Property Prices to Climb

The 2013 spring selling season could be the best we have seen in a long time, one industry stakeholder has claimed.

Speaking to The Adviser, Loan Market’s Mark De Martino said he expected to see property prices climb later this year, encouraging many buyers to jump on the ladder sooner rather than later.

“If you look at the history of property prices, values always climb shortly after interest rates have been cut,” he said.

“The Reserve Bank cut the cash rate several times last year and I expect this to have a flow-on effect in the property market later this year when property prices will ultimately climb.

“I think the 2013 spring selling season will be one to remember. Prices will climb and interest in property will start to gather pace.”

THE ADVISER

Google calls it quits in financial services

Google had barely dipped a toe in the financial services business, but it appears the tech giant is getting out.

Last November, Google launched Google Compare for mortgages and insurance, an online tool that allowed home buyers to find and compare home loans. The product was initially available only in California, and joined other Google Compare products that allowed consumers to find and compare credit cards and various types of insurance. There was talk that Google Compare could have eventually entered the Australian market as well.

Google didn’t actually fund mortgages, but it did register as a licensed mortgage broker, according to a CNN report. The company had hoped to use its global reach to provide consumers with niche products and financial services, according to a Wall Street Journal report.

But it appears the Compare product line hasn’t been as successful as the search engine titan had hoped. According to the Journal, Google struggled to sell ads on Compare – and the largest lenders and insurers simply declined to come on board.

In an email acquired by the website Search Engine Land, Google informed its partners that all Compare products – mortgage, insurance and credit card – would begin winding down immediately and shutter for good on March 23.

“Despite people turning to Google for financial services information, the Google Compare service itself hasn’t driven the success we hoped for,” the email stated. “We greatly appreciate your partnership and understand that this decision will be disappointing to some. But after a lot of careful consideration, we’ve decided that focusing more intently on AdWords and future innovations will enable us to provide fresh, comprehensive answers to Google users, and to provide our financial services partners with the best return on investment.”

The Compare site was always a risk. According to a Fox Business report, analysts warned at the outset that the product, by allowing consumers to buy mortgages and insurance policies directly, had the potential to anger lenders and insurers who were major advertising clients of Google.

Google has not yet officially commented on the shutdown.
WEALTH PROFESSIONAL

Why half of Australians don’t want to talk about money

Almost half of Australians would rather avoid the topic of money, new research by finder.com.au has revealed.

The survey found 42% of those surveyed find personal finances the most difficult thing to talk about, even more than religion (40%), sex (38%) and politics (23%).

Consumer Advocate at finder.com.au, Bessie Hassan says Aussies will talk about their sex lives before they discuss their personal finances.

“Still in 2016 very few of us feel comfortable openly discussing finances,” she says.

“Despite living in the social media age where people are criticised for sharing far too much information online, divulging money matters makes us wildly uncomfortable.”

Only 18% of Australians regularly discuss money and Gen Y (aged 18-34) appear to be the most comfortable talking about it when it does enter the conversation, with one in three (33%) often discussing personal finances.

“Considering there’s a lot of lessons to be learned from hearing about other people’s financial experiences, that’s a lot of missed opportunities,” says Hassan.

Baby Boomers (aged 55-74) are the least comfortable generation when it comes to talking about money, with 56% never discussing it.

“Many in that generation were raised to believe that talking about money is rude or impolite and those are hard attitudes to shake,” says Hassan.

“We all need to be careful about what information we share – obviously keep specifics like account numbers or passwords private. But sharing ideas on how to save money or managing finances can make a big difference in people’s lives,” she says.

The survey included three reasons for why it is important that money matters be discussed.

•Gain knowledge: Talking to someone who has more financial knowledge than you is a great way to learn new personal finance concepts.

•Take action: Having a conversation with a friend can prompt the listener to take action on financial matters like looking for a cheaper home loan rate or drinking one less coffee a day to boost savings.Take act

•Learn from their mistakes: Chances are that someone you know has learnt the hard way about a financial matter you are contemplating. By finding out what they would do differently, you then have a head start.

Ignore Abbott-Credin affair – Look for Success

Sure, the Abbott ‘slap and tickle’ is magnetically newsworthy so how come the story about the ex-PM’s alleged closeness with Peta Credlin surfaces now, just after Tony bagged Malcolm Turnbull’s delayed submarine decision? And is it all important?

