Yields suggest easing may not be over

Easing to come

Bill Evans of Westpac has called further monetary easing, expecting interest rates to fall from 0.25 per cent to 0.10 per cent. 

Economists from at least five other major institutions had joined the chorus by the end of the week, and there may be more to follow. 

Any such move may well involve reducing the target for the 3-year yield, being a key funding benchmark for Australia, and the rate charged to lenders for accessing the Term Funding Facility. 

The upcoming Monetary Policy Decision falls due at 2.30pm AEST on Tuesday October 6.

Financial markets aren't totally convinced, but the 3-year bond yield has certainly made a noteworthy move in that direction since the beginning of last week.  

The RBA's Debelle has posited that a further cut in target rates is one of the four potential options for the central bank to pursue, given that the outlook for inflation and employment isn't presently consistent with the Bank's objectives. 

And two of those options have seemingly been dismissed as unworkable, and one the Bank seems to be lukewarm on at best (i.e. buying further bond maturities).

Which by default appears to leave a further cut in the interest rate target as the most likely option. 

The Federal Budget for 2020-21 is also due for release on October 6, which may or may not serve to factor into the timing of further easing being announced. 

Buy versus rent equation

Buy versus rent

We did a full-pager for Sydney's Daily Telegraph at the weekend on the shifting buy vs rent equation:

There's an abridged online version of the article at REA here.

Weekend reads (rental demand)

Weekend reads

This weekend a look at where rental demand has shifted to - check it out here (or click on the image below):

You can also subscribe for free for the excellent Yardney podcast here.

Responsible lending laws to be wound back

Credit taps set to loosen

A significant day for bank stocks as it was announced that the responsible lending laws that have been in place since 2009 will likely be wound back. 

All of the major lenders saw a significant jump in their stock prices. 

This will no doubt act to speed up the pace of loan approvals and bank lending, albeit probably not for 6-12 months, with less of the forensic poring over household expenditure for mortgage applications, which has at times made the lending process more akin to an audit than a credit approval.

Most likely there will be an easing of some of the existing HEM restrictions as the legislation is passed, and less scrutiny of household expenditure line items. 

The responsibility will more so fall back on to borrowers to declare complete and accurate information, instead of looking for lenders or brokers to blame wherever a loan goes bad. 

This may also increase the availability and capacity for some individuals to borrow, though it remains to be seen how much.

Offsetting this to some extent will be the introduction of the best interests duty for brokers, effective 1 January 2021.

The Reserve Bank had previously noted that lending had become excessively risk averse, and this move will slash approval times assuming it is legislated on a timely basis.  

Symbolic shift

Moreover, the announced planned changes are symbolic, suggesting that the credit pendulum is now likely set to swing back in the other direction, after half a decade of tightening which reduced the total borrowing capacity of some borrowers by half.

The announcement will also foster more competition between banks, with one large lender immediately offering lower variable rates, including on investment loans. 

There are still significant headwinds for the economy to be navigated, of course, but the combination of record low mortgage rates and the signaling of a simplified approval process should bring the housing market back to life in 2021. 

New homes sales boom in the US

New home sales boom

Witness the power of ultra-low interest rates.

US new home sales crushed Wall Street estimates, rising to over 1 million annual rate in August for the first time in nearly 15 years since the Great Recession. 

The result was miles above expectations of around 900,000 seasonally adjusted annual rate.

That's a thumping +43.2 per cent year-on-year increase for the biggest year-on-year increase in almost three decades. 

This is the biggest result for new home sales since 2006.

The results for the previous 3 months were significantly revised upwards too.

Supply is now down 40 per cent year-on-year, and sits at an all-time record low for months of supply.

There's bound to be some volatility in the numbers this year, but this was a monster result that has astonished analysts...

Adelaide property market update with Jess Ellam

Adelaide property outlook

Check out my webinar with the top Adelaide buyer's advocate Jess Ellam of Jess Ellam Property here:

You can check out more about South Australia and its property market using our WeIntelligence tools here. 

ASX eases

XJO eases

Haven't looked Aussie stocks for a while.

3-month lows, but still only down 20 per cent from the February highs. 

Wednesday webinar with Jess Ellam: Adelaide property update

Adelaide/SA set for lift off?

I'm excited to be joined by top Adelaide buyer's advocate Jess Ellam from Jess Ellam Property for this week's Wednesday webinar. 

We'll be discussing the Adelaide and South Australian property market risks...

...and, of course, the opportunities, including where and what Jess is buying for her clients right now...

...and where it has now become cheaper to buy than rent. 

For the capital cities this has tended to be a positive indicator for housing market activity and supportive of prices historically. 

We'll ask be discussing what Jess recommends her clients to buy across various budgets and price ranges.

The event details are below and you can subscribe for free here (or by clicking on the image below):

It's an interactive event, so do have your questions ready.

Look forward to seeing you there!