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Finance News

June 7th 2011

What market influences do we need to observe in the coming months?

Interest rate changes – The RBA have indicated the buoyancy of the Australian economy including internal production and mining exports growth, and employment remains strong; however retail spending is down and Australians are saving at a greater level than previously seen. One key economic predictor influencing the RBA’s decision is controlling inflation (or the price of goods) and whilst the rising Australian dollar will keep the price of imports down the overall price of goods is expected to increase, which in turn places pressure on interest rates. With this comes the threat of action by the banks that have a history of extending the rate rise beyond that prescribed by the RBA.

Housing affordability – Economists have indicated it has reached the most critical level in ten years.  In the year to December 2010, housing affordability decreased 4.6 percentage points, taking the proportion of income required to meet home loan repayments to a relatively high 35.3 per cent.

Taking these factors into account we will not see a repeat of double digit increases seen in 2010. However, the strength of the local economy remains high and the fundamentals are still strong, especially population growth, employment and consumer confidence. These factors coupled with the volatility of the Australian stock market, which still has not returned to pre-GFC levels, contribute significantly to consumer confidence to invest in property thus creating a strong buyer pool.