Reserve set to cut rates again

The Reserve Bank board will cut at least three-quarters of a percentage point from interest rates when it meets again on December 2, and may even cut by a full point.

The minutes of the board’s last meeting, on Melbourne Cup day, show it rejected a recommendation by officials to cut by half a percentage point and instead cut by three-quarters amid alarm about “confidence among consumers and businesses”.

Board members, including governor Glenn Stevens, Treasury secretary Ken Henry and ANU economic modeller Warwick McKibbin, were especially concerned about the erosion of household wealth.

The rout on sharemarkets and the downward drift in house prices had cut household wealth by 8% in the nine months to September.

Board members feared that subsequent falls in share prices had made the slide greater. “Members noted that there were few precedents for the current developments in household wealth,” the minutes record.

After presenting the board with the staff recommendation for a cut of half a percentage point in the cash rate, Mr Stevens suggested members consider a choice between that and a three-quarter cut.

They opted for the bigger cut to bring about “a further meaningful reduction in rates paid by borrowers and assist confidence among consumers and businesses”. The aim was to bring rates “quickly to a neutral position”.

The Reserve Bank has traditionally regarded the “neutral” cash rate as between 5.5% and 6%. This is the rate at which the bank would be neither stimulating economic activity nor winding it back.

But bank officials believe the neutral rate is now lower than that because of recent decisions by retail banks not to fully pass on cuts in the cash rate.

This would mean the cup day cut to 5.25% brought the cash rate only back to neutral and perhaps did not quite do that.

Given that there is a clear need for interest rates to stimulate the economy at the moment, it suggests a need for a further big cut in December, with a 0.50 cut regarded as the bedrock and a 0.75 cut more likely.

Should economic conditions deteriorate further, and especially if the United States is declared in recession during the next fortnight, a bigger cut of a full percentage point is likely.

A cut of one percentage point, if fully passed on, would reduce the standard bank variable mortgage rate from about 7.7% to 6.7%, cutting repayments on a $300,000 mortgage by an extra $200 a month. Monthly repayments would have dropped $570 from when mortgage rates were at their peak at 9.6% in August.

After December, the Reserve board is not due to meet again until February, but Mr Stevens stands ready to call an emergency meeting in January to deliver a further cut if needed.

In January the bank will have an indication of whether the $8.7 billion of Government stimulus payments due to be deposited into bank accounts from December 8 has boosted economic activity or been saved.

The bank has called unscheduled January meetings twice before, in 1990 and 1992 – in both cases to deliver a cut of one percentage point.

Late yesterday the futures market was pricing in a cut of one percentage point in December and a further three-quarters in February, with further cuts taking the cash rate down to 3.25% in May – which would be the lowest level since the 1950s.

Sunshine Coast property market strong, says Matusik

Property expert Michael Matusik was surprised to discover strength in the Sunshine Coast property market when researching the presentation he gave at this morning’s Urban Development Institute of Australia annual general meeting.

The straight-shooting analyst said the market is “surprisingly strong”, property prices will experience growth and that affordability will improve.

“2009 is going to be brighter than 2008,” he said.

“Price growth of around 5% will occur throughout next year, and 10-12% in 2010. “But the top end of the market will be difficult and sales volumes could be half of what we’ve seen in recent years, until the share market recovers.”

Mr Matusik said the fundamentals (population, economy, employment, supply) were all “quite good”, but certain issues loomed as potential problems.

“Affordability is an issue, but it has improved dramatically with declining interest rates, the first home buyers grant, the fiscal package, tax cuts and wage increases,” he said.

“Another issue is the amount of urban consolidation and sorting out what the market wants, versus the planning rhetoric.

“There is a desire to have a lot more urban consolidation, but a lot of the population do not want to live in apartments. There needs to be more subdivisional-type approvals and developers need to rework their existing developments to include tighter stock in the apartment product.”

Too much Seachange?

The National Sea Change Taskforce will be represented at this week’s inaugural meeting of the Australian Council of Local Government in Canberra on November 17 and 18.

Sunshine Coast councillor Debbie Blumel, one of two Queensland representatives on the taskforce, said representatives have been invited to participate in the inaugural meeting.

“The National Sea Change Taskforce will be presenting four priority issues which we believe are important to Australia’s coastal communities,” Cr Blumel said.

“The current rate of growth in Australia’s non-metropolitan coastal areas is not sustainable. Coastal councils and their communities are attempting to deal with extraordinary pressures but do not have sufficient resources to keep pace with increasing demand associated with growth.

