Fewer investors taking out loans

Some research by the Australian Finance Group (AFG) research reveals that the proportion of investors buying residential properties has dropped to 11.5% of purchasers. According to the Herald Sun, this figure is down from 31.5% in November 2004, and is less than half the Australian average.

Also an article in today's SMH notes that 3 year fixed rates are now cheaper than variable rates. The report describes such loans as being "fully featured" but I wonder what our mortgage brokers would say about that?

But now that has changed due to a "global savings glut" particularly in Asia.

Accordingly, Gruen has changed his mind and at present is suggesting his Peach home loan customers fix.

The article goes on to note that an inverted interest rate yield curve in the US has preceded every US recession...

Food for thought...What does it all mean?

Cheers
N.

 

Nigel,

Thanks, that was an interesting read.

Link to the full article here:

http://www.smh.com.au/news/opinion/a-find-on-footpath-outside-the-bank/2006/01/10/1136863235441.html

I've been aware of the global savings glut for a while now, and think it will help to prop up our equities markets at least for 2006. All that capital has to find a home somewhere... But watch out for a major US-led global recession around 2007/2008. One commentator I read speculated it would occur soon after China demand dries up post the Beijing Olympics in 2008. We live in interesting times, but my money's staying in the ASX for 2006.

I read in the AFR today that most fund managers are still predicting the Australian market to be one of the better performers this year, and that the Japan market will repeat its 2005 performance as the best market for your $$$. The US is rebounding now and the Dow has closed back above 11,000 so consumer sentiment is strong. The Fed is indicating that it is about to finish its cycle of interest rate rises so money is pooring back into the US. Hopefully that will lead to a soft landing for their housing bubble and keep inflation steady.

I also read today that the resource sector will continue to lead the way in Aus for '06. Also, a research note put out by UBS last week showed that current resource stock prices are assuming a drop in commodity prices in 2006. When he keyed current commodity prices in and revalued this stock it showed the following valuations for some of our big resource plays:

BHP from $23ish to $43.86
RIO from $69ish to $109.51
ZFX from $7ish to $11.09

And this assumes commodity prices will stay steady. Some are speculating significant rises yet to come. Factor in that BHP also holds title to over 70% of the worlds known Uranium reserves...

But as someone more learned than me posted...

Food for thought...What does it all mean?

Cheers,
Michael.

 

“Also an article in today's SMH notes that 3 year fixed rates are now cheaper than variable rates “….

This may indicate future interest cut…

On the other hand…. When 80% of borrowers have variable loans OR 80% of borrowers have fixed loans, banks still make money…
To me cheaper fixed rates, than variable one make no sense.
In case of cutting rates by Reserve Bank majority of borrowers ( on fixed rates ) will lose and banks will make more than they bargain for.
Is it possible that some “ forces “ are trying to change our perception on this subject??.
If this is a case …. What is the purpose of it ???.

Fixed and variable rates at the same level make more sense to me.
I do not think that you will get constructive answer from any mortgage broker ( I might be wrong on this ).
A lot of them are trying to create win – win situation, but do not forget that mortgage brokers are paid by the banks regardless.

Would be of big benefit to understand what economists are up to, but sometimes I have got a feeling that some of them do not understand what they are trying to tell us….
Using statistics you can proof anything…..so I wonder if the same principle may apply to some “ gurus “ statements…
Yes…you asked a good question …..What does it all mean?.

 

Hi!

The last "Guru" that I saw was an economist from Westpac. He was talking at an industry forum about interest rates. He and his collegues advise the bank on interest rate movements in the future (althought there are a bunch of actuararies that make sure that the bank makes money).

For a whole raft of text book economic reasons (the main thing being the low rate of unemployment) he thought that interest rates will be stable in the next 12 - 18 months. He thought that over the next five years they may decrease a little.

This is consistent with the bank's pricing of fixed term loans. They are pricing to "win" in the long term. So, fixed terms that are lower than variable terms could indicate that they believe that interest rates will decrease in the future.

I work as a Mortgage Broker, so you'll have to decide whether this is a constructive answer or not . I'm not an economist, but these thoughts are consistent with what I remember from my economics lectures at Uni.

Cheers, Medine

Comments are general only and should not be taken as specific taxation, financial, legal or investment advice.

 

Your westpac economist was probably Bill Evans. I've heard him speak a few times now and it generally seems sensible.

 

Medine,

I fully agree with you (it's good to know that you are Mortgage Broker ). They are pricing to "win" in the near future.
I am not an economist either but this kind of statement of "independent gurus" smell to me like poorly prepared set up, orchestrated and conducted by the well known forces.
And yes, I think that interest will go down...especially if oil price will stay high.
I am trying to be very selective with what I read.
Too much crap in cyberspace and on national TV can make your brain boil.

 

I've heard the same from my broker, who has generally advised us to stick to variable rates, due to the very factors you mentioned, Medine.
I, too, don't believe interest rates are on the increase over the next 18 mths or so (little incentive for the RBA to do this in this period of the current property cycle) but who knows when a plane is going to crash into a building again and upset economies .......? Depressing, but possible.

As far as taking out fixed rates, many investors do this for peace of mind, rather than attempting to second guess the market and what rates might or might not do. I've done it a couple of times and have rashly regretted it (especially on one particular five yr fix with a hugely incompetent lender) but that's life You live and learn.