nov 2019  |  

This article was written on 20 August 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/mortgage-rates-set-to-fall-to-new-recordlows-210011407.html 

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New record lows ahead: Your mortgage rate could be slashed further

Fancy a mortgage rate of 3 per cent? Maybe a little less?

Within the next few months, mortgage interest rates are on track to fall to fresh record lows, probably below 3 per cent.

That is the overwhelming message to come from the Reserve Bank as it struggles to deal with the soft economy where inflation is tracking at record lows, a long way from returning to the 2 to 3 per cent target range.
While the totality of these interest rate cuts are unlikely to be fully passed on to mortgage holders, strong competition within the mortgage market will see mortgage rates fall from current levels around 3.5 per cent down below 3 per cent. This is a stunningly low borrowing cost for those buying a house.

It also means that housing affordability in much of Australia will be at its best level in many decades.

How much could you save on your mortgage?

Over the past two years, house prices have dropped 10 per cent, a time when mortgage rates have fallen markedly and household incomes have risen by over 6 per cent, even though wages growth has been weak.

A 3 per cent mortgage interest rate will mean that monthly repayments on a $400,000 mortgage, repaid over 30 years will be under $1,700. This is down from almost $2,300 a month when interest rates were 5.5 per cent. Looked at another way, for that $2,300 monthly repayment on a $400,000 loan when rates were 5.5 per cent, the same monthly repayment is required for a mortgage just under $550,000 when interest rates are 3 per cent. That is an extra $150,000 of borrowing capacity.

Either through a higher borrowing capacity or a lower monthly repayment, housing affordability is extremely favourable.

It’s time to negotiate on your mortgage rate

It is a good time to negotiate a lower interest rate given strong competitive pressures because no one should be paying more than 4 per cent even before the next few interest rate cuts are delivered. It should be reasonably clear what this means for house prices. Already house prices are starting to edge up as the impact of lower interest rates and favourable affordability attracts new buyers.

Easier credit conditions are also feeding into stronger housing demand. If interest rates do fall as the market is pricing and there is further strong ongoing demand from first home buyers and strong population growth, house prices are set to register solid gains for the next year or two. It would be reasonable to expect nation-wide house prices to rise 5 to 10 per cent between now and the end of 2020, with the strongest gains likely in Perth, Sydney and Melbourne.

Rising house prices will help to support household wealth levels, an issue that has a strong influence on consumer spending.

All of which points to a better year for the economy into 2020 driven, in large part, by the RBA coming to its senses and delivering aggressive interest rate cuts in a simple yet effective measure to boost economic growth.

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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

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This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

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What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.