The Loewy Blog Edition 10 - 22 October 2013

The Loewy Blog Edition 10 – 22 October 2013


Interest Rates - Borrowing

Short term borrowing rate continues to stabilise, however long term rates (above 3 years are slightly increasing).

Approximate current rates on residential security 2-3 years fixed are at approximately 4.9-5%. The curve at 5 years is at 5.5% fixed.

Variable rates are approximately 5-5.1% - after discount.
In our view the RBA will defer any interest rate cuts until March- June next year. Then only a minor adjustment will occur unless unemployment significantly escalates. Tapering in the US now seems unlikely in the short term.

Although the currency has appreciated against the US dollar in recent weeks, the lowering of the interest rate may accelerate the perceived asset bubble in real estate even though the currency and the economy would benefit.

The RBA is treading a difficult delicate line.

Term Deposits

Current 3-9 month rates are between 3.6 to 3.75%, 1-2 year rates are at about 3.9-4%. We see minor further downward pressure on these rates going forward into the middle of next year.

Sharemarket

The All-Ords closed Tuesday, 22 October 2013 at 5371 a 5 year high. With investors starting to become more confident and some rotation starting to occur out of defensives into cyclicals. We see continued upward movement in the All-Ords up to 5500-5600 levels. We see pockets of resistance above these levels.

Foreign Exchange

We are still of the view that although the US dollar/ AU Dollar will hold steady value over the next few months at between 0.95-0.96 cents, we continue to predict a range of US dollar / AU dollar between 0.90-0.93 cents over the last half of 2014. Although short term with tapering off the agenda levels up to 0.98-0.99 cents would not surprise.

Real Estate

Housing sentiment continues to grow in Sydney. Clearance rates Sydney 21 October - 79.9%

A lack of stock will continue to drive the market forward as affordability is at its best for many years. Only adverse unemployment numbers will stop the continued march over the next 12 months.

Stock up to $600,000

Prices will continue to be strong.

Investors and owner occupiers are strong in the market with yield at 4-4.5%, we see continued strength at this end of the market.

$600,000 - $1.5M

Market continues to be strong both for investors and owner occupiers.

Above $1.5 to $3M

Strength continuing in this end of market, continued clearance and price improvements.

Above $5M

Stabilisation of prices has occurred with some upswing and large sales occurring.





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