"Nero fiddles in the US while the Reserve Bank does a balancing act at home"

"Well, the shutdown continues in the US, though as it is the middle of the night there, no further news yet. The markets seem to believe that this will only last a few days before some temporary resolution appears, but having got this far the Republicans seem determined to extract some political benefit, and the trigger could be the threat of a US default by October 17. This was referred to by Paul Ryan, who said “we think the debt limit is the forcing mechanism, that’s what we think will bring the 2 parties together.” Well at least there is talk of bringing the parties together.
Meanwhile the US dollar has started rising as investors start moving liquid funds in anticipation of higher interest rates in the US, which has seen our dollar fall half a cent in the last day.
Apart from the fact that nearly a million people are effectively out of a job, little else is happening, and the nation has turned to humour to pass the time.
One Republican joke, taking a dig at Obama, goes “Rumor has it that a pile of toys has been found on the White House lawn, believed to have been thrown from a pram”.
While the Democrats respond with “got to love Team America”.
Donald Trump said “It is crucial for Republicans to remain united during this shutdown”. Oh wait, that wasn’t a joke.

Picture SOURCE: SCMP.COM

Meanwhile, back in Australia we are digesting the latest update by the Reserve Bank, in the light of housing price trends. While the headlines in the news is of increases in house prices, this is really only true of Sydney and Melbourne, which both saw increases of about 2.5% in the past month.
Elsewhere, with the possible exception of Adelaide, prices actually fell during September, a month which is normally one of the strongest in the year.
Feedback from our valuers, in Sydney in particular, paints a picture of a boom market, particularly at the lower end, and perhaps the need for higher interest rates to curtail the price increases.
However, in other markets the picture still seems to be one of weakness.
The market for residential land and new houses is a case in point. Residential building approvals actually decreased 4.7% in August and the trend in dwelling approvals growth remains weak. This does vary from state to state. New South Wales was the only state to record actual growth in dwelling approvals in August, while Victoria posted negative monthly growth for the 13th month in a row.
Growth in most states has been offset by declines in Victoria and Tasmania. While demand may increase in most states, an eventual cyclical upturn is expected to be weaker than in previous cycles. The poor outlook for high density housing construction in Victoria is expected to weigh on that market in particular.
Somehow, the Reserve Bank is supposed to make sense of all this and fix a level of interest rates that slows down New South Wales while stimulating growth elsewhere, but the interest rates tool is too blunt to fine tune like that. So this explains why interest rates are unchanged at the present time, since they are okay on average, even if some markets are too hot and others too cold."

This article was sourced from propell.com.au

"New data signals interest rate rise in 2014"

 

Source: PerthNow

 "HOUSEHOLDS should get ready for interest rates to increase as early as next year, with new data signalling some relief for savers but bad news for mortgage holders.
An analysis by financial comparison website, RateCity, has found the gap between fixed and variable rates is narrowing – a strong indication that lenders think rates are close to bottoming out.

Alex Parsons, CEO of RateCity, said fixed interest rates were one indicator used to gauge market sentiment as fixed rates typically moved one step ahead of the cash rate and therefore variable rates.

“Since before the first round of rate cuts in November 2011, fixed rates have been consistently tracking at around 1 percentage point below standard variable rates,” Mr Parsons said.
“When banks ‘price’ fixed rates significantly below variable rates, it suggests they expect rates to fall further. This month, though, the gap has narrowed to 0.79 percentage points, indicating that the chance of further rate cuts is less likely.

“We know that most people are on discounted variable rates with the major banks, which are usually around 0.70 percentage points lower than advertised rates, meaning fixed and variable rates are almost on par – in other words the gap is closing.

“Our data suggests there is one more cash rate cut on the horizon this year and we’re betting on a Melbourne Cup day cut in November.”

Mr Parsons said that with interest rates at all-time lows, it was inevitable that rates will start to rise and while it is too early to call when this will happen, it is not inconceivable that this could happen as early as 2014.

“We know fixed rates usually start rising well before variable rates, and borrowers often miss the lowest point. After all, the banks have a far better chance of predicting future rate movements than the average punter,” he said.

