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Market Update:
02nd March 2010
Quick Summary:
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RBA Increases Cash Rate
A short time ago the Reserve Bank of Australia (RBA) announced that it was lifting its cash target rate by 25 basis points.
The reasons given were a stronger than expected economy and unemployment peaking at a lower level than forecast.
No announcement has yet come from the major lenders, but don't be surprised if they increase their home loan rates by a little more and blame it on the 'extra costs of financing'.
Of course, higher interest rates makes home ownership more expensive (and less affordable) via increased interest payments. It's estimated that the increase will add an extra $50 a month on a $300,000 mortgage.
As I wrote last week, as housing becomes less affordable, people will instead rent and this means there is a shift of demand away from home ownership towards rental accommodation.
Therefore, as interest rates continue to rise its reasonable to expect the growth in property prices to slow (since there will be less buyers) while rental returns increase (increased competition for rental properties will put upwards pressure on rents).
Finally, if you are planning to lock in your rate before the price rise then you better act quickly. In the past banks have usually adjusted their rates within 72 hours of an RBA announcement.
Solid Property Sales Last Weekend
Although not specifically mentioned, another reason for the increase in interest rates is the continued strength in the housing market.
Strong auction clearance rates were reported in Sydney and Adelaide, while in Melbourne strong sales prices meant that more than $1 billion worth of property changed hands on the weekend.
Aside from State Revenue Offices salivating at the thought of all the stamp duty, the strength in the market is caused by a shortage of housing stock relative to the number of buyers.
An agent friend of mine put is this way "for every one seller there are ten buyers. Our problem isn't finding interested buyers - it's finding houses to sell!"
See Me On Today Tonight, 6:30pm tonight
Finally, Channel 7 came out this afternoon to film a short interview about my thoughts on the property market. We also went to a half burnt down house that sold for $1.995m on the weekend. The story airs on Today Tonight and would be worth watching if you are free at 6:30pm.
