Cashed up would-be homebuyers continue to proceed with caution

 By Micahel Yardney

We Australians can be an impulsive lot.
Particularly when it comes to home loans and whether we choose to fix interest rates or take our chances with the going variable rate of the day.
More often than not, a large percentage of homeowners jump on the fixed rate wagon when it’s too late; just after the Reserve Bank starts pushing rates up to keep inflation in check.
Recently though, it would seem many mortgage holders are fearful of missing out on the apparent generosity of the banks,  who are offering some enticing fixed rate deals.
According to a recent article in the Sydney Morning Herald, a growing number of homeowners are being lured into fixed rate mortgages despite some analysts predicting we are still in for at least another one, if not two rate cuts over the next six months.
The Australian Bureau of Statistics reports that the number of fixed loans grew from 10.6 per cent to 11.1 per cent prior to last year’s November rate cut.
While mortgage broker AFG reveals that 19.2 per cent of loans they arranged on behalf of clients in December were issued at fixed rates, compared to just 8.2 per cent of their business six months earlier.
So is this a case of strike while the iron’s hot?
According to CommSec economist Savanth Sebastian, “It’s more about ensuring you can purchase a place within your budget and within your limits,” he says.
“While the risks are to the downside [for rates to fall], I think the fixed rate market has already priced in a couple more rate cuts,” he says.
“In addition “even though the Reserve Bank may well cut rates again, the banks need to pass these on.
So the fixed market is looking very attractive, not only do you need a couple more rate cuts [for variable rates to match fixed] but you need it all to be passed on as well to justify where the fixed market is.”
Should you fix?
Indeed, many experts are suggesting that now is a good time to consider fixing your home loan if you prefer the certainty of knowing what your mortgage commitment will be from month to month and the good night’s sleep that goes with such knowledge.
The fact that Aussie home owners are so eager to fix their rates is not surprising really, given the continuing economic uncertainty and what we saw with interest rates rising in quick succession immediately after the 2008 Global Financial Crisis.
“We saw straight after the GFC how rates rose, it certainly would have caught some home buyers that were on the edge in terms of repayments, so at least this way they can sleep easy,” says Sebastian.
Home buyers proceeding with caution.
As for the state of the housing market at present, ABS data reveals that the number of new owner-occupier housing loans rose by 1.4 per cent in November while the value of loans rose by 2.2 per cent.
Interestingly though, would-be buyers are not necessarily racing out to snap up the first property that comes along, with many new home loans not being drawn down by cautious types who simply want to get their finances sorted “just in case”.
No doubt some are concerned about the state of the world economic situation and closer to home, reports of unemployment figures starting to once again rise, but surely people who have the means to buy (and hang onto) a property right now can recognise a buyer’s market when they see one?
People are scared and when people are scared they tend to become paralysed into inaction.
It will be interesting to see what the next round of stats show
With the banks recently raising interest rates out of step with the RBA and increasing uncertainty about further rate cuts, I imagine more borrowers will be fixing a portion of their loans to give themselves some certainty about future cash flows.
I know I’m considering it.
At our upcoming National Property & Economic Updates, award winning finance strategist Rolf Schaefer will be giving his views on what’s ahead for the economy and interest rates – click on here now to get full details and reserve your place

What Will 2012 Hold For Property?

Written by Paul Kounnas 

Confused is the word that best describes the real estate market at the moment – at least as far as the media and many gurus are concerned. There are so many different views on where the market is heading that meaningful analysis seems impossibly hard.
Sure, the market is flat and properties have lost some value in recent months. But that just means there are more buying opportunities.
Despite the worst predictions, in the past year Melbourne dwelling values fell just 5.8% according to the latest RP Data figures. Even though prices may remain flat for a while and some properties could fall further, there’s absolutely no reason to expect a crash as the media would have you believe.
There are only four things that could make our property markets crash: Recession, High Unemployment, High Interest Rates, and Oversupply.
Recession, although a possibility is unlikely in the face of our current resources boom. Rather than high unemployment we are seeing a shortage of skilled labour necessitating an increase in immigration. High interest rates are not going to happen any time soon as we have just had a reduction and may yet see another.
Property oversupply also won’t become a factor as we have a national shortage.
HSBC’s Chief Executive Economist, Paul Bloxham, points out the dwelling price to income ratio has remained stable since 2003 at between 3.5 and 4.5. He is forecasting growth in disposable income per household of around 5% per annum over the next few years on the back of strong employment and wages growth – a pointer house prices will grow at this pace.
The fundamentals for a strong medium and long term market are sound as Australia has a strong economy, full employment, rising wages, affordable interest rates and a growing population.
“Historically property prices go up in small booms, catch their breath and sometimes even drop before moving up again.”
“In reality, potential short term problems only underscore the importance of sticking to the basic rules of property investment. Look for property at the right price, in the right location, with the right rental income.”
“This market provides opportunities below intrinsic value as a hedge against further falls.”