It’s certainly great for the sales of Niki Savva’s new book The Road to Ruin. However, it’s also symbolic of how we are distracted by the trivial and the things that won’t make us money, won’t make us smarter, won’t make us more competitive or more successful!

Now I know the Americans creating 242,000 jobs in February doesn’t have the sex appeal of a possible affair between our former PM and his chief of staff. However, it bears more importance to our super, our jobs, the profitability of our businesses and even whether our budget deficit’s bottom line goes up or down!

You have to know that our stock market’s bad start to the year came from rising expectations that a US recession was looking more possible. And there were other things, such as the worse than expected China slowdown, the price of oil going to $US11 a barrel, etc. (the list of speculative negative outcomes went on) but lately, a lot of these expectations have been proved to be excessively negative.

That’s why from their recent lows, US and global shares are up 9%, Australian shares are up 7%, oil is up 37%, the $A is up 8% and iron ore is up 34%. AMP’s Shane Oliver put it nicely: “Maybe these rallies are telling us that all the handwringing over global growth was overdone.”

I’d put it more bluntly. Here’s my take: the hedge funds and short sellers saw an opportunity and exploited it and with the media’s help. They played around with our share prices, our wealth, our super and even threatened the economic viability of the global economy. But hell, that’s what you get when you play stocks — it’s called risk and reward.

There are even more sexy facts out there, which I didn’t see as headlines in newspapers or in TV news services over the weekend:

• The Oz dollar is now 74.38 US cents, which would be worrying the RBA and could lead to an interest rate cut.

• The combined effect of a 34% rise in iron prices recently and the 3% economic growth number here in Australia, which confounded economists and doomsday merchants, means Scott Morrison’s budget could be a great pre-election effort.

• Just when those having great fun and making money from selling off stocks leveraging off recession fears, central banks are fighting back. The Chinese central bank last week eased monetary policy, the US Fed now looks a certainty not to raise rates in March and the European Central Bank, which acts this week, is set to stimulate Europe more.

• This chart, supplied by AMP’s chief economist Shane Oliver, on house price projections:

propertyprices_normal

If Shane Oliver is right, the time to sell is shrinking and the buy time will be around 2018 and beyond for a few years.

And just in case you think I only pedal good stock market and economic news, try this sexy, negative prediction from JP Morgan’s global strategist, Jan Loeys, who last week told clients that a US recession in 2017 is a one in three chance but he was saying it was one in four, previously. He’s put a 66% chance of the R-word being pulled out in 2018 and by 2019, he thinks it’s a 100% certainty!

However, let me put a positive conclusion on the above scary recession news. If Loeys is right, it means we have about two years left in this stock market before recession fears take hold but I reckon that will also coincide with slightly better term deposit rates of interest and lower unemployment levels.

Given the above revelations that could affect your wealth, your super, your job, your business and what your dollars can buy here and overseas, are you seriously telling me that some possible lie about Tony Abbott and Peta Credlin is more interesting?

PETER SWITZER 7/3/2016

Aussie borrowers have significant mortgage buffer

Almost a quarter of Australians have a financial buffer of more than a years’ wages in their mortgage, the results of a new consumer survey by Mortgage Choice has revealed.

According to the 2016 Money survey, 23.4% have the equivalent of at least 12 months wages sitting in their offset account or paid off their loan. By comparison, in 2015, only 13% of respondents said they were in the same financial position.

Mortgage Choice CEO John Flavellsaid the results are pleasing but not surprising.

“The survey found that the vast majority of mortgage holders are ‘very comfortable’ managing their debt. Of course, this data is hardly surprising when you consider that interest rates are currently sitting at 60 year lows, resulting in significantly lower mortgage repayments for most home owners.

“Of the respondents surveyed, 83.3% said they were either making additional mortgage repayments each month or had a decent amount of savings stored in their offset account.”

Across the nation, borrowers in Victoria and New South Wales had the biggest financial buffer in their mortgage, with 27.4% and 26% respectively stating that they have more 12 months wages in their home loan.

Western Australia was not far behind, with 24.3% stating that they had more than 12 months wages in their mortgage, while 19.8% and 19.5% of respondents in Queensland and South Australia were in the same position.

“It is interesting to note that Victoria and New South Wales are the front runners in this particular field, given that property prices (and therefore mortgages) are among the highest in the country,” Flavell said.

