THE ELEPHANT IN THE ROOM

Sydney Morning Herald today – all credit to them for this article – thanks ladies and gentlemen….

I continue to argue to all who’ll listen, that this rate cut is just fuel to a fire that will burn a lot of people when it finally rages out of control.  What is not reported is the high number of people who are diving into this super heated market who are not sophisticated investors. I recently chatted with a young couple at a Cafe who I overheard talking about buying a house.  Their SOLE source of advice – their blue collar, working class parents who owned precisely ONE HOUSE between them, bought 20 years ago!  And of course their “friendly” Broker who had given some really awful advice, far outside his legal ability to do so.  I left them pretty sure they were going to buy a nasty house in a nasty street and a nasty suburb for a “top of the market” price and rue the day they did.  This scenario is repeated hundreds of times a day all over the country.

Let us not forget the dodgy companies who still prey on people’s fear and greed to “stitch them up” into overpriced negatively geared properties with “rent guarantees” and other incentives paid for out of their overpriced purchase.

And, of course, our crazy overseas buyers who, in many cases, just want their money out of their “old” country and into the supposedly “safe haven” of Australia.  These people are losing all sense of propriety and in certain sectors of the market are causing chaos.  This chaos filters down and sideways into other sectors, fuelling speculation, rumour and fear that others may miss out on an endless bull run, and greed for the capital gain that, in my not-so-humble opinion, will never eventuate – or if it f does, will be short lived….

Sydney Morning Herald, today —- A deteriorating economic outlook sparked the latest interest rate cut, but the Reserve Bank remains concerned about the continued strength of house prices and investor activity in some pockets of the housing market.

The minutes of the RBA’s February meeting, released on Tuesday, show the board decided to cut Australia’s cash rate to a new record low of 2.25 per cent after new figures revealed the economy wasn’t doing as well as was previously expected.

But the bank also remained concerned about the continued strength of the Sydney and Melbourne housing markets.

“Housing price inflation had moderated from the rapid rates seen in late 2013, but remained high and in Sydney and Melbourne had been well above the growth rate of household income,” the RBA said.

The RBA said growth of investor credit had continued to increase “at a noticeably faster rate” than owner-occupier housing credit.

And a range of indicators suggested further growth of dwelling investment in the near term, the bank said.

The RBA said it would keep a close eye on developments in the housing market, as well as the impact of moves late last year by the Australian Prudential Regulation Authority, designed to temper investor activity.

“Given the large increases in housing prices in some cities and ongoing strength in lending to investors in housing assets, members also agreed that developments in the housing market would bear careful monitoring,” the RBA said.

“They noted that it would be important to assess the effects of the measures designed to reinforce sound residential mortgage lending practices announced by APRA in December.”

Despite the housing concerns, the RBA said it decided to cut the cash rate after indicators of economic growth began to look weaker than it previously expected them to be.

Economic growth was expected to pick up later than the RBA expected, while unemployment looked set to peak higher than originally forecast.

The central bank also took another swipe at the Australian dollar, repeating its familiar line that “a lower exchange rate was likely to be needed to achieve balanced growth in the economy”.

The RBA said it had considered acting at the March meeting instead but decided to cut in February, giving the opportunity for more detailed communication of its decision in the quarterly Statement on Monetary Policy, released three days after the February 3 meeting.

“On the basis of their assessment of current conditions and taking into account the revised forecasts, the board judged that a further reduction in the cash rate would be appropriate to provide additional support to demand,” the minutes said.

END OF ARTICLE

Advertisements
Tagged , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: