More than 2.6 million Australians would have difficulty raising $3000 in an emergency and many lack access to basic banking services, according to the CSI Financial Exclusion Indicator.

The study, conducted by the National Australia Bank and the Centre for Social Impact, said those who couldn’t raise funds were less likely to have insurance cover, leaving them exposed to large costs.

The study found that just 46.4 per cent of severely financially strapped people had home contents insurance and only 59.2 per cent of them had cover for their cars.

NAB chief executive Cameron Clyne said financial exclusion often led to a debt spiral, where people who could not access financial services from banks turned to unregulated lenders who charged prohibitive interest rates.

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News.com.au article excerpts

A report by mortgage insurance heavyweight QBE showed about 2 per cent of people polled as part of the study said they were unable to meet their mortgage repayments with their current household incomes.

But 11 per cent said they would fail to meet their repayments if rates climbed 0.25 percentage points, with the proportion rising to 23 per cent if rates increased 0.50 percentage points.

According to NAB, the data implies that the Reserve will lift interest rates, currently at 4.75 per cent, by 0.25 per cent in August, with a further rise in November.

News.com.au article excerpts

The Housing Industry Association predicts 25,000 fewer homes will be built in 2011 than 2010, a downwards revision from previous estimates, according to its National Outlook for the December quarter.

HIA wants the federal government to introduce further stimulus measures to boost new housing starts so they don’t fall back to 2009 global financial crisis levels.

“Housing starts are forecast to fall by 15 per cent to a level of 143,430 in 2011, wiping out a majority of the short-lived, stimulus driven gains of last year,” HIA chief economist Harley Dale said in a statement.

“This fact delivers a very poor scorecard on new home and rental market affordability, which especially hurts aspiring first home buyers and lower income households.”

HIA also wants the government to appoint a minister responsible for fixing Australia’s housing shortage and review taxes charged on new home construction.

Dr Dale said housing starts had risen in just two out of the past 10 years – 2002 and 2010.

A significant decline in new home building in Victoria, formerly the “shining light of residential building”, was a major contributor to the poor outlook, Dr Dale said.

“We are forecasting a 19 per cent fall (in Victoria) from these dizzying heights, to 48,170 starts in 2011,” he said.

“If the alarming escalation in residential land values is not arrested, the fall from grace will be much sharper.”

Queensland’s residential building market, the weakest in Australia, is forecast to fall 20 per cent in 2011.

NSW housing starts are forecast to fall 4 per cent in 2011, on top of a current shortfall of 15,000 dwellings per year.

Western Australia would face its fourth decline in five years, due to a shortage of readily available land and the need for policy reform, HIA said.

South Australia, Tasmania, the ACT and the Northern Territory were all expected to see declines in new home construction in 2011.

HIA said this would flow through to growth in renovations activity, which hit nearly $32 billion in 2010.
“We expect activity in the renovations sector to hold largely steady this financial year, which would be a good outcome,” Dr Dale said.
Smh article

While Australia’s optimism is still well above the global average at 38 percent, the survey highlights a significant decline which is a far cry from last year’s soaring confidence of 79 percent. Increases in interest rates, declining property market values, current export conditions, and employment rates have contributed to the decline in confidence among Australia’s privately held business owners.

The report notes that declining property values are putting businesses under pressure as banks and financiers look to secure their investments.

Confidence in Australia’s exports is also down with many exporters suffering over recent months as the Australian dollar has continued to strengthen against the US dollar.

The HIA gauge of the performance of construction, which has been in negative territory for seven months, fell 3.6 points to 40.2 in January from 43.8 in December.

The HIA said “While flooding and bad weather conditions have caused project delays and stoppages, higher interest rates, caution on the part of home buyers and businesses and tight credit conditions continue to hamper growth,” and “The immediate outlook for the sector is not encouraging with new orders continuing to fall albeit at a slower rate than in December.”

The January report showed that activity in apartment construction fell the most, taking it to a reading of about 25 from close to 40 in December.

Article excerpts smh.com.au

A SURVEY commissioned by one of Australia’s largest mortgage brokers has found that almost one in 10 home buyers believe the latest round of interest rises could force them to sell up.

The Mortgage Choice survey, completed before the Reserve Bank’s Melbourne Cup day decision to lift the cash rate, found 9per cent of mortgage holders could not afford any increases to the repayments on their loans.

The survey found that the two further 25-basis-point increases widely tipped for next year would be enough for about 18 per cent of home buyers to consider selling.

That’s an option already taken up by South Australian couple Sally and Martin Ojasoo, who recently sold their new home at Evanston, north of Adelaide, after struggling with $1300 monthly repayments.

The prospect of even higher rates was too much for a family budget overstretched by a five-year, 8.25 per cent fixed-rate loan taken out in mid-2008, just before interest rates crashed to record low levels in the wake of the GFC.

“I made a bad decision fixing a loan I couldn’t afford,” Mrs Ojasoo said.

“Then everything was pointing to even higher variable loan rates when our fixed term was due to end in a couple of years.”

Breaking the fixed-term loan contract incurred a $10,000 Westpac fee, but fortunately the Ojasoos cleared about $50,000 from the sale after repaying a $24,000 credit card debt.

They plan to live mortgage-free in a kit home near Wallaroo, on South Australia’s Yorke Peninsula, after paying $20,000 for a block.

The survey questioned 1061 people, 536 of them with mortgages, about property and finance matters for this year’s consumer sentiment survey.

Although respondents rated interest rate concerns second to other cost-of-living increases such as utility bills and clothing, this was before the RBA surprised markets by increasing rates – the seventh 25-basis-point rise since the previous October.

Major banks subsequently increased their marginal rates beyond the Reserve’s 25 basis points.

Mortgage Choice said the findings were borne out by a doubling of calls to the group, most from anxious home buyers wanting to refinance mortgages.

Article by The Australian newspaper

Retailers are slashing prices by up to 70 per cent to entice customers, but, as The Sunday Telegraph visited shopping centres across Sydney, idle retail assistants were struggling to sell stock.

In more than 600 detailed interviews conducted in marginal electorates around Australia, the majority of voters said they felt the economy was volatile and had changed their spending habits.

Spending on a broad range of consumer items, including clothing, holidays, restaurant and takeaway food, newspapers and magazines is shrinking as Australians struggle to cope with interest rates, increased cigarette taxes, rising petrol prices and tight rental and housing markets. And there is more bad news for Prime Minister Julia Gillard and Treasurer Wayne Swan: 53 per cent of consumers believe they are less competent at economic management than former PM John Howard and his treasurer, Peter Costello.

The Sunday Telegraph interviewed more than 200 voters in Penrith, Campbelltown, Parramatta and the Blue Mountains. More than 60 per cent said they had changed their spending habits, with 38 per cent spending less, 12 per cent saving less money, and 10 per cent paying less off their mortgage.

Seventy per cent have delayed buying big items, especially cars and houses.

Of those who have reduced spending, the biggest cutback (23 per cent) was in clothing, while 33 per cent said they were spending less on restaurants and takeaway food and 18 per cent admitted they had reduced spending on holidays. The one treat surviving the downturn is a trip to the movies. Only eight per cent of those interviewed said they had reduced their outings to the cinema.

Forty-three per cent of NSW consumers surveyed said the economy was “volatile” whereas 44 per cent believed it was stable.

Nationally, 48 per cent of voters said they were worse off now than at the 2007 election and 44 per cent said they were worse off financially than this time last year.

In NSW, those figures were 37 and 35 per cent respectively.

The investigation revealed credit-card debt is spiralling. In NSW, 39 per cent owe more on their credit cards than last year, with 55 per cent owing more than $1000 and 18 per cent owing more than $5000.

A whopping 54 per cent of respondents nationally and 37 per cent in NSW are saving no money each week.

The disastrous situation was confirmed by dozens of retail staff in shops around Sydney, who revealed the dire situation to The Sunday Telegraph on condition of anonymity.

Stock was going on sale at discounts of up to 70 per cent as soon as it arrived at Wittner stores, a shop assistant said.

“The sale keeps getting bigger to move the stock. Even the new shoes that come in are going on sale the day they arrive,” she said.

“Customers don’t like to browse any more.

“They see the shoes they want in a magazine, come in to buy them and leave without looking around.”

A Myer saleswoman said she feared losing her job.

“I’ve never seen it so quiet. I’m worried, because they’re cutting shifts,” she said. Another department-store worker said women’s fashion departments were no longer taking deliveries of new stock.

Conditions were even quieter this year than at the height of last year’s downturn, another store worker said, admitting that long days with no customers were making staff miserable.

Australian Retailers Association executive director Russell Zimmerman said retailers were not selling stock despite the huge sales.

“Some stores are offering 70 per cent off,” she said.

“That’s unprecedented, and they still can’t get people in the door. It’s tough out there, and retailers are finding it harder to move product than they have in the past.”

