Not everyone's afraid of the credit market meltdown. For some firms subprime slaughter has a whiff of opportunity to it. Now they're coming out to hunt.
They're working in scary territory. Tuesday analysts following insurance giant AIG calculated that the company might have lost as much as $2.3 billion from its holdings of securities backed by subprime mortgages. Macquarie Bank of Australia disclosed that two of its investment funds could lose up to 25%, or $300 million, of their value because of exposure to the market.
A third Bear Stearns fund had been closed to redemptions, a month after the bank, which happens to be among the biggest packagers of mortgage securities, shut down two of its other mortgage-laden hedge funds in June amid margin calls and redemptions.
Bear Stearns, whose shares were down more than 2% Wednesday and are at a 19-month low, also faces an arbitration suit by a 73-year-old investor who claims the firm misled investors about its exposure to subprime mortgages.
Still, it wasn't a complete bloodbath. Several firms came out to deny rumors of their imminent demise--Beazer Homes being one. The mortgage company denied it is approaching the bankruptcy abyss, refuting rumors that started after American Home Mortgage shares plunged 90% Tuesday when the company said it was having trouble getting funding.
Caxton Associates, an $11 billion New York hedge fund firm, said Wednesday that contrary to rumors on the Internet, its flagship fund is up 3.2% for the year after fees. Caxton did say the fund was down 3% in July and that it had moved to reduce its value-at-risk (how much it could lose at any one time under certain market conditions) to 0.5% of capital.
Caxton president Peter D'Angelo wrote in a letter to investors Wednesday that circulated on the Internet, "We believe that this market change will continue to provide renewed opportunities in the macro trading environment."
He's not the only one to think this subprime meltdown may lead to profits. Several funds specializing in buying up distressed debt are swooping in, hoping the paper was written down to artificially low levels and will rebound once investors regain their sea legs.
Citadel Investments, the Chicago hedge fund, bought the credit portfolio of Sowood Capital earlier this week after the troubled fund ran into problems with the repricing of assets in the subprime sector. Marathon Asset Management, a $9 billion New York fund firm, is said to be setting up a distressed subprime fund, seeing "significant" opportunity in the sector. Another fund that specializes in distressed assets, Harbinger Capital, is thought to have logged double-digit gains in July.
Official performance figures for hedge funds will be released next week by Hedge Fund Research, the Chicago firm that keeps track of the industry.
Fund managers who had sold short the shares of mortgage lenders and other financial firms over the last few months have also made money.
Charles Gradante, research director at the Hennessee Group, which advises clients on hedge fund investments, said many long/short hedge funds had earmarked 5% to 10% of fund assets to be short the lenders and the subprime index since last year. The group is up 9% year to date, one-third of that gain attributable to making the right bet on subprime.
But most funds aren't crazy enough to risk buying up the distressed debt and riding out the market, Gradante says.
Many hedge fund managers have been moving to cash until the panic subsides. "The fundamentals are still good, but the big unknown is how much the panic is building up," he says. "It's like a kettle with steam. You just don't know when it's going to blow."
On Wednesday, Fitch Ratings affirmed $20 billion worth of residential mortgage backed securities and downgraded $2.4 billion. It has been reviewing 170 deals, about $7 billion worth, and will be announcing its ratings action over the next two weeks. This first $2.4 billion batch was what was considered the worst performing of the 170 deals.
Credit markets have seized up in the last few weeks after a record first half of the year, when $452 billion worth of leveraged loans and $98 billion of high-yield bonds hit the market, according to Standard & Poor's. The average quality of those new issues was lower than in the same period last year--about 48% of it was rated B-minus or below, compared with 32% of new issues in the first half of 2006.
But some point out that the credit markets are not so much in severe distress as they are coming down off remarkably good times. Spreads between Treasurys and speculative grade credit are 417 points. But the longer-term average is more like 450 points, according to S&P, meaning spreads have a way to go to meet the average.
The widest spreads came after the dot-com bubble burst, when speculative grade credit traded at 1,000 basis points or more over Treasurys. "The market needed to be prepriced," says Diane Vazza, managing director of fixed income research at S&P. "But you can argue that the market has gone too far the other way, and we would say that is the case."Source: Forbes.com
Friday, August 03, 2007
Mortgage rate increase more likely due to consumer price rises
A Mortgage interest rate rise next week is looking all the more certain after consumer prices rose at their fastest pace in almost a year, possibly due in part to the government's tax cuts.
