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Peter Martin





Last Build Date: Fri, 17 Nov 2017 12:34:11 +0000

 



Victoria fills up as the rest of the nation moves in

Fri, 24 Mar 2017 00:24:00 +0000

In the past 12 months, 82,800 Australians have moved to Victoria from interstate, around 500 carloads a week.At the same time, 65,600 Victorians have left.The gap - a net influx of 17,200 - is an all-time record. Victoria's population is being swelled by more migrants from interstate than ever before, and by far more than any other state, even Queensland, which used to be the go-to state for the rest of nation.Perhaps as a result, or perhaps as a driver, employment in Victoria has surged by 97,300 in the past year, accounting for almost all of the nationwide employment growth of 104,600. In contrast, the once-booming jobs market in NSW produced only 2000 extra workers.New population figures show that a jump in interstate migration, in overseas migration and in births lifted Victoria's population by 157,500 to 6.1 million in the year to September - an increase of 2.1 per cent, compared to 1.2 per cent in the rest of the nation.Victoria now accounts for 25.2 per cent of Australia's population, the most since the share slid during the early 1990s recession.Net foreign migration to Victoria reached a record 68,600 in the year to September. The natural increase (births minus deaths) reached 41,700, also a record high.Domestic migrants to Victoria came predominantly from NSW (29,500), Queensland (15,200) Western Australia (11,500) and South Australia (9700).The main destinations for Victorians moving interstate were NSW (22,900), Queensland (20,800) and Western Australia (7100). allowfullscreen="allowfullscreen" allowtransparency="true" frameborder="0" height="347" id="datawrapper-chart-5jhP8" mozallowfullscreen="mozallowfullscreen" msallowfullscreen="msallowfullscreen" oallowfullscreen="oallowfullscreen" src="//datawrapper.dwcdn.net/5jhP8/2/" webkitallowfullscreen="webkitallowfullscreen" width="100%"> You might be thinking that low wage rises aren't a problem so long as prices are increasing by less. But that ignores a little-recognised phenomenon known as "mortgage tilt". When you take out a mortgage in a world of high inflation, your payments are "front-end loaded". That's a technical term used by the former governor Glenn Stevens and the head of his financial stability department Luci Ellis to describe the phenomenon where payments used to start high, but then fall as a proportion of income with each wage rise. In a world of low inflation the "tilt" becomes much less severe. If repayments consume a large proportion of your wage at the start, they'll keep doing it for decades. Ellis says the banks either haven't caught on to this, or don't want to own up to it. They use the same formulas to assess how much they'll lend as before. They link repayments to income. And because low inflation means low interest rates, repayments are lower than they used to be for any given loan, meaning they can lend more. The result is higher house prices, and harder-to-repay loans. Even the head of the treasury complained on Wednesday that houses were becoming impossible to afford (and he could have added, impossible to pay off). If anything the "tilt" matters more for businesses. They are not as easily fooled as homebuyers. Knowing there's little chance of their repayment burden shrinking if they can't push up prices, and believing they won't be able to push up prices, they become much less keen to borrow, however low the interest rate. They become less keen to invest and to take on more workers. In May the budget forecast a rebound in non-mining investment of 3.5 per cent this financial year. The latest investment intentions survey shows non-mining businesses expect instead to cut investment 14 per cent. To the extent that "tilt" is one of the reasons, deeper cuts in interest rates won't much help. We've a problem, one born of success. Low inflation looks good, until you're in it. In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald. He blogs at petermartin.com.au and tweets at @1petermartin. [...]



ASIC chief: The banks are having us on over tracker mortgages

Thu, 20 Oct 2016 06:51:00 +0000

Australia's top financial regulator has dismissed as self-serving arguments by the big four banks that they can't afford to offer so-called "tracker mortgages" whose rates would automatically rise and fall in line with the Reserve Bank cash rate.

Westpac, the Commonwealth, ANZ and National Australia banks each argued in parliamentary hearings earlier this month that there would be little demand for tracker mortgages of the kind that are offered in the United States and Britain because they would have would have to charge too much for them.

In testimony on Wednesday, Australian Securities and Investments Commission chairman Greg Medcraft tabled a 10-page briefing note he said showed each of the bank's funding costs "completely tracked" the cash rate.

"And the reason for that is not really rocket science, it reflects the fact that 60 per cent or more of their funding comes from deposits, which are based on the cash rate," he said.

"Where they get it wrong on funding, that risk shouldn't be passed to the borrower. All a tracker rate would mean is having, like in most parts of the world and in corporate Australia, a rate that is a simple margin over a benchmark."

On Monday, a small Queensland bank, Auswide, launched what is believed to be Australia's first tracker loan, offering 3.99 per cent, which would vary only in accordance with the cash rate.

The rate cannot fall below 2.49 per cent - which it would hit if the Reserve Bank cut the cash rate to zero.

Mr Medcraft said the fixed margin would last for the entire life of the loan, a better deal than was offered overseas, and said that if a little bank could do it, "a big bank can do it".

"It may be technically correct, as the banks have argued, that they don't fund off the cash rate," his briefing paper said.