AUSTRLALIAN BROKER

Home Loan Rates will be hiked – warns FBAA

Pressure on wholesale funding costs and profit margins, coupled with looming regulatory changes may soon force banks to increase home loan interest rates, the head of the FBAA has warned.

Peter White, the CEO of the FBAA believes rate hikes could begin shortly and continue over the next 12 months.

“This is really the perfect storm for interest rate rises as banks look at softening the jump in the wholesale cost of funds that they lend out, like mortgage-backed securities and bonds,” White said.

“Those with money deposited in banks should be happy their interest rates have risen slightly but the flipside is the borrower will possibly have to carry the cost with an increase in home loan mortgage rates.”

White is now encouraging brokers to educate customers about the likelihood of home loan rate rises and discuss the possibility of refinancing under a fixed interest rate now.

“Brokers should be aware of what may happen and assess the most suitable outcome for customers if banks do increase the variable rate.

“There also is an argument to for splitting the loan and we know some lenders offer discounts with this type of package.”

The rising Australian dollar and increased compliance costs are other factors which seem set to force banks to increase home loan rates, White said.

AUSTRALIAN BROKER

Shortens big spending Bombshell

If Bill Shorten is troubled by the government’s taunts that he’s addicted to taxing and spending, there was no sign of it last night. The Opposition Leader fronted an audience of undecided voters at the Sky News People’s Forum at the Redcliffe RSL in Brisbane, and was in a generous mood. No one left empty-handed.

The first questioner asked about the plight of Arrium steel workers. Shorten suggested all government-funded projects should use Australian steel and even raised the prospect of taxpayers co-investing to keep this “vital” industry afloat.

Next came a question on the exorbitant cost of childcare. Shorten promised to allocate more money to “childcare priorities” (although what this actually means is unclear). A mature-aged woman unable to find employment was told Labor would offer greater incentives to employers to hire older workers. A self-funded retiree was told Labor would consider reversing the tougher assets test for the part-pension. Shorten also hinted at more generous GP rebates, a better NBN and increases in the superannuation guarantee for all workers. And of course there was the recurring references throughout the night to Labor’s already announced $37 billion pledge on school funding.

It was a far cry from the last Labor leader who brought the party from opposition into government. Back in 2007, Kevin Rudd made a virtue of his fiscal restraint. When John Howard made $10 billion in spending commitments in his campaign launch, Rudd offered a more prudent approach. “I have no intention today of repeating Mr Howard’s irresponsible spending spree”, he said. “Unlike Mr Howard, I will heed the warnings of the Reserve Bank.”

Back then the budget was in surplus (although not for much longer, as it turned out). Today the budget is still $36 billion in the red. Yet the Opposition Leader clearly believes more spending is the path to victory. On childcare, the NBN and health, Shorten was dropping clues at the Redcliffe forum.

Government head-kicker Peter Dutton was quick to label Shorten the most reckless Labor leader since Gough Whitlam. He suggested Shorten spent the night “tipping money out the door” instead of showing some responsibility.

But here is the key difference. Where the government says this spending can’t be afforded, Shorten thinks it most certainly can. He’s already announced plans to hike cigarette tax, restrict future negative gearing to new properties, halve the capital gains tax discount, tax the superannuation earnings of the wealthy and hit multinationals. And this may not be the end of it.

The general assumption is Labor has already unveiled all of its revenue raising plans. The campaign will be used to spend the money. But don’t be surprised if there’s another revenue bombshell to come. Could the 30% private health insurance rebate be in Labor’s sights? Could other areas of spending that favour wealthy individuals or corporations be on the chopping block?

Bill Shorten isn’t playing it safe in this campaign. He’s no small target. Despite this week’s Newspoll, Shorten knows he’s the underdog and has to gamble with some bold moves. He wants to offer the extra spending on schools, hospitals, GPs, childcare, the NBN and more while also pledging a healthier budget bottom line than the Coalition. He will upset plenty of voters at the top end, but they’re not the ones he’s worried about.

In just over a week, parliament will resume for what’s most likely to be the final sitting before the election. As soon as the Senate “refuses to pass” the ABCC bill, we will know the election date is confirmed as July 2. Bill Shorten has used the past few weeks campaigning in marginal seats around the country, honing his message to the voters who will decide the outcome. Malcolm Turnbull hasn’t been in many marginal seats during this time. He’s instead been igniting and then trying to extinguish spotfires on tax and education, before settling on a new campaign line about “living within our means”. It’s hardly an inspiring slogan, but could be effective.

