Rate rises: Is the worst over?

Source: Your Mortgage Magazine

While many economists are forecasting another interest rate hike to come as early as March, one expert says further interest rate rises may not eventuate as Australia gets closer to the top of the rate cycle.
"I'm pretty confident we're pretty close to the top of the cycle because there are increasing signs of mortgage stress, consumer confidence and business confidence are falling, and the global economy is slowing," says AMP chief economist Shane Oliver.
"All these will have an impact on Australia's economy. At the same time, the pace of rate increases has been very fast, as banks independently raise their rates outside RBA. I believe we're getting to the end point here, but there will be pain before we get there," Oliver said.
Borrowers have been warned to prepare for more mortgage pain ahead as the Reserve Bank of Australia (RBA) intensifies its fight against raging inflation.
The RBA said in a statement that "the risk of inflation remaining uncomfortably high for some time is considerable", prompting it to upgrade inflation forecasts and downgrade its economic outlook prediction. "Absent a further shift in economic risk to the downside, therefore, monetary policy is likely to need to be tighter in the period ahead," the RBA said.
Some economists have forecast the next rate hike of 0.25% to come as early as March and a further 0.25% rise in May.
"The simple message for borrowers is to factor in further rate hikes," said CommSec chief economist Craig James. "The RBA doesn't expect inflation to be comfortably back inside the 2-3% target band for at least another two years. That means there will be ongoing risks of higher interest rates - not just in the next few months but for some time to come."

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Have you missed Australia's property boom?

Source: Your Mortgage Magazine


The rapid growth of property prices over the past two years may be coming to an end, according to a leading property expert.
Tim Lawless, RP Data national residential research director, predicted that the strong run in Australia's property markets is likely to peak during the first half of 2008 amid higher interest rates, tightening credit markets and the gloomy outlook for the global economy.
Lawless noted that one of the most standout periods in the history of the Australian property market was when value growth reached 12.5% nationally during the year ending November 2007 -almost double that of the same period in 2006.
"We'll see multiple factors impacting on the market as we travel through 2008," said Lawless. "These include a lift in cash rates underpinned by inflation, banks acting independent of the RBA to lift rates based on rising credit costs, and the threat the sub-prime crisis has had on the overall US economy - particularly its share market."
Lawless said that based on these issues, the expected peak in the first half of 2008 is likely to see growth rates slow down to around 15%. However, he said he does not think a crash is likely.
"It's rare for a property market to crash. Rather, growth is typically controlled. We see no reason why this wouldn't be the case during this cycle also. This merely means that national growth in property values will taper back to more sustainable levels during the second half of 2008."
Lawless also predicted that by the end of 2008, the property markets will slow further to between 9% and 10% nationally.

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