"However, overall, the weighted average funding cost for a major bank is correlated to the prevailing RBA cash rate. This is because most debt securities and deposit products either automatically adjust or are hedged using interest rate derivatives against adverse interest rate movements."

"I think that this would actually assist borrowers to have greater trust and confidence in rates, which would allow them to think about switching mortgages more easily," said Mr Medcraft.

"They wouldn't be confused between movements in the margin and movements in the standard variable rate as they are today. Comparability would not be an issue."

In The Age and Sydney Morning Herald



House prices: Even the treasury chief is a 'Mum and Dad bank'

Wed, 19 Oct 2016 01:48:00 +0000

So concerned is the head of the Treasury about the cost of housing, he says he is having to help out his own son, and that parents like him are endangering their superannuation.

"It's a worry, the Bank of Mum and Dad," Treasury secretary John Fraser told a Senate estimates hearing.

"I talk with people my age, and the Bank of Mum and Dad is becoming more and more prevalent. It has impacts on superannuation, where superannuation is going to, it has impacts on why people are saving in their older years, to fund their children's housing needs. And not just purchase, but often rents.

"I am not talking not just about young people entering the housing market as young professionals, I am talking in particular about the lower income people. It's an area that I do worry about."

The latest CoreLogic index shows Sydney house prices have climbed 11 per cent over the past year, and Melbourne prices 9 per cent. Sydney apartment prices climbed 13 per cent and Melbourne apartment prices 9 per cent. In the past five years Sydney prices have climbed 60 per cent and Melbourne prices 27 per cent.

Asked why it was happening and what could be done, Mr Fraser said he had four Treasury officers working on it full time.

Part of the reason for high prices was planning regulations that constrained the supply of land. Another part was the role of increasingly wealthy buyers in bidding up prices for everyone else.

"A big factor is that the wealth is in houses," he said. "And this is the cycle that we've got: high house prices, high wealth, and people feel more comfortable about taking on more debt."

He said before taking on more debt, buyers should ask themselves how they would cope if their income was hit, or if they lost their jobs.

The former London merchant banker said housing was moving out of reach all around the world.

"I was in London recently, and at the pub the issue is the same: how much you've got to give the kids in order to get them a start," he said.

"In London, you've got no hope. I had a son who was there as a primary school teacher. There's no way he could have been a primary school teacher in London unless someone was picking up the tab for his rent, and that's happening more and more.

"'I don't take any joy that we have this housing situation."

In The Age and Sydney Morning Herald



ACCI comes out swinging against the aspects of TPP

Mon, 17 Oct 2016 01:45:00 +0000

Australia's biggest business organisation has distanced itself from claims the proposed Trans Pacific Partnership will create hundreds of thousands of jobs and be a "gigantic foundation stone" for Australia's future. The claims, made by Prime Minister Malcolm Turnbull in Washington and in Canberra in an attempt to win support for the 12-nation deal, were dismissed by the Australian Chamber of Commerce and Industry (ACCI) in evidence to a Parliamentary inquiry on Monday. ACCI argued the agreement did not mandate free trade and had not been assessed by an independent authority such as the Productivity Commission. ACCI's director of trade Bryan Clark told the hearing the deal with Australia, the United States and 10 other nations was a "preferential" rather than a "free" trade agreement, and would add to rather than remove the complex web of rules that distorted international trade. "There are now over 450 such agreements around the world," he said. "Each one taken in isolation may have benefits to the parties involved, but in aggregate they form the noodle bowl of complex trading terms that business has to navigate." If it didn't mesh with the proposed separate Regional Comprehensive Economic Partnership with ASEAN nations – China, India, Japan, South Korea and New Zealand – there was a risk that the "noodle bowl" could "spill over into the services, intellectual property and e-commerce areas". Agreements were inconsistent partly because they were negotiated behind closed doors. "With the exception of some relatively superficial information on the Department of Foreign Affairs and Trade website, it is difficult to know the detail of what is being negotiated in our national interest," Mr Clark said. "There is little academic study of the technical components of what is being negotiated, nor study of the outcomes of past negotiations to ensure the intended goals were achieved." Despite strong representations from the chamber and the Productivity Commission, no arm's-length study had been conducted of the cost and benefits of the agreement from an Australian perspective. The best the inquiry could do was hold hearings and undertake a popularity contest that would "ultimately divide along party lines", Mr Clark said. The ACCI was forced to support the implementation legislation because all that it did was reduce tariffs, as the rest of the deal didn't require enabling legislation. But the chamber wanted the inquiry to note that the deal would "further complicate compliance and costs for business" and had not been subjected to an independent Australian economic analysis. It should also be concerned about the potential for "regulatory chill" from the clauses that would prevent further liberalisation of Australia's intellectual property and labour laws after it had been ratified. Although both US presidential candidates opposed the deal, President Barack Obama was considering putting it to Congress in the so-called lame duck period between the presidential election in November and the swearing-in of the new president in February. He might seek to take advantage of provisions that gave the United States the ability to change aspects of the deal after it had been signed, as it did with the Australia-US free trade agreement in 2005. In The Age and Sydney Morning HeraldPeter Martin is economics correspondent for The Age and the Sydney Morning Herald. He blogs at petermartin.com.au and tweets at @1petermartin. [...]