Rising rates dont matter...anyway everyone has a fixed loan...or do they?
http://www.news.com.au/business/money/stor...5016110,00.html
QUOTE
THE HOUSING market is likely to remain depressed for the rest of the year, an economist warns as high rates scare off borrowers.
The number of loans taken out for owner-occupied housing fell 3 per cent in April, seasonally adjusted, to 57,503, the Australian Bureau of Statistics said today. It was worse than economists' forecasts of a 1.9 per cent decline.
Total housing finance by value fell 3.0 per cent in April, seasonally adjusted, to $19.464 billion.
Macquarie Group senior economist Brian Redican said the housing market had showed “extreme softness” so far in 2008.
“People are just being more cautious in entering the housing market,'' Mr Redican said today.
“There's quite a sustained drop off in activity and I think that's partly reflecting higher funding costs but also obviously less confidence in the market,” he said.
Fixed interest rates are becoming decidedly unpopular, as borrowers take a punt that the Reserve Bank only has one or two more hikes up its sleeve.
Although fixed rate loans are currently offering lower interest rates than variable loans, borrowers are wary of being locked into a relatively high rate if the RBA starts lowering rates in the next year or two. Fixed rate loans made up 17.5 per cent of all home loans taken out in April, down from 23.9 per cent the previous month.
Macquarie’s Mr Redican expected the housing market to continue to struggle while interest rates remain high.
“There's certainly no sign of a turnaround in the housing market, probably for 2008,'' Mr Redican said.
“Until we start to see interest rates fall, and that certainly seems a long way away at the moment ... all the risks remain on the downside.”
RBC Capital Markets senior economist Su-Lin Ong said the bigger than expected fall in housing finance showed that the Reserve Bank of Australia's interest rate rises in February and March had worked to slow the economy.
“I think it tells you very clearly that the rate hikes are working and that policy is clearly getting some traction with households paring back their borrowing, including housing. "
Signs of a slowdown
There are other signs that the eight interest rate hikes the Reserve Bank has pushed through in the past three years are starting to put the brakes on the economy.
The number of jobs advertised in the nation’s newspapers and on the internet fell last month, as bosses shied away from hiring new staff.
The number of job ads fell 1.7 per cent last month to a weekly average of 270,754. Job ads have now fallen in three of the first five months of this year.
ANZ co-head of economics Sally Auld said the drop in ads reflected the fact employers were feeling cautious.
"Tighter credit conditions and uncertainty about the global economic outlook may also be negatively impacting business hiring decisions."
Ms Auld the numbers indicated there might be a “modest slowdown” in monthly employment growth in the next few months.
Still, economists expect the May unemployment rate to stay steady at 4.2 per cent, which is only slightly above February's 33-year low rate of 4.1 per cent. Employment data for May is due to be released this Thursday.
Businesses gloomy
Two separate business confidence surveys released today showed the corporate world is feeling gloomy.
The National Australia Bank monthly business survey rose slightly compared to the previous month, but pessimists still outnumbered optimists. Business conditions remained at their lowest level since December 2002 at plus-seven index points.
Another survey, by credit agency Dunn & Bradstreet showed the global credit crisis was still weighing on businesses, with more than two-thirds of managers of small and medium-sized outfits expecting
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