Mortgage Interest rate rise may be the only way to cool property market as Melbourne house prices soar

A mortgage interest rate rise may be the only way to slow Melbourne's rapidly increasing house prices, says the Real Estate Institute of Victoria (REIV).
REIV chief executive officer Enzo Raimondo said Saturday that Melbourne's median house price increased by 3.9 per cent in the September quarter to $431,000.
"Over the past year the median house price in Melbourne has increased by 13.1 per cent or $50,000, the largest dollar increase we have seen in a twelve month period," Mr Raimondo said.
"This confirms the worsening affordability of housing in much of Melbourne," he said.
The median price for an apartment or unit rose by 5.1 per cent in the quarter from $350,000 to $367,750.
Mr Raimondo said future increases in Melbourne house prices could slow if the Reserve Bank increased the official cash rate in November.
"Last time the Reserve Bank introduced two rate rises in quick succession it stopped the market in its tracks," he said.
"There's talk of that at the end of the year.
"That will be the only thing that will stop the market."
The REIV said the high demand for affordable properties had been highlighted by the fact that house values in the more affordable suburbs in Melbourne had increased by 25 per cent in the September quarter.
"Sunshine (in Melbourne's west) is an example of an affordable suburb which has increased in value dramatically," Mr Raimondo said.
"Its median increasing by $95,000 in three months from $240,750 to $335,000 or 25.9 per cent.
"In the more expensive (eastern) suburb of Malvern we saw the highest appreciation in the quarter, its median increased by 44 per cent, up $550,000 from $1,232,500 to $1,780,000.
The REIV said there were now 15 suburbs in Melbourne with a median price in excess of $1 million.
"New entrants to the list are inner-east and bayside suburbs, Camberwell, Beaumaris, Glen Iris, Malvern East and Brighton East," he said.
Australians for Affordable Housing spokesman David Imber said low and middle income earners were being priced out of the housing market in Melbourne.
With four weeks until the federal election the major political parties needed to outline strategies which would provide solutions to housing affordability, he said.
"These figures highlight that we do have a housing crisis in Melbourne," Mr Imber told Southern Cross Broadcasting.
"Despite the strong economy many people are missing out," he said.
"We do need to have a national housing plan to ensure that low and middle income Victorians do have a better future to look forward to."
Source: AAP

Property Investors Move on Canberra as Labor look likely winners of the Federal Election

Canberra 2600 Canberra is the most heated of Australia's property markets according to new data released today, as the Labor Opposition firms as the winner of the Federal Election.
Australian Property Monitors (APM) says the annual growth figures for houses is 17.7 per cent to an average of just over $485,000.
Over the same period, units have risen by 9.7 per cent to nearly $340,000.
APM's general manager Michael McNamara says the rental market has also been affected.
"Canberra is the most heated of Australia's property markets because there is a blend of extraordinary growth figures for houses and units," he said.
"But also, the rental market in Canberra is quite heated as well.
"Almost all aspects of the Canberra property market are experiencing very strong growth of figures at the moment."
Mr McNamara says the looming interest rate rise will hit lower income mortgage holders hard.
"Whilst on one side of our society an extra interest rate will largely be taken in one's stride, on the other side of town a 10th interest rate rise since 2002 will send a wave of further repossessions, bankruptcies and forced sales into especially our less affluent areas," he said. Source: ABC

US housing downturn will bring long-term pain

A housing downturn would hurt the US economy for some time, the US treasury secretary said overnight as he called for assistance to struggling homeowners and new mortgage regulations.
Henry Paulson said he believed further declines in home construction lay ahead, but the US economy remained healthy and would manage to grow.
"But let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy. The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth," Mr Paulson said.
Mr Paulson said the federal government should work to avoid foreclosures on primary residences to prevent a downward cycle in property values and minimize the housing downturn's impact on the economy.
But he said this must be weighed against the "moral hazard" of encouraging investors to repeat their bad decisions by bailing them out.
"I have no interest in bailing out lenders or property speculators," Mr Paulson said.
He called for steps to make more affordable mortgage products available for struggling homeowners, and said the US Senate should approve regulatory reforms governing government sponsored mortgage enterprises.
Mr Paulson said the GSEs could also increase the flow of funds to refinance subprime borrowers if they securitized a greater number of their prime mortgages into a well-functioning market for such GSE mortgage securities.
He also said financial regulators should work for "interim improvements" to the mortgage regulatory system while evaluating longer-term, broader reform that may include combining some agencies.
He said key areas for interim reform include improved disclosure rules and a uniform national licensing, education and monitoring system for all mortgage brokers. New rules and standards in the mortgage origination process also could combat predatory lending, he said.
But Mr Paulson, a Wall Street veteran who headed Goldman Sachs before taking charge of the Treasury last year, said he opposed imposing greater liability on securitizers and investors.
"In my view, this is not the answer to the problem. Imposing broad liability provisions on investors and securitizers would very likely generate significant unintended consequences. It would potentially paralyze securitization," he said. Source: Reuters