“Based on this logic, borrowers who are interested in fixing should keep a close eye on rates over the coming months and be ready to act on signs of fixed rates increases. Fixed rates are available from as low as 3.99 percent for 1 year terms, while variable rates start at 4.49 percent.”

Mr Parsons warned borrowers against overstretching their budget and urged people to prepare financially for the possibility of higher costs of servicing a loan.

“Interest rates are at record lows and for many young Australians the prospect of buying their first home is suddenly a reality,” he said.

“But borrowers should prepare for the eventuality of higher interest rates in the future and make sure they could comfortably afford to service the loan if rates increased to the historical average of around 7 per cent or even higher.

“We typically suggest borrowers commit no more than one third of their income to repaying the mortgage, any more than that and they could find themselves in mortgage stress.

“It’s really important that borrowers don’t overstretch the budget because this can only lead to tough times when rates eventually do increase.”"

This article was sourced from PerthNow and was written by Mara Fox.

"Spring brings termites"

"Over the next few months homeowners should be on the lookout for termite activity because early spring is when these insects start their colonising flights.

With plenty of moisture in the air and daily temperatures rising slowly as summer approaches, conditions are ideal for termites as they scout for food and search for new places to live.

Each year termites cause in excess of $900 million damage to Australian homes and not always to older homes in established areas which is a common misperception.

A competent pest controller can provide you with a report on possibly termite activity in your home or yard and precautionary actions to prevent infestations. These actions can involve inspecting the dwelling, including the roof void, below the floor if applicable and areas up to 50 meters from the main building.

In Western Australia it is common for homebuyers to obtain a pre-purchase timber pest inspection as a condition of the property sale.

 

These inspections should be carried out in accordance with Australian Standards which reports on termites, borers, fungal decay, moisture, chemical delignification (where timber deteriorates due to salty ocean air or excessive car fumes from busy roads), and other items related to conducive conditions.

These inspections are normally a visual inspection only, although more invasive inspections can be requested or recommended. The purchaser should understand the limitations of the inspection and a pre-engagement document may be offered.

REIWA has drafted a standard clause for timber pests and recommends that buyers ask the selling agent to include this standard clause as an annexure to the Offer and Acceptance Form as a condition of the sale.

It then becomes a condition of the contract that a report is obtained from a licensed pest control operator at the purchaser’s expense within a given time period. Usually this is not more than five business days before settlement.

The timber pest clause requires certification that all structural improvements to the residential house are free from termite and other timber pest activity on the date of inspection and whether there was any previous damage.

If the report uncovers any termite or any other timber pest activity or damage to the structural improvements, the seller will be required to remedy the situation at the seller’s expense. If the seller declines to take appropriate action then the purchaser can cancel the contract.

Equally, a purchaser can choose not to have any pest inspection form part of the contract if it is felt unnecessary, such as with a newly built home or one made entirely of bricks and concrete."

This article was sourced from REIWA.

"Inquiry rates for granny flats soar in WA"

"INQUIRY rates for granny flats have soared this year and they're not all planned as a home for older relatives.

Specialist builders say there has been “a substantial increase” in the number of people asking about ancillary accommodation or “granny flats’’ since the State Government announced in March it would change legislation to allow the flats to be rented to non-relatives.

Investment experts said the legislation changes, gazetted on August 2, would be a “game changer’’ for Perth.

Granny flat builders, including Granny Flats WA, Granny Flat Innovations, Concept Steel Constructions and Factory Direct, have all noted the “dramatic increase” in inquiries.

Granny Flat Innovations general manager Chris Johnston said the hits on the firm’s web page had tripled since the Government’s announcement.

And Granny Flats WA managing director Mike Nicholls said the interest was coming from homeowners and investors.

“Most interest is from people 55 to 75 looking to rent out their larger house,” Mr Nicholls said.

“But the rental market is bringing in the younger demographic who want to put granny flats on their investment properties and double their income.

“There have been a lot of inquiries from FIFO workers.”

