Black and White Finance update - February 2018

We’ve got something big today for you while you’re in recovery mode after your Lunar New Year celebrations. We see how our first home buyers are raking it in and then dive into one of the most talked about topics, rates. Are they going up this year or next?

First home owners are pumping!

Australian Bureau of Statistics showed 19,000 people bought their first home in NSW over the last 6 months, this is 5,400 more people in comparison to this time last year. 

If you didn’t know, stamp duty was abolished for first home buyers purchasing new or existing property valued up to $650,000. From $650,000 to $850,000, concessions to this mandatory purchasing cost are applied.

Experts are saying this increase in first home owner activity is due to the retraction from investors in the property market, from both domestic and abroad investors. It’s believed that there are fewer people going for the same properties.

Higher investment and interest only lending rates, tighter lending standards, higher charges for those foreign buyers, and capital outflow controls introduced by China, are what has contributed to this plateau or downturn of late in investment activity.  It is predicted that with the way things are now in the economy, it could be a buyers’ market for a while, good for the first home buyer.

Caution needs to be exercised, however, according to some experts, who believe some areas are still overpriced and could potentially decrease in the next 12 months, especially in those highly dense regions in capital cities.

Rates on hold till 2019 or are they moving sooner?

Our first home buyers are definitely lapping up these record low-interest rates, the question remains how long are they going to be this low for? The thing is, for variable rates to move we need the economy to pick up speed and grow well above the current trend.

Luci Ellis, from the Reserve Bank of Australia, came out and said this week that the forecast for our economy is above 3 per cent over this year and next. As you may have read last month, 3 per cent brings our economy into the inflation zone. Anything more than the 2.75 -  3 per cent a year could lead to the annual rate of overall prices (inflation) to increase. This then results in an increase in interest rates.

But for now, wage growth in Australia is weak, very weak.

The recent figures from UBS who looked at data from the Australian Bureau of Statistics showed that while there are more jobs now than ever since the global financial crisis, wages are not on the same trajectory. Take a look at the wage prices in the graph below, they are as we say, very weak.

So, while there are more jobs and this is a positive sign for the unemployment rate, there is no sign of wages increasing. For how long is this sustainable is a question I don’t think anyone is brave enough to accurately predict. At the moment, there is no current factors forcing the RBA to change our cash rate and our banks, in turn, should be leaving these variable rates as they are for a while.

The tricky part is, predicting when these economic triggers will change. We are already seeing some movements in the fixed rate space with ANZ and ING recently increasing their fixed rates slightly. For how long is it till we see the rest of the banks start to increase theirs? Generally, fixed rates move first, off the back of swap rates and this is a sign that variable rates could be potentially moving in the future.

Our key takeaway from all this?

New data is expected soon, for now though, it’s extremely challenging to see things changing on a variable interest rate front. It’s fair to assume that the way wages, our rate of inflation, tight lending standards, and high borrowing costs are tracking, property prices will remain pretty much the same, and for a while.

The long-term prospects are what should be considered and we could be seeing this period of harder times being taken advantage of by those first home buyers, or those that are cashed up with their finances in order. Warren Buffett did say, “Greedy when others are fearful” so maybe start to get your cash and finances in order because a lucky buy might be around the corner.

Peter Vassilis

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Black and White Finance update - March 2018

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Episode 2 - Collaboration with Shane from Shape Financial - Insurance & Super