The TD Securities-Melbourne Institute monthly inflation gauge, which indicates the likely pace of official inflation, rose 0.6 per cent in July to its highest rate since August 2006.
The result followed an increase of 0.2 per cent in June and took the annual pace of inflation to 3 per cent - at the top of the Reserve Bank of Australia's (RBA) annual inflation target of 2 to 3 per cent.
Core inflation also was higher, with the measure excluding volatile items rising 0.7 per cent in July for an annual pace of 3.8 per cent.
TD Securities senior strategist Joshua Williamson said the rise in consumer prices coincided with the government's latest tax cuts, which started on July 1.
"There is some suspicion that prices were pushed higher as firms took advantage of more favourable consumer finances," Mr Williamson said.
He said the acceleration in inflation in July should lock in an interest rate rise on Wednesday. Most economists expect interest rates to rise 25 basis points to 6.50 per cent.
"The RBA has kept interest rates on hold so far in 2007, but with economic growth strong and the labour market tight, the inflation pick up needs to be nipped in the bud for the inflation credibility of the RBA to be maintained," Mr Williamson said.
"Any further acceleration in inflation in the months ahead would increase the risk of yet a further rate rise in late 2007."
Consumer prices rose in a record 45 expenditure classes, fell in 10 classes and remained unchanged in 35 for a net balance of 35 price rises in July, the inflation gauge showed.
The biggest contributors to inflation during the month were increases in the prices of fruit and vegetables, bread and cereal products, and alcohol and tobacco.
The rises were partially offset by falls in the prices of automotive fuel, telecommunications, and audio, visual and computing equipment.
The July inflation gauge follows a stronger than expected rise in official inflation in the June quarter.
Source: AAP
The TD Securities-Melbourne Institute monthly inflation gauge, which indicates the likely pace of official inflation, rose 0.6 per cent in July to its highest rate since August 2006.
The result followed an increase of 0.2 per cent in June and took the annual pace of inflation to 3 per cent - at the top of the Reserve Bank of Australia's (RBA) annual inflation target of 2 to 3 per cent.
Core inflation also was higher, with the measure excluding volatile items rising 0.7 per cent in July for an annual pace of 3.8 per cent.
TD Securities senior strategist Joshua Williamson said the rise in consumer prices coincided with the government's latest tax cuts, which started on July 1.
"There is some suspicion that prices were pushed higher as firms took advantage of more favourable consumer finances," Mr Williamson said.
He said the acceleration in inflation in July should lock in an interest rate rise on Wednesday. Most economists expect interest rates to rise 25 basis points to 6.50 per cent.
"The RBA has kept interest rates on hold so far in 2007, but with economic growth strong and the labour market tight, the inflation pick up needs to be nipped in the bud for the inflation credibility of the RBA to be maintained," Mr Williamson said.
"Any further acceleration in inflation in the months ahead would increase the risk of yet a further rate rise in late 2007."
Consumer prices rose in a record 45 expenditure classes, fell in 10 classes and remained unchanged in 35 for a net balance of 35 price rises in July, the inflation gauge showed.
The biggest contributors to inflation during the month were increases in the prices of fruit and vegetables, bread and cereal products, and alcohol and tobacco.
The rises were partially offset by falls in the prices of automotive fuel, telecommunications, and audio, visual and computing equipment.
The July inflation gauge follows a stronger than expected rise in official inflation in the June quarter.
Source: AAP
Rents are rising because property investors have cashed out to reinvest in Superannuation
House rents have risen at their highest rate in 18 years because investors have sold property assets to boost their superannuation, housing economists say.
And an interest rate rise next week would make buying a home even harder for those hit already with higher rent.
University of Sydney economics faculty academic and housing specialist Judy Yates said Treasurer Peter Costello's super laws encouraged investors to pull out of the housing market just when rental demand was growing.
"Just at a time you had increasing demand for rental properties, you had a cutback in rental properties coming into the market," said Associate Professor Yates, who is also an Australian Council of Social Service housing policy adviser.
Under changes to superannuation laws, investors could deposit up to $1 million post-tax into their super before June 30.
