Archive for October, 2009
The Sunday Telegraph reports banks are urging first home buyers to take out mortgage applications prior to the Melbourne Cup rate rise next week, so they can secure the biggest possible loans.
A mortgage advisor at NAB’s Surry Hills branch told a Sunday Telegraph Journalist “you will need to hurry to get in before there is another rate increase as that will reduce the amount you can borrow”
In what can only be described as a subprime recipe for disaster, First Home Buyers are being coached into loans so large, they can barely make the repayments now, let along after a rate rise or two.
Meanwhile, Wespac’s chief economist Bill Evans has indicated home owners should expect a 50 basis point rise in the official cash rate on Melbourne Cup Day. He believes the 100 basis point cut at the beginning of the year went too far and now the RBA needs to scramble to get rates back to at least 4 per cent.
The current official cash rate is 3.25%, following a 25 basis point rise last month making Australia the first country in the developed world to increase rates.
Official ABS House Price Indices are due to be released on Monday.
» First-home buyers urged to beat rate rise – The Sunday Telegraph, October 25th 2009.
» Rates could spike above expectations – The ABC, 30th October 2009.
Posted in Australian Economy | Comments Off on Hurry : Only days to go to get a big mortgage
The Australian housing bubble, one of the last in the world to pop is bucking world trends to hit new heights.
Today, The Sydney Daily Telegraph reports data from Residex suggesting Sydney’s median house price is now $610,500 in September, up $11,000 for the month after breaking through the $600,000 mark for the first time.
It’s a similar story in Melbourne. According to the Real Estate Institute of Victoria and published by the Age, Melbourne’s median house price has hit a record $480,000 to surpass the heights of the 2007 property boom.
Over in WA, the West Australian reports “An emergency meeting of State Government officials, builders and developers will be held next week amid growing fears a new Perth property boom could price everyday workers out of the metropolitan area, forcing them to commute long distances to the city from rural towns.”
With the International Monetary Fund last month advising central banks including the Reserve Bank of Australia to take pre-emptive action action to control asset price bubbles by raising interest rates, this year’s Melbourne Cup day is almost certain to see a 50 basis point rise.
» Average Sydney house price is $610,000 – The Sunday Telegraph, 25th October 2009.
» Median house price hits $480,000 – The Age, 24th October 2009.
» Fears of housing bubble growing – The West Australian, 24th October 2009.
Posted in Australian Economy | Comments Off on Australian Housing Bubble hits new Heights
The price earnings ratio or PE is a gauge of a stock’s valuation. The higher the PE ratio the more overvalued a stock or share is.
Below is a chart of the average PE ratio for the S&P500 (an indice of 500 large cap stocks listed on the NYSE and the NASDAQ). Generally the PE ratio floats between 15 and 20.
In the lead up to the Great Depression in 1929, the PE ratio for peaked around 32. During tech wreck, a period where tech companies experienced dizzy share prices and actually had no earnings, the PE ratio peaked around 46.
Today, the PE ratio is 141. In the past months we have seen earnings fall through the floor, yet share prices have rallied in the opposite direction, only exaggerating the PE. (The dictionary definition of exaggerate is to “magnify beyond the limits of truth”)
This begs the question of when this irrational exuberance will end?
Next Wednesday, J.P. Morgan Chase will kick of the third quarter bank reporting season. While bank stocks have surged in the third quarter, there is concern about earnings that may be more negative than many investors expect.
“Third-quarter earnings for most banks, particularly the regional lenders, will be extraordinarily negative,” Richard Bove, an analyst at Rochdale Securities said. He expects 60% of banks will report losses.
“None of this bodes well for the third quarter,” Bove said. “Once the market is faced with the reality of how bad the earnings are, it will be interesting to see whether investors will be able to hold on to these stocks at these price levels.”
» October surprise from bank earnings? Some experts worry results may be much more negative than investors expect – Market Watch – 10th October 2009.
Posted in United States Economy | 4 Comments »
Unemployment in Australia has bucked the trend, coming in at a better than expected 5.7%. The Aggregate monthly hours worked increased 13.4 million hours to 1,522.4 million hours, after 13 months of declines.
The strength of jobs, comes just days after the RBA increased the official cash rate to 3.25%. The ASX Target Rate Tracker now indicates a 100% expectation that the RBA will put rates up to 3.50% next month.
However there should still be caution in interpreting the data. Is the strength of the economy just a one off side effect of an unprecedented stimulus package, and when the stimulus has passed and all the school halls have been built, can the economy sustain these jobs and the current levels of spending?
» 6202.0 – Labour Force, Australia, Sep 2009 – The ABS, 8th October 2009.
Posted in Australian Economy | Comments Off on Strong Jobs locks in November Rates Rise
The RBA today has increased the official cash rate by 25 basis points to 3.25% on the back of a strong Australian economy. Interest rates have been at emergency 3.00% levels since April.
Today’s rise makes Australia the first developed nation to increase rates since the start of the GFC.
Posted in Australian Economy | Comments Off on Cash rate rises to 3.25%
While U.S. unemployment has hit a 26 year high of 9.8%, spare a thought for young Americans aged between 16 and 24 who are not studying – more than half are unemployed.
The New York Times reports for this group, getting a job and moving out of the family home will take a quite a while, fueling little demand for housing and causing more strain to a recovering economy :
A study from the National Longitudinal Survey of Youth, a government database, said the damage to a new career by a recession can last 15 years. And if young Americans are not working and becoming productive members of society, they are less likely to make major purchases — from cars to homes — thus putting the US economy further behind the eight ball.
This can only add to the worries of a slow recovery stemming from the high level of household debt that needs to be paid back, before households can begin sustainably spending again.
» The dead end kids – New York Post, 27th September 2009.
Posted in United States Economy | Comments Off on U.S. Youth Unemployment hits 53.4%
While economists were only expecting the lost of 180,000 jobs in the U.S., figures just released show in September 263,000 payroll jobs were axed, pushing U.S. unemployment up to a 26 year high of 9.8%.
» U.S. job losses accelerate to 263,000 in September – Market Watch, 2nd October 2009.
Posted in United States Economy | Comments Off on U.S. unemployment rate worst in 26 years