Mortgage rates; NAB and ANZ Bank tell Costello to mind is own business

On the subject of mortgage rates, two of Australia's biggest banks, ANZ and NAB, have politely told Treasurer Peter Costello to butt out of their business, saying decisions on how to set mortgage rates are theirs alone.

Mr Costello has again warned the banks not to use the subprime meltdown in the United States as an excuse to push up home loan rates.

In response both the chairman of the National Australia Bank, Michael Chaney, and the chief executive of the ANZ, Michael Smith, have firmly indicated that they will respond to commercial not political pressure.

Speaking after a Business Council of Australia dinner in Sydney last night marking the end of his presidency, Mr Chaney said the Treasurer's comments needed to be viewed in the context of the election campaign.

"One can understand the Treasurer during an election campaign providing that sort of advice but at the end of the day the banks will do what they have to do to protect their company and their depositors," Mr Chaney said.

Unveiling the ANZ's annual profit this morning - a record $4.18 billion - chief executive Michael Smith warned that Australian banks could not avoid the current global uncertainty.

And he refused to rule out passing on the additional cost of money to consumers.

"The Australian banking system is more dependent on wholesale funding that probably any other OECD market as a system. Therefore the repricing of risk and the increase in funding costs is obviously going to have an impact," Mr Smith said.

Earlier this week, National Australia Bank boss John Stewart told a newspaper that the higher price of credit would need to passed on at some point.

Pleadged tax cuts will be sallowed up by rent rises

John Howard and Kevin Rudd's bursts of campaign trail largesse in the form of promised tax cuts will no doubt help those who have large mortgages.
But for many families, the extra money looks likely to be eaten up quickly if the rental outlook is any indication.
According to industry commentator Michael Matusik rents will rise rapidly over the next three years to 2010.
Some households spend 26 per cent of their income on rent, not substantially more than the 25 per cent they spent in 2004, he says.
Rent hike coming
But with fewer housing starts over the next 12 months, and with low vacancy rates already well documented, Matusik anticipates an average increase of 35 per cent in rents between now and 2010.
“The largest increases are expected to be in Melbourne (50 per cent), Sydney (40 per cent), Brisbane (30 per cent) and Canberra (25 per cent),'' Mr Matusik says.
”The current weekly median rent of $275 for a three-bedroom house could be as high as $365 by June 2010.''
Mr Matusik thinks rental growth will be sluggish during the 2008 financial year. But as tenants move less frequently and renters absorb spare bedrooms, the rises will really kick in. Will this create another surge of investors, which in turn will push property prices even higher.
Most capital cities have very low vacancy rates and increasing rentals, but higher purchase prices across Australia now mean buying an investment property is a much larger commitment.
Yields not giving
For many would-be investors, spending money on their own house without the worry of an additional large mortgage seems more appealing. In many areas yields still haven't reached a level that will attract investors en masse.
Take, for example, Canberra, which has a rental figure of $350 a week for a three-bedroom house.
On a median house price of $428,000, the gross return is only 4.25 per cent.
In Sydney the average weekly rent for a three-bedroom house is now $280. The median house price is $525,500, giving a gross return of 3.26 per cent. The gross return obviously doesn't include the benefit of negative gearing, nor does it account for outgoings, all the costs and charges associated with owning a property.
The exception is probably Melbourne, where CBD yields are reportedly now about 7 per cent, and in the inner city 5 per cent.
Demand from both young owner occupiers and investors has already led to substantial median price jumps for apartments in suburbs such as South Yarra, West Melbourne and Richmond. There is limited supply and pre-sales are strong.
Around the country, apartment prices are recovering after years in the doldrums, particularly in Sydney.
Recent figures from researcher RP Data show that the pace of growth in apartment prices is pulling ahead of house price growth.
It's impossible to tell where interest rates, prices and yields will be in 2010.
But it's likely any extra money will be small change to anyone -- renter or buyer, over the next three years. Source: The Australian

Housing bargains in suburban Brisbane getting harder to find.

