The Loewy Blog Edition 11 - 26 March 2014

Interest Rate – 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 are at approximately 4.9 to 5.1%. The curve at 5 years is at 5.5% fixed.

Variable rates are approximately 4.9% after discount.

Westpac recently revised its forecast for the Reserve Bank cash rate discounting any more rate cuts in the current cycle and that the next move will likely be up, by the second half of 2015.
This is a significant forecast change. They predict a 50 basis increase in the second half of 2015.
Clients with sensitivity to interest rate volatility should consider a lock in of fixed rates as variable and 3 year fixed rates are virtually the same and in a sweet spot for lock in.
Consumers are starting to spend and savings rate have declined for the first time in a number of years adding fuel to possible future rate increases.

Term Deposits

Current 3-9 month rates are between 3.4 to 3.6%, 1-2 year rates are about 3.6-3.8%.
In our view rates will be flat until the later half of 2015 with some upward revision from there.

Sharemarket

The All-Ords closed Tuesday 25th March 2014 at 5351.
We are starting to see a market trading in a band of lower levels of 5050 and upper levels of 5400 with resistance kicking in at either of these upper or lower levels.
In our view we do not see a large amount of upside in the market in the short to medium term. We see a relatively flat out look for the market.

Foreign Exchange

AU dollar at .916 to the US dollar.
Sentiment, beside the best intentions of the Reserve Bank seems to have the AU dollar increasing. Possible chinese stimulus and interest rate increases on the horizon should see a strengthening of the $A in the short to medium term.
Although there may be short term volatility, we still see a correction upward over the period.

Real Estate – Sydney Market

Clearance rates - Sydney 22 March 2014 at 81%.

We are starting to see a levelling off of clearance rates. In past cycles this had led to a levelling of prices with a flatter outlook thereon. We however, see small continued increases mainly at the lower to mid end housing of 4-5% in the next 12 months.

Stock up to $600,000

Prices will continue to be strong but flattening.

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 until cash rates and or unemployment increases.

$600,000 - $2.5M

We see the market flattening with limited growth in this sector.

$3 - $4.5M

A difficult market to sell older stock in. Buyers looking for newer refurbished properties in this sector.

Above $5M

Stabilisation of prices has occurred. Aided by wealthy migration programme with exemption for high cost real estate.
 

Disclaimer – The material contained in this newsletter does not constitute advice. DPL is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading should not act upon material contained in this newsletter without appropriate consultation.