RBA Commentary for May 2017.
The official cash rate stays at 1.5% as:
• Wage growth stays flat;
• Retail Development stagnates;
• Major Australian Banks made independent rate rises; and
• The housing marketing continues to climb in value.
Flat wage and inflation growth, poor consumer spending and independent bank rate rises forced the Reserve to leave rates on hold. However, economists say to expect an increase in jobs during 2017, which will boost wages, inflation and spending. Financial advisors, on the other hand, indicate that consumers fearful of rate rises should plan ahead now. This strategy will allow them to cope with any increased mortgage costs despite minimal wage growth.
Over the last 12-months, the number of full-time jobs in Australia declined by 56,100 positions. Part-time employment, on the other hand, increased by 159,400. Consequently, continuing underemployment in Australia is suppressing wage growth to 1.9%, which is comparative to current levels of inflation. Therefore, this figure is a record low, but despite this, economists expect job growth to increase in 2017. If this occurs, then wage growth may improve across Australia.
New figures, recently released, show that annual retail spending declined by 0.1% in February. Annual retailing growth is 2.7%, the lowest since 2013. Thus, this figure is also well below the 10-year average of 4.3%.
Household goods are reportedly the weakest sector. According to data, retail profits over the last six months are the lowest they’ve been in five years.
Although, data indicates that apparel has grown more rapidly than other sectors. Online retailing of merchandise has reportedly boosted sales. But, it’s also important to note that global competition is vigorous and many retailers have adjusted pricing to remain viable.
Contributing factors of marginal retail growth include intense market competition, slow spending due to stagnating wages and high household debt. There are also suggestions that recent independent bank interest rate rises may have contributed.
Mortgage experts suggest that mortgage holders need to be ready for rate rises in 2017. Even if the RBA keep rates on hold, it’s likely that banks will continue to raise rates independently. Australians major banks have already divided owner-occupier and investment mortgages, and over the last 12-months have made several rate increases. Some independent rate rises have been by as much as .25%.
Savvy borrowers though can negate any rate rise by discussing their options with their lender or mortgage broker. Often by negotiating, borrowers can get a reduced rate, especially if they have a long-standing and sound repayment history with their lender. Home loan data, at present, suggests that standard variable rate loan offers are between 3.39 and 5.73%.
Borrowers who are paying too much for their mortgage need to look at getting a better deal. Lending experts even suggest splitting repayments, achieved by fixing half of a loan repayment and leaving the remainder variable. Investors need to consider the same approach, especially as the housing market continues to grow in value.
CoreLogic RP Data suggests that home prices in Australia are continuing to rise. March figures indicate a 1.4% rises nationally and a 12.9% over the year. Sydney home prices rose by 18.9% annually, and Melbourne’s by 15.9%.
Economists show that the elevated housing prices in Australia are contributing to high household debt. So, further moves by the Australian Prudential Regulation Authority (APRA) to reduce risk has resulted in interest-only loan limitations. Lenders are now only able to offer interest-only loans to 30% of new loans.
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