Turnbull will use the Budget next month to draw a sharp distinction with Labor over economic management. For an economy in transition and a budget deep in deficit, he will argue, more spending is not the answer. The big question is, will voters accept the case for budget responsibility and repair or go for the guy offering something for everyone?

SWITZER BROKER

Aussie predict further lift in house prices

New research from Mortgage Choice shows more Australians expect house prices to rise rather than stabilise over the next 12 months.

The company’s 2016 Money Survey reveals that of the 1030 respondents, 32.5% anticipate house prices to increase over the coming 12 months, compared to 25.3% that thought prices would stabilise over the next year.

Around a quarter (25.1%) believes prices are likely to fall in the next 12 months, with the remainder unsure about potential movements in house prices.

Mortgage Choice CEO, John Flavell, says how optimistic people are about the future of property prices depends on where they live.

He highlights CoreLogic RP Data figures that shows dwelling values have climbed across all of the eastern capital cities over the last 12 months – by 9.8% in Melbourne, 7.4% in Sydney, 4.5% in Brisbane and 3.2% in Adelaide.

However, dwelling values fell by 2% in Perth and by 1.8% in Darwin over the same timeframe.

Reflecting this, Western Australian residents were least positive about the future of property prices in the state – more than half (55.4%) expect house prices to fall over the next 12 months.

However, Queenslanders were the most optimistic about rising house prices (46.8%), followed by Victorians (43%).

“Australia’s property market isn’t a single market. It is made up of many different markets, some of which are thriving and some are not,” says Flavell.

“The reality is, the property market is cyclical in nature. In other words, property prices will rise and fall over time. So, while dwelling values have fallen in Perth over the last 12 months, that doesn’t mean to see we won’t see an improvement in this market over the short to medium term.”

Flavell says the property market as a whole remains “relatively robust”.

SWITZER BROKER

Andrew Bolt is wrong on the Economy and the Budget

One of my nightly commitments after I finish my TV show at 8pm is to listen to my colleague Steve Price and his sidekick Andrew Bolt on 2GB, 4BC, 3AW and a host of stations around the country. When politics heats up, like it did last night, with the Senate bringing on a double dissolution expectation, it’s always instructive to hear the thoughts of one of the country’s most right-wing thinkers.

Andrew is also set to have his own show on the Sky News Channel, so he’ll be a colleague of mine there too, so it makes me want to ask: “Whose giving him his economic briefings?” They’re way off beam, way too negative and it means he was telling his radio audience that the upcoming Budget will be all bad news. He thinks there’s no money as well so he can’t see any scope for positives to come out of Scott Morrison’s mouth on May 3, the new day for the Budget.

In case you aren’t a Bolt follower, Andrew was a mate of Tony Abbott and has never shown a great passion for Malcolm Turnbull. Malcolm is too left-leaning for Andrew, being a climate change believer, an ABC supporter and someone who hasn’t appeared on 2GB since becoming PM!

Andrew even argued to Price last night that there are some conservative members of the Liberal Party, who’d live with an election loss to Labor to wrestle back their influence over their beloved political party. Price found that unbelievable but Bolt insisted there are significant Liberals out there who hold this view.

Anyway, that’s just background before I test Andrew’s regularly referred to challenged economy, which we live in right now and which will be the foundation for the Budget in two Tuesday’s time.

So here’s the latest on the economy:

