Highway to hell
Gosh, so much conjecture over where interest rates are heading!
Bond yields have basically collapsed to record lows since the banking Royal Commission got its teeth into the lending market, with fresh lows for the 2 year and 3 year yesterday.
UBS, Market Economics, Westpac, and others have already been calling for repeat rate cuts for ages.
AMP have also been calling for cuts.
Yesterday, Citigroup and normally upbeat ANZ joined the calls for easing.
Today it transpired that JP Morgan have now called cuts for May and June.
Once the major banks are forecasting cuts they normally do follow.
Market measures
Still, whenever in doubt look to the markets.
Futures markets are now flirting with the possibility of three interest rate cuts, with the implied yield curve inverted all the way out into H2 2020.
Cost of funding plunges too
Meanwhile funding costs continued to fall this week to break down to multi-year lows, so regardless of monetary policy moves we should see more lenders cutting their fixed rates over the coming weeks.
Moreover, banks should pass on any rate cuts that are delivered, thus aiding the transmission of monetary policy.
Will we see mortgage rates with a low 3-handle soon?
Quite possibly.
Quite possibly.
That would certainly shore up confidence in the housing market by improving affordability for existing mortgages.
A remaining concern is at that lenders are still running serviceability calculations at 7¼ per cent, which is too large a buffer now that the glut of interest-only loans has been so decisively tackled.
Australia's household debt pile is now being paid down, and finally there is clear daylight between wages growth and inflation, meaning that real incomes are rising.
A range of other factors are aligning to help take the real or imagined pressure off household debt ratios prospectively.
Perversely, however, lower mortgage rates can actually reduce borrowing capacity for incumbent housing market investors, due to the way in which negative gearing add-backs are calculated.
This is patently nonsensical, but an irritating and ultimately self-defeating reality of the prevailing lending environment.
A remaining concern is at that lenders are still running serviceability calculations at 7¼ per cent, which is too large a buffer now that the glut of interest-only loans has been so decisively tackled.
Australia's household debt pile is now being paid down, and finally there is clear daylight between wages growth and inflation, meaning that real incomes are rising.
A range of other factors are aligning to help take the real or imagined pressure off household debt ratios prospectively.
Perversely, however, lower mortgage rates can actually reduce borrowing capacity for incumbent housing market investors, due to the way in which negative gearing add-backs are calculated.
This is patently nonsensical, but an irritating and ultimately self-defeating reality of the prevailing lending environment.