Housing affordability collapses to record low

Relentless rises in mortgage interest rates and sky high house prices around Australia have pushed housing affordability to its lowest level on record.
The Commonwealth Bank of Australia - Housing Industry Association (HIA) Quarterly Review of Housing Affordability for the September quarter showed the index falling 2.1 per cent to be 8.3 per cent lower than in the corresponding period in 2006.
The HIA today said housing affordability had reached its lowest level since the series began in 1984.
Established house prices rose by 11.4 per cent during the past year and were a major cause of loan repayment rises for first home buyers.
“It is unacceptable that a typical first home buyer would have to place themselves in mortgage stress to purchase a home,” said Ron Silberberg, Managing Director of HIA.
The HIA said a first-home buyer earning an average household income of $98,000 a year would have to commit 31.7 per cent of their income to buy a home, the highest on record.
Cost burden rises
The official cash rate is 6.5 per cent, and variable home lending rates are set at 8.3 per cent.
Australians have been slapped with nine interest rate rises in the last five years and home loan interest rates sit at a 11-year high after the most recent rise in August.
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a recent Macquarie Bank report on housing.
Macquarie expects the Reserve Bank of Australia (RBA) to increase interest rates by a 25 basis points this year or next and possibly by more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
Westpac chief economist Bill Evans said yesterday strong growth and inflation pressures would push the Reserve Bank of Australia to raise interest rates by 50 basis points in coming months.
"Our view is that rates are likely to rise by 0.25 per cent by the end of the year ... further out we expect that even if there is a short term reprieve we are still likely to see the overnight cash rate higher by 0.5 per cent from its current level in the first half of 2008."
Nicki Bourlioufas is the business editor of NEWS.com.au

House prices defy relentless mortgage interest rate rises

As money pours into the real-estate market, house prices are expected to keep on rising despite the relentless rise of mortgage interest rates.
A survey by News and polling firm Coredata has found most Australians, or 54 per cent per cent, believe property prices will rise over the next three months.
Just one in six of the 1530 people surveyed in September – or 16 per cent –thought house prices would fall over the next quarter.
The expectation of price rises comes despite Australians having been hit with multiple interest rate rises, with the most recent rise in August. The official cash rate stands at 6.5 per cent and standard variable home loan rates at 8.32 per cent, both at an 11-year high.
Survey: Have you been stung by bank fees?
Westpac today predicted another rate hike in December to 6.75 per cent given strong economic growth and growing inflationary pressures.
"A December rate hike seems the most likely prospect although a delay to February next year cannot be ruled out," says Westpac's chief economist Bill Evans.
House prices rise despite rates
Louis Christopher, the head of research at Advisor Edge, says house prices are rising due to several factors, including strong employment boosting incomes, good population growth and limited growth in the supply of housing.
"In some cities, the supply of new housing has stalled, especially in Sydney, but also in Brisbane and Melbourne, while demand is still growing due to strong income growth and population growth. That is pushing up house prices," says Mr Christopher.
"We've also seen credit firms loosening right up, so people who would not normally have gotten home loans have been getting them, pushing up demand for housing.
"But eventually, if interest rates keep on rising, there will be a breaking point, and house price growth will fall," says Mr Christopher.
Housing affordability to worsen
The steady yet relentless rise in interest rates in Australia over recent years is a prime candidate to explain why housing has become less affordable, according to a Macquarie Bank report on housing.
Macquarie too expects the Reserve Bank of Australia (RBA) to increase interest rates by a further 25 basis points, or possibly more.
"If growth remains strong and the RBA remains alert to potential inflationary pressures, interest rates could rise by another 75 basis points," say the report authors Brian Redican and Hayden Atkins.
"Should the RBA be compelled to tighten policy to address rising inflationary pressures, housing affordability would deteriorate significantly to the worst levels since in the early 1990s," Macquarie says.
On the less likely chance that rates were cut by 1.25 percentage points, due to slowing global growth, Macquarie predicts housing affordability would improve.
"If the RBA was forced to cut interest rates significantly … housing affordability would improve dramatically," the report said.
"Interest payments would decline to around 30 per cent of income which has been sufficient to kick-start activity in the past."
But for now, with house prices looking set to grow and interest rates remaining steady or going up, housing affordability could worsen.
"The most likely scenario – one of modest house price growth – would be sufficient to maintain affordability at current levels. But should house price growth beginning to accelerate back towards its long-run average level, there will be a marked deterioration in affordability," says Macquarie.
Source: Nicki Bourlioufas, business editor of NEWS.com.au

Mortgage lender RAMS raises standard variable interest rate

Australian Mortgage lender RAMS has been badly affected by the US credit market crisis. (AFP Photo: Greg Wood)Troubled mortgage lender RAMS says it had no other choice but to pass on another rate rise to its home loan customers.
RAMS has been badly affected by the credit market crisis which placed its funding from US capital markets in jeopardy.
Company chief executive officer Greg Kolivos says the lender has been forced to increase its standard variable interest rate for home loans.
"We've been able to hang on for as long we possibly can, but as we've found with a number of other institutions in the market place, our cost of funding has increased," he said.
"Obviously we expect to stay at higher levels than they were previously and therefore we have had to pass some of that on to consumers."
Pending shareholder approval, the company's distribution business and name will be sold to Westpac for $140 million, but it will still keep its home loan portfolio.
Federal Treasurer Peter Costello says the proposed restructure will strengthen the troubled company.
"This will give added strength to RAMS if that arrangement goes ahead, and I welcome the announcement that's been made," he said.
"It's an in principle announcement and provided all of the parties are in agreement, I think it could be a very positive step forward."
Despite the takeover news, RAMS shares took a battering and at the end of trade had slumped more than 22 per cent to 66 cents. Source: ABC