HI all,
Has anybody seen the news on the comments made by the rba today? Your opinions.[
]Condom,
What sort of comments were they?
Milo
House price bubble to burst
By Sid Marris
August 12, 2003THE boom in housing prices was no longer sustainable, and the surge in lending that had helped fuel it might leave financial institutions vulnerable to the “inevitable” collapse in prices, the Reserve Bank warned yesterday.
Auction
Market: still on the boil
The bank’s latest quarterly statement on policy sketched an improving outlook for the world economy, and signalled it no longer assumes the next move in interest rates will be down.Market economists predicted yesterday that as a result of the statement rates will remain on hold – an official rate of 4.75 per cent or a standard variable home loan rate of 6.58 per cent – for the rest of 2003.
But in its most serious comments on the runaway growth in lending, the central bank says it is worried about damage to both financial institutions and borrowers from the current lending spree.
“The longer the rapid increase in household borrowing continues, the greater is the risk that at some point households will need to adjust the structure of their balance sheets with potentially adverse consequences for the economy and financial institutions,” it says.
The growth in credit trend was confirmed yesterday, with the Australian Bureau of Statistics revealing an 8 per cent rise in lending for investment in June.
Overall lending for mortgages is growing at more than 20 per cent a year, while housing prices have grown between 20 and 25 per cent. The bank conceded that the growth of credit was standing in the way of a rate cut, despite signs of a slowing in economic growth in the second half of 2003 before a likely recovery in 2004.
Major banks have assured the Reserve that they are well prepared for any drop in housing prices. But the bank is worried about non-bank lenders and mortgage brokers that sometimes lend more than the initial value of a property.
The bank has taken aim at all lenders over aggressive borrowing to fuel consumption, known as equity lending, where households borrow against the assumed improved value of their home.
The already crowded market got bigger yesterday when American Express announced it had joined AMP to offer discount home loans.
Australian Consumers Association governing council chairman Chris Field said the Reserve was right to warn about aggressive offers of credit when people were already carrying record household debt.
He warned that if it did not ease soon, the trend would lead to a greater bankruptcy rate.
The bank’s statement says there were early signs the global economy, particularly that of the US, was improving, removing the greatest threat to Australia’s prosperity.
Governor Ian Macfarlane indicated in June that rates could fall if the promised recovery failed to materialise.
Although the risk remained, it was becoming less likely, yesterday’s statement said.
But the bank warns against overplaying the “tentative” signs of improvement in the US.
As traders concluded that rates cuts were no longer likely, the bond market weakened but the Australian dollar traded slightly higher, reaching US65.47c during the day after closing at 65.30c on Friday.
HI,
This is the article from newspulse web site.[8D]
HE boom in housing prices was no longer sustainable, and the surge in lending that had helped fuel it might leave financial institutions vulnerable to the “inevitable” collapse in prices, the Reserve Bank warned yesterday.
Auction
Market: still on the boil
The bank’s latest quarterly statement on policy sketched an improving outlook for the world economy, and signalled it no longer assumes the next move in interest rates will be down.Market economists predicted yesterday that as a result of the statement rates will remain on hold – an official rate of 4.75 per cent or a standard variable home loan rate of 6.58 per cent – for the rest of 2003.
But in its most serious comments on the runaway growth in lending, the central bank says it is worried about damage to both financial institutions and borrowers from the current lending spree.
“The longer the rapid increase in household borrowing continues, the greater is the risk that at some point households will need to adjust the structure of their balance sheets with potentially adverse consequences for the economy and financial institutions,” it says.
The growth in credit trend was confirmed yesterday, with the Australian Bureau of Statistics revealing an 8 per cent rise in lending for investment in June.
Overall lending for mortgages is growing at more than 20 per cent a year, while housing prices have grown between 20 and 25 per cent. The bank conceded that the growth of credit was standing in the way of a rate cut, despite signs of a slowing in economic growth in the second half of 2003 before a likely recovery in 2004.
Major banks have assured the Reserve that they are well prepared for any drop in housing prices. But the bank is worried about non-bank lenders and mortgage brokers that sometimes lend more than the initial value of a property.
The bank has taken aim at all lenders over aggressive borrowing to fuel consumption, known as equity lending, where households borrow against the assumed improved value of their home.
The already crowded market got bigger yesterday when American Express announced it had joined AMP to offer discount home loans.
Australian Consumers Association governing council chairman Chris Field said the Reserve was right to warn about aggressive offers of credit when people were already carrying record household debt.
He warned that if it did not ease soon, the trend would lead to a greater bankruptcy rate.
The bank’s statement says there were early signs the global economy, particularly that of the US, was improving, removing the greatest threat to Australia’s prosperity.
Governor Ian Macfarlane indicated in June that rates could fall if the promised recovery failed to materialise.
Although the risk remained, it was becoming less likely, yesterday’s statement said.
But the bank warns against overplaying the “tentative” signs of improvement in the US.
As traders concluded that rates cuts were no longer likely, the bond market weakened but the Australian dollar traded slightly higher, reaching US65.47c during the day after closing at 65.30c on Friday.
The Australian
ive read many articles recently from different sources about the property sector, with many having their opinions as to what may happen. Facts are that prices can not escalate like this forever and sooner or later there will be a flattening out of prices,drop , who knows and when. My opinion for what its worth, is that the greed( lets face it and why not) of investors will cause this run to go a little further yet, who knows whether its 1yr, 2yrs,3yrs more or less
as what other alternatives do the majority have.
Any other thoughts out there…HI all,
Has anybody seen the news on the comments made by the rba today? Your opinions.[
]Hey Stu,
Do you know if the banks are upping their fixed interest mortgage rates in response to the RBA release?
Cheers
MHi guys nothing new in these announcements the RBA has been warning the same thing for the last year maybe 2.
Some people could get very badly burnt, hopefully everyone who reads these forums aren’t buying inner city appartments. This has been the focus of continual warnings. Money can, and will be made in Property but we have to be careful.
Don’t negative gear and don’t get deposit bonds. and finally now is not the time to be over committed. i still cannot see the RBA lifting rates, there is more bad new in the USA perhaps a natural gas crisis this year. Until the US is clearly out of the woods we will not see a rate rise in OZ.
westanThe real FACT is that there is absolutley no need for any rise in interest rates at the moment. In fact, based on the underlying economic situation a cut is more indicated. However, the RBA will not cut rates due to concern over the real estate boom.
The RBA keeps putting out these statements to warn people and basically to scare people into diving into further property investments.
They want to slow the property market but dont want to rise rates, hence they only have the scare element left.
Having said the above, you have to do all proper research and buy the right properties because some people are going to get burnt when the market softens.
Hi kirby319
i agree 100%.
a few weeks ago i was reading how Greenspan was making simular warnings about the US stock market in 1998 saying it was overheated (this was at the beginning of the boom). He later decided to keep his opinions to himself do his job and let the market sort itself out.
westanThats good advice but say 6 to 12 months time interest rises are inevitable and i for one will be locking in my ip’s at the lowest interest rates that I have seen in my life time.
Dom[]
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