Uncertainty, not stability keeping interest rates low

The Reserve Bank has kept the interest rates at record low levels for over a year and economists have been quick to point this out as a period of stability for the economy. Ironically, the RBA has decided against any changes on the interest rate as the economic drivers remain unstable, with the slowdown in mining investments, unemployment and the elevated currency.

Australia posted its highest unemployment rate in July at 6.4% – higher than the United States for the first time since 2007. The local currency also remained higher than what was expected by the central bank. In the housing sector, home prices rose by 1.8% in the second quarter of the year. All these and contributed to the RBA’s decision to keep the interest rates on hold, with these factors tipping both ends of the economic scale.

Read more about this on the Sydney Morning Herald website.


Interest rates to boost economy: RBA

It’s been over a year that the interest rates have been pegged to a record low 2.5%, yet Reserve Bank Governor Glenn Stevens is convinced that investment levels have yet to reach their full potential, calling the current levels “below par” at a recent announcement at the  House of Representatives Standing Committee on Economics.

Banks have been more than willing to lend – a positive indication that more activity is expected from the property sector. Despite a high unemployment rate, the current net worth of households have increased by $120,000 over the past 2 years. Mr. Stevens describes the housing sector “strong” with “robust prices” making it an ideal investment choice.

Read more about this on the Adviser website.

ATO declares Bitcoin as barter transactions

Transactions that involve Bitcoin and other crypto currencies have been declared as barter transactions by the Australian Taxation Office. This also means that tax outcomes will be treated as such, in purchase transactions and personal use – where capital gain is ignored for as long as it costs $10,000 or less, and similar capital gains tax rules apply for investments when they plan to sell their bitcoins.

Read more about this on the Money Management website.

Consumer confidence to drive property shortage in the next 2 decades

There is an expected residential property shortage in the country for the next two decades because of high consumer confidence, and current government policies are making it more difficult, according to AV Jennings director Peter Summers.

The current economic conditions have been favorable for the residential property sector, as it experiences a high demand from buyers due to the low interest rate, inflation and increasing consumer confidence. He adds that an interest rate hike will unlikely change the sentiment of buyers, as consumer confidence has been a main driver of property demand over the years, despite increasing home values.  First home buyer numbers have improved at 13.2% for June, up from the previous month’s 12.6%, according to the Australian Bureau of Statistics.

Read more about this on the Property Observer website.

Are Australian houses overpriced?

A former economist at the Reserve Bank of Australia has expressed concern over the increase in house prices, stating that house prices in the country are overpriced by as much as 30%.

Jeremy Lawson was a senior economist for the RBA and currently works for Standard Life. He points out several factors that will negatively impact households in the future, as household debt to income ratio reaches unsustainable levels. He is mostly concerned about the Chinese growth slowdown, where majority of investments on the country depend on, making households vulnerable in case the interest rate increases. Current household debt is growing more than twice than wages.

The RBA has downplayed these issues, stating that credit growth is at a sustainable level. The annual housing credit growth of the country sits at 6%.

Read more about this on the Property Observer website.

Building construction work up for 2nd quarter

The Australian Bureau of Statistics have released the Construction Work Done report for the June quarter, showing an increase in residential building work increase of 3.6%, valued at $13.379 billion.

The increase was attributed to strong construction work in Victoria, New South Wales and Tasmania, where construction work has been the strongest, posting an increase for the last 3 quarters. The Australian Capital Territory posted an increase after a two year decline in construction work. Meanwhile, declines in construction were seen in Queensland, South Australia, the Northern Territory and Western Australia.

Residential construction also increased to 3.2% this quarter, with detached house construction driving the growth of the residential sector.

Read more about this on the Property Observer website.

Get the most out of your financial planner: 10 questions to ask

Are you tied to any financial institution? Do ask your financial planner if they are receiving any form of commission from other businesses to ensure that your best interest is prioritized and you will be aware of other conflicting influences. When hiring a financial planner, always follow the money trail.

Can you explain your fee structure? For financial planners, less doesn’t mean the best. Some financial planners cost more than others as they specialize and are licensed in certain areas. Always check if the fees are justifiable, and understand why.