Since then, a $150,000 post-tax super limit has applied.
Housing Industry Association (HIA) chief economist Harley Dale said the high cost of residential building had made one-off superannuation contributions a more attractive option.
"There's no doubt that in the first half of the year, the superannuation laws did divert funds away from other areas," Mr Dale said.
"Rental investment property was one of these. There's a bit of coincidental timing."
Rents rose by 1.6 per cent in the three months to June to record their biggest quarterly jump since September 1989, the Australian Bureau of Statistics revealed in its consumer price index release last week.
Mr Dale predicted rents would climb at a faster pace in coming quarters, even though investors have lost their chance to make a $1 million post-tax super contribution, as building costs remained high.
But a Hobart-based researcher with the Australian Housing and Urban Research Institute Keith Jacobs said diminished funding for public housing also had pushed up rents as competition for accommodation intensified.
"The reason why you have such a rental increase is because the opportunity for low-income households to rent in the public sector is very, very limited," Dr Jacobs said.
The HIA argues that rental affordability is low because land prices are up to four times that of building costs.
Dr Jacobs refutes the HIA's call to release more land, saying this would favour developers who are more interested in building homes for wealthy owner-occupiers.
And an interest rate rise next week would make buying a home even harder for those hit already with higher rent.
University of Sydney economics faculty academic and housing specialist Judy Yates said Treasurer Peter Costello's super laws encouraged investors to pull out of the housing market just when rental demand was growing.
"Just at a time you had increasing demand for rental properties, you had a cutback in rental properties coming into the market," said Associate Professor Yates, who is also an Australian Council of Social Service housing policy adviser.
Under changes to superannuation laws, investors could deposit up to $1 million post-tax into their super before June 30.
Since then, a $150,000 post-tax super limit has applied.
Housing Industry Association (HIA) chief economist Harley Dale said the high cost of residential building had made one-off superannuation contributions a more attractive option.
"There's no doubt that in the first half of the year, the superannuation laws did divert funds away from other areas," Mr Dale said.
"Rental investment property was one of these. There's a bit of coincidental timing."
Rents rose by 1.6 per cent in the three months to June to record their biggest quarterly jump since September 1989, the Australian Bureau of Statistics revealed in its consumer price index release last week.
Mr Dale predicted rents would climb at a faster pace in coming quarters, even though investors have lost their chance to make a $1 million post-tax super contribution, as building costs remained high.
But a Hobart-based researcher with the Australian Housing and Urban Research Institute Keith Jacobs said diminished funding for public housing also had pushed up rents as competition for accommodation intensified.
"The reason why you have such a rental increase is because the opportunity for low-income households to rent in the public sector is very, very limited," Dr Jacobs said.
The HIA argues that rental affordability is low because land prices are up to four times that of building costs.
Dr Jacobs refutes the HIA's call to release more land, saying this would favour developers who are more interested in building homes for wealthy owner-occupiers.
APRA to change rules that will hurt fist home buyers and low income earners buying a home according to Mortgage Insurers PMI
APRA may change the rules for first time home buyers and low-income borrowers making them pay a higher interest rate as a result of new capital rules announced by APRA, Australia's financial services industry regulator, according to one of Australia's two providers of lenders mortgage insurance, PMI.
PMI Australia chief executive Ian Graham condemned the proposed changes announced by APRA on Monday, which reduce concessions for the amount of regulatory capital required to be held by lenders in support of home loans protected by LMI cover.
With less incentive to use LMI, lenders were likely to lift interest rates for the more disadvantaged borrowers, Mr Grahame said.
The changes to the capital rules governing home loans from banks, building societies and credit unions are part of the so-called Basel II accord.
Basel II aims to harmonise principles governing regulatory capital and how lenders manage risk, with the overall objective of reducing volatility in the global financial system.
Mr Graham said PMI was concerned that the Australian Prudential Regulation Authority had taken a too narrow view of the proposed changes.
Source: The Australian
PMI Australia chief executive Ian Graham condemned the proposed changes announced by APRA on Monday, which reduce concessions for the amount of regulatory capital required to be held by lenders in support of home loans protected by LMI cover.
With less incentive to use LMI, lenders were likely to lift interest rates for the more disadvantaged borrowers, Mr Grahame said.