“As a result, there is a significant backlog of unmet demand for community infrastructure and services in these communities. Apart from population growth, coastal communities face the added impact of increasing levels of tourism and the potential impact of climate change.

“The taskforce believes the following four key issues need to be addressed through appropriate policy initiatives as a matter of urgency:

-Investing in local, regional and national infrastructure.

-Adapting to our changing local environment.

-Strengthening regional economies, including broadband and communications.

-Improving wellbeing in our communities.

The taskforce will consider a detailed discussion paper before presenting to the Australian Council of Local Government today.

Interest Rates cut to 5.25%

The Reserve Bank cut its key interest rate for the third month in a row as it attempts to prevent Australia’s economy stalling.

The central bank trimmed three-quarters of a percentage point – or 75 basis points – off its key cash rate, reducing it to 5.25%, the lowest level since December 2003.

For a typical 25-year, $250,000 home loan, today’s cut if passed on in full by lenders will save the borrower $112.63 a month in payments or some $33,791 over the life of the loan.

The move, announced after today’s monthly board meeting by the RBA, exceeded economists’ predictions of a 50 basis-points cut.

Today’s cut brings the RBA’s cuts to 2 percentage points since the central bank reversed course in September, retreating from a 12-year high rate of 7.25%.

The RBA will be hoping that the big commercial banks will repeat last month’s feat of passing on all of the official rate cut to borrowers.

Lower lending costs help spur the economy by encouraging more individuals and businesses to purchase houses or make other investments, stoking demand that in turn prompts more orders.

Almost all the latest economic figures point to a sharp slowdown in demand as the effects of the global financial crisis spread to Australia. Falling commodity prices are already dimming the outlook for the mining and export sectors.

Retail sales shrank 1.1% last month from September, the largest drop since April 2005, as consumers start to pull back on spending.

House prices, another measure of the economy’s health, fell 1.8% in the September quarter, the sharpest slowdown since the 1970s, according to some reports.

Job ads, one indication of future employment opportunities, also slumped last month and are now about 10% lower than this time last year.

Sunshine Coast defies slowdown

Billions of dollars worth of projects are being prepared or rolled out across the Sunshine Coast despite the global economic meltdown.

In Noosa alone Resort Corp’s $210 million Quay West development, the $300 million Viridian Resort and Spa and the staged Settler’s Cove precincts are employing upward of 700 tradesmen on any given day.

All are reporting strong sales despite tightening markets with individual apartments priced from $1.45 million to $4.5 million already sold to local, interstate and international buyers.

Further south Reed Property Group’s competitively priced Emporio precinct in Sunshine Cove at Maroochydore has recorded $9 million worth of sales in the four weeks since the project’s release and the company is on track to lodge with Sunshine Coast Council before Christmas plans for its massive Big Top redevelopment. Hutchinson Builders is bussing in some 240 workers to the Resort Corp project on the river from the nearby Noosa Australian Football grounds which have become a car park serviced each morning by food and coffee vans. Workers are on site six days a week.

And across the globe a sales campaign in 16 countries is reaping dividends with six Lagoon apartments recently sold to United States expatriates working in Hong Kong.

Developed by Resort Corp as Noosa Sanctuary and branded Quay West by Mirvac Hotels and Resorts since its purchase of management rights in June, it will when finished include 108, one, two and three bedroom Lagoon apartment, 25 Precinct villas and 16 Enclave homes.

“We are building the project out 100 per cent,” Resort Corp marketing manager Graham Staerk said yesterday.

“This is not like some other developments which are staged and released predicated on pre sales. We are building it from go to whoa and plan to open next September.”

The project, which includes a central activities centre with gymnasium, restaurant, bar, 200 seat conference centre, day spa and kids’ club, is already 65 per cent complete.

There will also be tennis courts with an adjacent marquee that can be booked out for functions and a massive heated wet edged and sandy beach lagoon pool.

“We’ve had huge interest in the development in the past two months,” Mr Staerk said.

“That’s been driven by Mirvac giving it its five star Quay West brand and the opening of a Lagoon display unit.

It is the first time Mirvac has applied its five star Quay West brand to a non Mirvac developed project.

Agents from across Australia have been through the display and Mirvac’s 100 strong full rime sales team have been selling it across the world.

Bookings are already being made for the conference centre.

Mr Staerk said most of the one bedroom apartments had already been sold not withstanding the difficult economic environment.

That was a testament, he said, to the strength of the Noosa brand and the strength of the Queensland economy.

The plunging Australian dollar was also making Australian investment property more attractive internationally.