Sales, however, had yet to pick up.

Factory Direct general manager Trevor Massey said the market was still in the “research phase”.

“It’s like building a house. The first step is research,” said Mr Massey, who predicted an increase in sales in the coming months.

Hegney Property Group chief executive Gavin Hegney said the new legislation would be a “game changer” that would increase housing densities in Perth suburbs built in the ‘60s, ‘70s and ‘80s.

“The knock-on effect of more people in those suburbs would mean the local businesses would grow,” he said.

“Where previously those suburbs may not have been able to support a cafe, they might be able to with increased density.”

Mr Hegney said that if the trend developed as expected, blocks of more than 450sq m would become increasingly popular.

Momentum Wealth managing director Damian Collins, who held a sold-out investment seminar last Tuesday featuring the new granny flat laws, predicted the accommodation would be popular with investors chasing higher yields.

He tipped properties with granny flats in “decent areas” to attract yields of 7 per cent.

“You won’t have to go into risky areas, like mining towns, to get those yields,” Mr Collins said.

A new granny flat as an investment property would also have tax depreciation benefits, he said.

Mr Hegney said there would be significant financial gains for investors, with an estimated 14 per cent return on the costs of establishing a granny flat.

“It can turn a negatively, or neutrally geared property, into a positively geared property,” Mr Hegney said.

Granny flats could be a wise long-term investment, helping to pay the mortgage initially, before being used as crash pad for teenagers, and then for extra retirement income in later years.

But he warned that if even a portion of the family home was used to provide an income, it would affect the property’s capital gains tax-free status.

“People will need to look at their own financial circumstances and decide what’s right for them,” Mr Hegney said.

Real Estate Institute of WA president David Airey said people would also get tax exemptions for maintenance on that part of their property, as they would for any investment.

But he said homeowners should do their homework because they were not likely to get the same investment return on a granny flat as they would on a property on a separate strata title.


CORNERING THE INVESTMENT MARKET

A CORNER block with a three-bedroom, two-bathroom house would be the ideal investment property to add a granny flat to, according to Hegney Property Group boss Gavin Hegney.

“Some properties are better suited than others,” Mr Hegney said.

“It’s pretty hard to go past a three-bedroom, two-bathroom with a 1x1 granny flat.

“The value of that property would stand on its own right.

“A corner site would be best, because both could have a street frontage.”

Mr Hegney warned investors to be aware that the cost of a granny flat would not always be equal to the value it added to the property.

A two-bedroom, one-bathroom granny flat added to a four-bedroom, two-bathroom home may not equal a six-bedroom, three-bathroom home, Mr Hegney said.

Momentum Wealth managing director Damian Collins said investors would also have to consider an area’s demographics and planning codes to determine whether a granny flat suited their property.

“You need to think who the prospective clients are,” Mr Collins said.

“If it’s a 4x2 and in a family area, the renters might really value that backyard,” he said.

“If it’s an older three-bedroom, one-bathroom shared by a couple or three adults, they may not.”


A RING OF POTENTIAL

THE best areas for granny flats are in Perth’s “middle-belt”, where many homes were built in the 1960s and 1970s, Hegney Property Group chief executive Gavin Hegney said.

He said these areas had big blocks, good tenant demand, and rental returns that could soon cover the initial cost outlay.

“If you drew a ring around the city, it would be areas like Melville, Bull Creek, Leeming, Kardinya, Queens Park, Belmont, Bassendean, Morley, Dianella, parts of Maylands, Balcatta and Osborne Park,” Mr Hegney said.

Momentum Wealth managing director Damian Collins said granny flats would not work as well in higher priced areas, such as the Western suburbs, where they would probably devalue the property.

“There will be demand for this kind of housing in a lot of areas – people are happy to live in smaller homes these days,” Mr Collins said.

“But you need to understand who the target market is.

“They’ll be popular with fly-in, fly-out workers who want lock-up-and-leave properties, or in student areas, such as around Curtin (university) and ECU.”"

This article was sourced from PerthNow and was written by Claire Bickers.