The changes to the capital rules governing home loans from banks, building societies and credit unions are part of the so-called Basel II accord.
Basel II aims to harmonise principles governing regulatory capital and how lenders manage risk, with the overall objective of reducing volatility in the global financial system.
Mr Graham said PMI was concerned that the Australian Prudential Regulation Authority had taken a too narrow view of the proposed changes.
Source: The Australian
Thursday, August 02, 2007
Great Australian Dream becomes unrealistic as real estate and mortgage costs spiral
With housing affordability and mortgage rates now an election issue — and with house prices falling in Sydney's battler electorates and a Labor poll showing high rents are eating into people's incomes in marginal seats — experts warn the problem will get worse. They also say it might be permanent.
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age
Great Australian Dream becomes unrealistic as real estate and mortgage costs spiral
With housing affordability and mortgage rates now an election issue — and with house prices falling in Sydney's battler electorates and a Labor poll showing high rents are eating into people's incomes in marginal seats — experts warn the problem will get worse. They also say it might be permanent.
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age
They warn that it will create an eastern seaboard pocketed with ghettos that will lock the have-nots out of housing, and spell the end of Australia as an egalitarian society.
Peter Brain, executive director of the National Institute of Economics and Industry Research, said housing problems were the result of loose monetary policies that had extended easy and cheap credit including mortgage loans, home loan grants and cuts in sales tax that had driven up prices, and 30 years of neglect by governments on infrastructure.
"I do not see an easy way out," Dr Brain said. "Building infrastructure is a 10-year program of upgrading rail, public transport and freeways.
"With good planning starting today, and with appropriate government action, it would take 10 years.
"It's going to take billions upon billions upon billions and the idea of giving tax cuts is just so immoral, because what you are doing is condemning an increasing segment of the population to a ghetto existence with not enough time or material resource to access what's their basic right."
The warning comes as the Reserve Bank board meets on Tuesday week to determine whether there will be another interest rate rise. Following new inflation figures last week, the market seems to be now saying it is a lay-down misere.
Trading on the SFE 30 Day Interbank Cash Rate Futures contract on Friday showed the market had assumed a 73 per cent chance of a pre-election interest rate rise next month.
Political parties and experts have come up with their solutions to the problem.
The Howard Government has promised a shake-up of public housing by forcing the states to compete with the private sector for $1 billion of federal funds. Opposition Leader Kevin Rudd's ideas include an Affordable Housing Agreement with states and local governments.
Other ideas include ANZ economist Saul Eslake's call to make interest payments made by first-home buyers tax deductible if they promise to pay capital gains later, and billionaire apartment king Harry Triguboff's suggestion that young people should be allowed to delay compulsory contributions into superannuation to save a deposit.
But specialists say there are no easy solutions.
While a report by economic forecaster BIS Shrapnel last week warned the national rental squeeze will last until at least the end of this decade, they warn the crisis may last longer, perhaps permanently.
KPMG demographer Bernard Salt said the problem was driven by changes in the shape of Australian households, and the fact that Australian cities were now becoming global.
The family unit is now increasingly being overtaken by singles, childless couples and gay people with more money to spend who can force up the prices with their demand for property, he said.
"You can't stop social change and the key driver here is social change," Mr Salt said.
"I can't see any reason why this won't continue step by step, inch by inch, certainly for decades to come."
Mr Salt said this signalled the end of two visions of Australia: as an egalitarian society, and secondly a country where everyone had the right to own their own home. The outcome here is social stratification, at a geographic level.
"If you simply cannot afford to live in Sydney, you move out. If you can't afford to buy in Melbourne, you move out. So then you have families, the poor, even the lower middle class being relegated to cheaper options outside the city."
"The social structure of Australia must change, even the notion that we are an egalitarian society where everyone has equal access to housing. That may well have been the case in the '50s, '60s, '70s and '80s but that may not be case in the 21st century. I can see actually quite significant social division in Australia. We might not think it, but I reckon in 20 years time, we will look back and say this was a pretty good time in history with prosperity, job opportunities."
Source: The Age
Men more likely to default on credit than women
Men are more likely to default on credit obligations including credit card repayments, and have a higher rate of bankruptcy than women, a study has found.
The research, over a five-year period, also shows women make fewer credit applications than men.