The last economic growth number we got was a 3% result, which was way over the 2.5% level many economists predicted. If you take the last six months and multiply those two quarters of growth, you get 3.4%. That’s the preferred measure of the Reserve Bank.
Unemployment defied critics, dropping from 5.8% to 5.7% in March. This time last year, economists were telling us to hold our breath for a 6.5% top out for the jobless rate. This is not a sign of a terrible economy and, combined with the growth number, says Joe Hockey’s last Budget, combined with a lower dollar, has really helped our economy.
In the year to March, a total of 235,300 jobs were added, which again looks like a pretty good economy.
Job advertisements rose by 0.2% in March, after falling by 1.2% in February. Job ads are up 10.7% on a year ago, which has to be a plus going forward for the economy.
The NAB business conditions index rose from +8.2 to +12.3 points in late March – an 8-year high. That says businesses are feeling good about being in business now.
The NAB’s business confidence index rose from +3.4 points to +6.1 points. This says the future is looking pretty good, despite what doomsday merchants are arguing.
The average credit card balance rose by $52.30 (1.7%) to $3,166.60 in February, which is a big jump and says something positive about consumers’ willingness to spend.
Tourists from mainland China and Hong Kong rose to a record 1,326,076 over the past year (up 23.5% over the year) and just shy of tourists from New Zealand (1,326,851 visitors over the past year).
Total new loans (personal, business, housing & lease) rose by 3.5% in February, after a 3% fall in January. Lending was just 5.5% shy of the 7½-year high recorded in September. Total lending is down 0.7% on a year ago.
The Australian Industry Group Australian Performance of Manufacturing Index increased by 4.6 points to 58.1 in March of 2016 from 53.5 in the previous month, taking it to its highest level since April of 2004
The average credit card balance rose by $52.30 (1.7%) to $3,166.60 in February.
The Westpac/Melbourne Institute index of consumer confidence fell by 4% in April to 95.1 – a 7-month low. A reading of 100 is the dividing line separating optimism from pessimism. This is a worry but the figure can jump around on concerns such as an early election.
Dwelling starts fell by 5.1% in the December quarter after lifting by a revised 2.3% in the September quarter. Work started on a record 220,845 new dwellings over the year to December, well above the decade average of 164,317 dwellings. And we know builders aren’t fast workers so there should be plenty of jobs and demand from builders over the next year or two, which is good for the economy.
Dwelling approvals rose by 3.1% in February, after falling by 6.6% in January and rising by 8.1% in December.
Retail sales were flat in February after a 0.3% lift in January. Annual spending growth eased from 4% to 3.3% – the weakest annual growth in 2½ years — but the number is still pretty good. February is never a good month after we’ve spent madly over Christmas.

My final point

In the 12 months to February 2016, the budget deficit stood at $36.1 billion (around 2.2% of GDP), down from $44.7 billion in the year to January and the lowest rolling annual deficit in almost two years (since April 2014).

And furthermore, The Department of Finance says the underlying deficit for February was $743 million lower than the ‘profile’ forecast and “primarily relates to lower than expected cash payments and net future fund earnings, partially offset by lower than expected cash receipts.”

As you can see Andrew, while there are some worrying spots, such as consumer confidence and retail sales, home building looks good for a year or two, businesses are positive and the big growth and job numbers are very positive.

And overnight, Wall Street didn’t react badly to the failed Doha oil meeting and the oil price didn’t fall too much, so it looks like stock markets might not be too sensitive to lower oil prices, which is a plus for our stock market and our super returns.

And even China’s latest economic data surprised China-haters and explains why our stock market didn’t sell off yesterday, when other Asian markets fell on the Doha news.

All up, this Budget is going to be set with a pretty good economy, which means there could easily be some good news. And don’t forget that Australia’s debt to GDP, while too high, is one of the lowest in the western world.

Hope that helps, Andrew.

SWITZER BROKER

Mortgage Arrears Reach Record Lows

Australian mortgage arrears have reached their lowest fourth quarter level in more than 10 years, according to the Dinkum Index from Fitch Ratings.

The Dinkum Index tracks the performance of a large number of loans that have been bundled up and sold by lenders to other investors. The index found that the level of 30-day plus arrears overall was merely 0.95% in the quarter to December 2015, the lowest fourth quarter level in 11 years.

The report stated that, “The level of arrears in the fourth quarter of 2015 reflected strong house price growth, low unemployment, low standard variable rates and low inflation.”

Arrears were down by 0.2% compared to the same period in 2014, while the actual loss rate on loans is just 0.02%, put down to rising property prices in major cities allowing lenders to recoup the value of their loans in the event of the borrower defaulting.

Fitch’s report added that APRA’s 2015 move to tighten lending by banks and other financial institutions was one factor in the low mortgage arrears, and suggests loan losses will remain low in the immediate future.

“The introduction of measures, such as interest-rate floors, means borrowers should have more buffers to withstand increases in interest rates and unemployment, and a slowdown in the housing market,” said the report.

AUSTRALIAN BROKER