Consumers are also increasingly nervous, with the latest Westpac-Melbourne Institute consumer sentiment index falling by 12.3 per cent over the past two months – the biggest drop since March, 2008.

Westpac chief economist Bill Evans said consumers were more concerned about international economic conditions than they were during the global financial crisis.

Concern about global instability was at its highest since the Asian financial crisis of 1997-98, Mr Evans said.

Official consumption figures confirm the slump, with NSW lagging behind the nation in the Australian Bureau of Statistics’ latest retail turnover trend figures.

NSW was the only state to record a fall, with trend turnover dropping 0.1 per cent in May compared with a meagre national rise of 0.2 per cent. Auction sales have been heading south for 11 weeks, with figures from RP Data showing only 56 per cent of capital-city auctions last week resulted in a sale.

In Sydney last week, more than 40 per cent of auctions resulted in no sale.

Article excerpts Sunday telegraph

Soaring commodity prices and rapidly rising employment are stoking dangerous inflationary pressures that the RBA is determined to stamp out.

Macquarie Bank and Commsec have both forecast the RBA cash rate will hit “pre-crisis highs” of 7.25 per cent by 2012. That translates to variable mortgage rates of 10.1 per cent – the highest since 1996.

An economist at Commsec says if iron-ore and coal prices continue to rise, we can expect the cash rate to revert to its pre-crisis level.

The news will strike terror in many homes, especially owners who stretched to afford a property when rates were at record lows last year.

If rates do hit 10 per cent, a borrower who took a $300,000 mortgage when rates bottomed at 5.75 per cent last year will see monthly repayments rise by $839 a month, from $1887 to $2726.

Even if rates hit 9.50 per cent, the same borrowers will see repayments rise by $734 a month.

Modelling by Fujitsu Australia, which runs a “mortgage stress” index, suggests 1.1 million households will struggle with repayments if mortgage rates hit 10 per cent.

The flood of first-home buyers – lured in by generous government incentives – will struggle so badly, they will be forced to sell, leading to a rapidly deflating property market.

AMP chief economist Shane Oliver said such high rates would lead to a big rise in delinquencies, and prices would fall by around 10 per cent.

Article excerpts news.com.au

The Australian Industry Group-Housing Industry Association performance of construction index, which measures the strength of the building sector, fell into negative territory in March.

The index’s 4.1 point drop to 48.7 in March from 52.8 in February – sinking below the 50 point line dividing expansion from contraction – was driven by declines in new orders, AiG said. It was the first contraction in three months.

“The fall in new orders in the house building and apartment sub-sectors comes at a time when there is already a shortage of housing and a growing gap between demand and supply,” Australian Industry Group public policy director Dr Peter Burn said.

“Businesses attributed the decline in housing new orders to the end of the first home buyers’ boost and the rise in interest rates since October.”

New orders declined for the first time in eight months with the sub-index dropping 13.7 points to 48 in March, AiG said.

Interest rates rose to 4.25 per cent from 4 per cent this month and are expected to keep climbing as the Reserve Bank leans against rising house prices and the inflation threat generated by the red-hot mining sector.

Recent data from RP Data-Rismark showed house prices rose nearly 13 per cent in the year to February to a median price of $455,000.

The most recent first-home buyer affordability index plummeted 18.4 per cent in the final quarter of 2009 to a reading of 120.1 from 147.1 in the September quarter, on HIA and Commonwealth Bank numbers, as more Australians found themselves priced out of the housing market.
Article smh.com.au

The Services sector is the largest in the Australian economy and covers shop assistants through to all the professions (accountants, lawyers etc).

The sector’s weakness at 48.4 in March from 48.3 in February shows this part of the economy is flat at best as opposed to mining that is in expansion.

The Reserve Bank raised has now increased interest rates by 25 basis points per cent to 4.25 per cent in an attempt to slow runaway house prices and contain inflationary pressures building in Australia’s commodities export sector.

Of course, this rate rise is likely to have a further negative effect on the services sector.

The RBA has already raised rates by 1.25 percentage points to the official cash rate since October last year, adding about $250 to the monthly cost of an average $300,000 25-year loan.

Such actions and higher repayment costs eat into household funds that would otherwise be spent in the services sector.

The market is currently pricing in another 25 basis point rate rise in May, with the cash rate set to hit 5.5 per cent in a year, according to data from Credit Suisse.

The question remains, is this a genuine across the board recovery or just a boom for the mining industry?