Home buyers, motorists to face pressures from recovery
By Colin Brinsden, Economics CorrespondentMon Aug 10 19:13:16 EST 2009
CANBERRA, Aug 10 AAP - Demand for home loans from first time buyers continues at a strong pace, but these new market entrants and homeowners in general are likely to face higher mortgage rates before Christmas.
Motorists, too, will be burdened by rising petrol prices as signs of a recovery in the global economy lift oil prices, economists say.
Financial markets are pricing in the risk of a 50 basis point rise in the official cash rate by the end of the year, which would lift it to 3.5 per cent from a 49-year low of 3.0 per cent.
One of the world's leading financial institutions is warning that Australia's major banks will lift mortgage rates before the Reserve Bank of Australia (RBA) moves.
"The banks already have nudged up their fixed home loan rates in response to higher wholesale funding - further increases in variable rates probably will follow," chief economist at JP Morgan's Sydney branch, Stephen Walters, said.
"RBA officials are likely to be content to let the commercial banks do the early work in letting some air escape from the bubble that has formed at the lower end of the housing market."
The RBA indicated last week that further rate cuts are off the agenda as the economy has performed better than expected in the global downturn.
New official data released on Monday showed first home buyers made up 27.1 per cent of all home loans granted in June.
While this was shy of a revised 28.5 per cent record in May, it was still well above the 17.6 per cent posted a year ago, with buyers lured by a more generous federal home grant and low mortgage rates.
The federal government's increased first home owners grant provides $14,000 for the purchase of an established home and $21,000 for a new property, but will be pared back to $10,500 and $14,000 respectively from October 1.
It is scheduled to return to its original $7,000 for both categories from January 1, 2010.
Overall demand for mortgages rose by a seasonally adjusted 1.1 per cent in June for owner-occupiers over the previous month to 65,151 loans, the ninth consecutive monthly increase.
Still, Monday's data showed that new home buyers are becoming more cautious in taking out a mortgage with 8.0 per cent of June's loans being with a fixed rate for at least two years, a trend that is likely to grow as fears over rising rates intensify, economists say.
This was up from 6.2 per cent in May and just 1.9 per cent last December.
Further increases in petrol prices are also predicted as Australia's unleaded benchmark price - the Singapore petrol price - scaled a 10-month high of almost $100 a barrel in the past week.
The Australian Institute of Petroleum's weekly report showed the unleaded petrol prices rose by an average 1.9 cents per litre to 124.5 cents last week.
Commonwealth Securities economist Savanth Sebastian said a glut of oil inventory on global markets has failed to put downward pressure on prices as markets focused on the world recovery story.
Even a strong Australian dollar has not been able to significantly absorb the rally in oil prices.
"If there is any consolation for motorists, it is that the rise in pump prices is likely to be rather sedate," Mr Sebastian said.
"The petrol price will rise over the next fortnight, but only modestly, up around three to five cents a litre."
