2011 could be your best year yet…

It’s certainly been an interesting year for all things finance and property related. We saw the cash rate increase from 3.75% to 4.75% as the RBA raised interest rates a total of four times in response to Australia’s growing economy.

We were also witness to the power of big banking institutions – as they flexed their [sizeable] muscles raising lending rates by more than the official RBA increases – as much as .30% in the case of the biggest two players CBA and Westpac! While they cited rising funding costs as the reason behind their decisions consumers have not been impressed, particularly after the same banks posted record profits and paid out mega executive salaries.

The banks standard variable rate now stands at around 7.3%. The data suggests that rates could rise again as early as April next year – with rates predicted to go up by another 1% by the end of 2012. This would bring the bring the cash rate to 5.75% pushing mortgage interest rates up to around 8.5% – around where they were hovering in 2008, before the GFC hit!

Moving on from interest rate rises there were a number of positives in 2010. Overall the lending landscape improved thank to the resurgence of non-bank lenders – who are currently delivering more competitive products compared with the big 4 banks! We also saw the return of 95% loans, genuine low doc loans and a overall easing of the tight post-GFC lending policies.

More recently the government has announced a raft of proposed changes to banking industry in an attempt to foster more competition and a better deal for consumers – most notably is the push to scrap exit fees on all loans. It remains to be seen if they will achieve their desired result with many commentators openly opposing the changes, concerned that the reforms will actually do the exact opposite and give the banks a greater advantage.

For the property market 2010 has been a year of contrasts. While the market was going great guns in late 2009 the housing market saw a change in the middle of this year, with capital growth stagnating after 17 consecutive months of gains. Over the 18 months to June, Adelaide had double digit growth, while over the three months ending October, home values were essentially flat.

Recently released RPData ‘year-to-date’ figures [Jan-Oct 2010] show Adelaide house prices grew by a modest 5.1% while unit prices fell by -1.5%. The November rate rise, bank top-ups, declining clearance rates, and a rising stock of unsold homes hint at tougher times ahead.

According to RPdata’s Tim Lawless “Higher interest rates were one of the key factors in the market slowdown.”

“Additionally, a general wind-down in the market cycle was at play,” he said. “The high rates of capital growth between January 2009 and June 2010 could not have been sustained. As interest rates rose, affordability constraints became a greater barrier and buyer demand began to fall.”

“For 2011, we are likely to see vendor expectations change as slower market conditions come into play. The outcome will be that houses will take longer to sell and buyers will be negotiating much harder than they were in 2009 and the first half of 2010,” he said.

However, Lawless has commented that the buyers’ market will not result in material declines in home values, and that the fundamentals of the housing market remain strong. He has also pointed to above average population growth and increasing consumer confidence as reasons for optimism in 2011.

So what will you do in 2011 that will be different from 2010?
Make 2011 a year of action! As always Urbantech is here to help you achieve your finance and wealth creation goals – whether it’s making sure you are currently getting the best deal in the market or creating a complete and holistic road map to guide you towards your wealth goals.

Alternatively, just give us a call in January and we can perform a full ‘finance and wealth evaluation’ to help you identify all of the areas you can improve – as they say ‘you don’t know what you don’t know’ so let us show you!

As you take a moment to read this month’s news, remember Urbantech is always as close as your phone otherwise, see you next issue and next year!

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Sam Cocks

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