What are your affiliations? Is your financial planner a member of a financial body? It is important that you ask who they are affiliated with, as it may be of benefit to you in the future. Investigate the legitimacy of the affiliation for your own peace of mind.

Are you licensed? There are several forms of financial licenses available, so it is very important that you check what type of advice your financial planner is licensed to provide.

How far down the line can you support? Explain your goals and verify if your financial planner can guide you all the way through or whether you’ll have to be passed on to someone else.

What is your specialization? Property advisers specialize in a vast array of dwellings, so it is imperative that you ask what type of property they specialize in. Ensure that the property type is aligned with your investment goals.

Do you have professional indemnity insurance? This gives you protection in case something goes wrong, most especially for buyers’ agents. The coverage and rules of this insurance type varies between states and territories.

Is there a way to file a complaint or feedback? Not only does this promote an open line of communication between you and your planner, but this also provides you an appropriate venue to air out your concerns, especially if you’re not happy with the service provided.

What areas are your strongest suits? Allow your financial planner the chance to provide you an account of their strengths and weaknesses.

Read more about this on the Property Observer website.

10 financial mistakes you should avoid

So you think small financial blunders won’t make a huge financial impact? Read through these 10 mistakes that you may be guilty of.

Spending more than you earn. This is the perfect recipe for disaster, guaranteed to make you poor. If you are shelling out more than what you are earning, this accumulates debt, and debt – no matter how small can have a significant impact on your financial standing.

Not setting a budget. Setting a monthly budget gives you a bird’s eye view of your expenses and financial allocations. Frivolous spending is often a result of having no budget set. Keeping track of your budget can also help as it allows you to check how much you can save after expenses.

Ignoring retirement. Small savings accumulated over time is better than saving a bigger amount for a shorter period. Saving for retirement should start as early as possible.

Credit scoring. This is an important tool that we can use to evaluate our current financial standing, as well as financial performance over time. The better the credit score, the bigger the chance of you getting financed for investments, such as purchasing property.

Debt. This reduces cash flow and decreases savings. Paying debt over by another is the worst way to go about your finances. Evaluate your finances and take into account how much you can set aside to pay off your debt. It may be hard at first, but this is a crucial step to achieve financial freedom.

Investments. In its entirety, investments are good. But investing too much or for the wrong reasons is bound to do more harm than good. Be mindful of the expenses that come with your investment and make sure that these are things you can afford.

Living on a paycheck. This is one of the worst situations to be in financially – having to wait for your paycheck halfway through when you have no other income stream available.

Not having insurance. Emergency cases can often shift your finances drastically, especially if you fail to prepare for accidents, injury or death. Check for the best insurance options available for you.

Car payments. Vehicle values depreciate over time. Having to spend thousands of dollars for a new car that will be worth half its value within the next 5 years is a poor financial choice. Consider purchasing pre – owned models or other strategies to lower down your loan payments.

Not seeking professional help. There are several outside factors that affect your finances, and the best way for you to align your strategies with these factors is by seeking financial help. These professionals will help you in achieving financial stability while considering the existing economic conditions.

Read more about this on the Lifespan website.

Unemployment drops after a 6.4% spike in July

A surprise drop was recorded in August as the unemployment rate finished at 6.1%, a slight improvement from July’s 6.4%. 121,000 jobs were added to the labour sector, with participation rates increasing to 65.2%.

Employment was driven up by an increase on part time employment, with 65,400 males and 41,300 females employed, according to the Australian Bureau of Statistics. The Australian dollar has increased to US92 cents as news of the job increase surfaced – the first time it has been in the 92 – 95 cent range since March this year.

Read more about this on the Sydney Morning Herald website.

Housing debt surpasses pre – GFC record

Overall housing debt to income ratio has reached a record breaking 137.1%, 5 percentage points higher than what was recorded prior to the Global Financial Crisis, according to the Reserve Bank of Australia.

The shocking news was revealed in a recent report by the RBA, showing a drastic growth in mortgages as opposed to incomes. Owner occupied debt to income ratio has also shattered the pre – GFC record, currently at 90.9% from a then high of 86.7%. Mortgages have a critical impact over the economy as home loans cover around $200 billion in annual borrowings. Property remains in demand as recent national auctions finished at a decent 70% clearance rate.

Read more about this on the Financial Review website.