The credit reference company Veda Advantage found men accounted for 62 per cent of all defaults on personal loans and overdrafts.
Men also accounted for 56 per cent of all mortgage defaults and 54 per cent of the 16,000 bankruptcy cases reviewed by Veda.
The most common ages for bankruptcy were between 28 and 37.
"This study indicates women appear to be more reliable payers than men," one of Veda's general managers, Erica Hughes, said in a statement.
"Although it's important to note that across the five-year period women applied for less credit."
Men accounted for 71 per cent of individual commercial inquiries and 56 per cent of credit card, overdraft and personal loan inquiries.
Young people, between the ages of 18 and 30, accounted for the greatest percentage of overall credit applications and eventual defaults.
During the study period, they made 35.8 per cent of all inquiries and registered 44.8 per cent of all defaults.
Young men had slightly higher credit application and default levels than young women.
The research, over a five-year period, also shows women make fewer credit applications than men.
The credit reference company Veda Advantage found men accounted for 62 per cent of all defaults on personal loans and overdrafts.
Men also accounted for 56 per cent of all mortgage defaults and 54 per cent of the 16,000 bankruptcy cases reviewed by Veda.
The most common ages for bankruptcy were between 28 and 37.
"This study indicates women appear to be more reliable payers than men," one of Veda's general managers, Erica Hughes, said in a statement.
"Although it's important to note that across the five-year period women applied for less credit."
Men accounted for 71 per cent of individual commercial inquiries and 56 per cent of credit card, overdraft and personal loan inquiries.
Young people, between the ages of 18 and 30, accounted for the greatest percentage of overall credit applications and eventual defaults.
During the study period, they made 35.8 per cent of all inquiries and registered 44.8 per cent of all defaults.
Young men had slightly higher credit application and default levels than young women.
Macquarie bank stocks fall in credit confidence loss due to US subprime mortgage crisis
The stocks of Macquarie Bank have fallen over seven per cent after it revealed last night that two of its funds faced losses related to the US sub-prime mortgage crisis of up to 25 per cent.
The listed Macquarie Fortress Notes fund has about $140 million of investors' money and the unlisted Macquarie Fortress Fund has about $80 million.
Neither fund has direct exposure to US subprime mortgages, but both have been hit by price volatility in US credit markets triggered by the sub-prime crisis.
Macquarie said it had been forced to sell some of the loans in the portfolio in a subdued market after receiving margin calls on the funds, which are highly geared at six to seven times.
The average price of assets in the two funds fell four per cent in June.
"We expect the impact of the price declines in July to result in a further deterioration in NAV (net asset value) for 31 July 2007 of approximately 20 to 25 cents,'' Macquarie said last night.
Source: Courier Mail
The listed Macquarie Fortress Notes fund has about $140 million of investors' money and the unlisted Macquarie Fortress Fund has about $80 million.
Neither fund has direct exposure to US subprime mortgages, but both have been hit by price volatility in US credit markets triggered by the sub-prime crisis.
Macquarie said it had been forced to sell some of the loans in the portfolio in a subdued market after receiving margin calls on the funds, which are highly geared at six to seven times.
The average price of assets in the two funds fell four per cent in June.
"We expect the impact of the price declines in July to result in a further deterioration in NAV (net asset value) for 31 July 2007 of approximately 20 to 25 cents,'' Macquarie said last night.
Source: Courier Mail
Wednesday, August 01, 2007
Mortgage home loan on a fixed-rate possibly best option, because the fixed rate loan shifts the rate swing exposure on to the lender
If as expected, the RBA lifts rates next week Australia, then a fixed rate loan may be your best option.
Fixed or variable? Home-loan borrowers know there's usually a premium payable for the security of a fixed-rate mortgage but at the moment it's actually cheaper to go fixed.
And with the Reserve Bank of Australia expected to make a decision shortly to move floating rates upwards, the unusual discount for fixed-rate borrowers will almost certainly get bigger.
Strong competition
The odd situation has been caused by competition among the major banks, allied to the fact that the proportion of variable-rate to fixed-rate mortgages taken out in Australia is one of the highest in the world.
A new report by Fitch Ratings has found that floating mortgages are much more popular in Australia than locked-in loans.