Cheap housing is getting harder to find, with only 13 suburbs now left within a 20km radius of Brisbane's central business district with a median house price under $300,000.
The cheapest suburb is Carole Park in Ipswich, according to Colliers PRD research. It offers bargains for home hunters, with the median house price only $183,000.
Researcher Jonathan Rivera, from Colliers PRD, said 73 suburbs within a 20km radius of the centre of Brisbane had a median house price of less than $400,000.
Regions south of Brisbane are classed as the most affordable.
At Gailes in Ipswich, the median house price is $205,000, while at Inala, in southwest Brisbane, buyers can find a property for $215,000.
"Prices within a 5-10km radius of Brisbane are becoming out of reach for many," Mr Rivera said.
The affordable areas identified were also achieving a good yield (annual rent as a proportion of selling price), he said.
"Investors are basically in competition with first-home buyers in those areas," he said. "A lot of these areas, like Carole Park, have a strong employment node nearby. Again that's attracting renters, which creates strong demand.
"The number of (affordable) suburbs is going to continue to shrink."
Centenary First National agent Tony Bishop said Carole Park was experiencing unprecedented interest from first-home buyers.
He recently sold a four-bedroom house in Skepper St in just two days for $265,000.
"Houses in places like Carole Park are selling in the mid-$200,000s and they are affordable," he said.
"We've got stacks of buyers around looking for properties under $300,000 and as soon as you get them, they're gone."
Richardson & Wrench Real Estate agent Shelly Smith said houses in Strathpine, just north of Brisbane, were selling rapidly.
"Usually within 24 hours to a week they're under contract," she said.
"We don't have enough houses to sell for the list of buyers we have."Source: Sunday Mail

Expect to be whacked by more mortgage rate rises

Higher petrol prices, another mortgage interest rate rise and global credit market volatility have dented consumer sentiment, with more rate pain predicted, a survey shows.
The Westpac-Melbourne Institute consumer sentiment index, based on a survey of 1200 people, fell 0.3 per cent in October to 115.3 points.
Westpac chief economist Bill Evans said index reading was still 4.5 per cent below where it was before the Reserve Bank of Australia (RBA) raised interest rates by half a percentage point to 6.5 per cent in August.
Survey: Have you been stung by bank fees?
Mr Evans said a December interest rate rise was likely, in the event of high September quarter inflation data, to be released on October 24.
"We are expecting a read that will establish a strong case for another rate hike," he said.
"A December rate hike seems the most likely prospect although a delay to February next year cannot be ruled out."
Mr Evans said higher petrol prices, up by 2.4 per cent since the September survey, had also dented consumer confidence.
"Households will also have been affected by the persistent reports of turmoil in the global credit markets," Mr Evans said.
"Some non bank lenders have actually passed on some of their higher funding costs to borrowers."
The index is still similar to the average level of 2007 despite an 8.1 per cent fall after the August rate increase.
Source: AAP

Strong growth for construction industry and pick up in housing building means mortgage growth

The Australian Industry Group-Housing Industry Association Performance of Construction Index increased by 6.85 points to 55.2 last month, the strongest rate of growth since June last year.
HIA chief economist Harley Dale says the higher levels of activity reflect an increase in work on both new and existing projects.
"It shows that we're seeing continued solid growth for the non-residential building sector, which is something that's been apparent for quite some time now," he said.
"But we did also see a little bit of a pick-up in the demand for new houses, so a little bit of a better result for the residential side of the building market."
But the HIA also says another interest rate rise before the end of the year could reverse the steady gains in the sector over the last month.
Mr Dale says residential construction is yet to make a significant recovery and higher interest rates will further slow that process.
"There is some growing talk around again about an increased risk of another interest rate rise over the next three to six months," he said.
"Should we get another interest rate rise, that would of course have a dampening effect on the chances of the residential sector recovering into early 2008."Source: ABC