The prospect of a rate rise next week is strong as the RBA is tipped to shift the cash rate to 6.5 per cent when it meets next Tuesday. The local financial markets are pricing the chance of a hike at 78 per cent, slightly down from the 85 per cent forecast last week.
A rate rise of 25-basis points would take the standard variable rate from 8.07 to 8.32 per cent.
The rise would mean the monthly repayment of an average mortgage of $200,0000 would become $40 more expensive.
The move comes as BankWest, the aggressive Perth-based bank, is offering an 8 per cent interest rate to depositors.
Fixed rates 'will be cheaper'
The shift in the global credit markets has prompted most of the banks to increase their fixed rates by up to 20-basis points, or less than the likely rate move.
The average fixed rate on a three-year loan is between 7.59 to 7.69 per cent - below the level where the variable rate will shift.
Recent estimates show that about 85 per cent of new home loans in Australia are taken at the variable rate, while the remainder are set at fixed rates or a combination of fixed and floating.
The proportion is in contrast to New Zealand where the majority of mortgages are fixed, meaning the impacts of rate rises are not immediately felt by borrowers.
Australia 'more exposed' because most people have variable home loan finance.
The Fitch report said countries with a higher proportion of variable loans were more exposed to shifts in monetary policy.
"The extent to which changes in interest rates affect households also depends on the type of mortgage that predominates in the market," Fitch said.
"In countries such as the US and the Netherlands, where fixed-rate mortgages are the norm, a rate cut will lead to households refinancing their mortgages at a lower rate."
Fitch said the dominance of fixed rates in some countries meant the risk burden was held by the lenders.
"On the other hand, in countries such as Australia and UK where where floating-rate mortgages prevail, this risk is largely transferred to the housing sector," it said.
The study found Australian households, despite holding a relatively large amount of net debt, were in good shape. Fitch said flat house prices and the "soft landing" of the national property market allowed Australia to withstand external shocks to housing.
Source: The Australian
Fixed or variable? Home-loan borrowers know there's usually a premium payable for the security of a fixed-rate mortgage but at the moment it's actually cheaper to go fixed.
And with the Reserve Bank of Australia expected to make a decision shortly to move floating rates upwards, the unusual discount for fixed-rate borrowers will almost certainly get bigger.
Strong competition
The odd situation has been caused by competition among the major banks, allied to the fact that the proportion of variable-rate to fixed-rate mortgages taken out in Australia is one of the highest in the world.
A new report by Fitch Ratings has found that floating mortgages are much more popular in Australia than locked-in loans.
The prospect of a rate rise next week is strong as the RBA is tipped to shift the cash rate to 6.5 per cent when it meets next Tuesday. The local financial markets are pricing the chance of a hike at 78 per cent, slightly down from the 85 per cent forecast last week.
A rate rise of 25-basis points would take the standard variable rate from 8.07 to 8.32 per cent.
The rise would mean the monthly repayment of an average mortgage of $200,0000 would become $40 more expensive.
The move comes as BankWest, the aggressive Perth-based bank, is offering an 8 per cent interest rate to depositors.
Fixed rates 'will be cheaper'
The shift in the global credit markets has prompted most of the banks to increase their fixed rates by up to 20-basis points, or less than the likely rate move.
The average fixed rate on a three-year loan is between 7.59 to 7.69 per cent - below the level where the variable rate will shift.
Recent estimates show that about 85 per cent of new home loans in Australia are taken at the variable rate, while the remainder are set at fixed rates or a combination of fixed and floating.
The proportion is in contrast to New Zealand where the majority of mortgages are fixed, meaning the impacts of rate rises are not immediately felt by borrowers.
Australia 'more exposed' because most people have variable home loan finance.
The Fitch report said countries with a higher proportion of variable loans were more exposed to shifts in monetary policy.
"The extent to which changes in interest rates affect households also depends on the type of mortgage that predominates in the market," Fitch said.
"In countries such as the US and the Netherlands, where fixed-rate mortgages are the norm, a rate cut will lead to households refinancing their mortgages at a lower rate."
Fitch said the dominance of fixed rates in some countries meant the risk burden was held by the lenders.
"On the other hand, in countries such as Australia and UK where where floating-rate mortgages prevail, this risk is largely transferred to the housing sector," it said.
The study found Australian households, despite holding a relatively large amount of net debt, were in good shape. Fitch said flat house prices and the "soft landing" of the national property market allowed Australia to withstand external shocks to housing.
Source: The Australian
BankWest takes on Big Four banks on interest rate and savings offer, with credit card offers to come.
Bankwest has backed up its threat of taking on the nation's Big Four banks and yesterday pulled the price lever by launching the nation's highest interest-rate saving product.
The new BankWest Regular Saver Account, which comes less than a month after the bank's owner, HBOS Australia, announced an aggressive east-coast expansion, will offer an 8 per cent interest rate - 2.4 percentage points above its closest rival Rabobank at 6.6 per cent.
The high-yielding account is expected to be the first in a line of "better deal" banking products the bank will be rolling out over the next few months across retail deposit, credit card and mortgage products and will be accompanied with a marketing blitz.
"It's time the Australian banking and finance industry took savings seriously and BankWest is reinvigorating this space and leading the charge once again," BankWest's head of deposits, Paul Vivian, said.
"We do have some other products up our sleeve that we will be releasing later this year", Mr Vivian said, while pointing to credit cards, mortgages and savings as its primary focus. Earlier this month, HBOS Australia launched a $430 million-plus assault on the Big Four banks, with plans to roll out 160 branches across the east coast over the next three years. About 3000 jobs are expected to be created.
At the time of the launch, HBOS Australia chief David Willis warned that it hoped to win customers from the Big Four by being price competitive and introducing new products.
Outgoing Westpac chief David Morgan last week said BankWest's expansion "needs to be taken seriously and I think they will in time take some share".
Analysts are predicting the Big Four banks will take some hit on their cash earnings.
Mr Vivian said the BankWest Regular Saver Account was a long-term sustainable offer.
He said the 8 per cent rate was "pitched out there very purposely to be significantly better than any other savings rate in the marketplace".
"We would love to take customers and money off the Big Four banks," he said.
"There's some very lazy money currently (put) in products with the Big Four. It's time for customers to have a look at what their earnings on their term deposits are, what their earning on their at-call savings are and we are confident we can offer better returns across the place."
BankWest's share of the deposit space is about 4 per cent.
To receive the 8 per cent interest rates, customers need to deposit between $50 and $500 in that month, make no withdrawals during that period and link the account to another eligible BankWest account.
The new BankWest Regular Saver Account, which comes less than a month after the bank's owner, HBOS Australia, announced an aggressive east-coast expansion, will offer an 8 per cent interest rate - 2.4 percentage points above its closest rival Rabobank at 6.6 per cent.
The high-yielding account is expected to be the first in a line of "better deal" banking products the bank will be rolling out over the next few months across retail deposit, credit card and mortgage products and will be accompanied with a marketing blitz.
"It's time the Australian banking and finance industry took savings seriously and BankWest is reinvigorating this space and leading the charge once again," BankWest's head of deposits, Paul Vivian, said.
"We do have some other products up our sleeve that we will be releasing later this year", Mr Vivian said, while pointing to credit cards, mortgages and savings as its primary focus. Earlier this month, HBOS Australia launched a $430 million-plus assault on the Big Four banks, with plans to roll out 160 branches across the east coast over the next three years. About 3000 jobs are expected to be created.
At the time of the launch, HBOS Australia chief David Willis warned that it hoped to win customers from the Big Four by being price competitive and introducing new products.
Outgoing Westpac chief David Morgan last week said BankWest's expansion "needs to be taken seriously and I think they will in time take some share".
Analysts are predicting the Big Four banks will take some hit on their cash earnings.
Mr Vivian said the BankWest Regular Saver Account was a long-term sustainable offer.
He said the 8 per cent rate was "pitched out there very purposely to be significantly better than any other savings rate in the marketplace".
"We would love to take customers and money off the Big Four banks," he said.
"There's some very lazy money currently (put) in products with the Big Four. It's time for customers to have a look at what their earnings on their term deposits are, what their earning on their at-call savings are and we are confident we can offer better returns across the place."
BankWest's share of the deposit space is about 4 per cent.
To receive the 8 per cent interest rates, customers need to deposit between $50 and $500 in that month, make no withdrawals during that period and link the account to another eligible BankWest account.
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