Posted by Debbie on Sep 4th, 2008

Some commentators and analysts have also tried to use the credit problems in the US and the UK as a reason for cutting rates, arguing that it is necessary in order to prevent a freezing up of credit, a slump in the housing market, and an increase in home repossessions.

Again this seems a little disingenuous. As we mentioned on Monday, Australia hasn’t been immune from the tightening of credit markets as evidenced by our list of woe. However, some things are different.

Australian financial institutions have had to rely much less on the securitized mortgage market to raise funds to offer mortgages. This means that there is less of a ‘sausage factory’ feel to it like what you have especially in the US. There, the Savings & Loans in particular are able to offer mortgages and then quickly parcel them up and sell them onto to Freddie Mac or Fannie Mae. This means that having sold off that mortgage they can bring in the next one, and so on.

In that instance, providing Freddie Mac and Fannie Mae continue to buy the mortgages the S&L is going to keep pushing the mortgages through… until there is no more money left, which is what happened in the US recently.

Mortgage Owners Get a Windfall

For those of us that still have mortgages it is a happy day. For every $100,000 of mortgage outstanding we will be richer to the tune of 68 cents every day. As yet we are undecided about what to do with our windfall, but something frivolous could be on the cards.

For weeks the Reserve Bank of Australia (RBA) has indicated exactly what it was going to do. It couldn’t have telegraphed it any more if it had tried. Therefore the decision to chop interest rates by 0.25% was of little surprise to anyone, with the exception of those that were crowing for a 0.50% cut. But have no fear, because markets have already convinced themselves that a further 0.75% of rate cuts over the course of the next twelve months is almost a formality.

We don’t know for certain whether it is necessary or not. Nobody does. And even after everything has run its course nobody can say for certain whether its actions were effective or not. It’s a bit of a Y2K syndrome. Did all the billions of dollars spent on upgrading computers prior to 2000 really have any beneficial effect apart from lining the pockets of IT geeks?

What we can question is whether it is sensible for the RBA to be cutting rates while inflation remains above 5%. The RBA is in effect attempting to predict the top of the market, believing that inflation will rise a bit higher before easing back over the next 18 months or so.

Wizard Keeps Rate Rise Under Its Hat

The whacky crazy guys at Wizard Home Loans thought they could pull the wool over everyone’s eyes. At the weekend they trumpeted their intention to reduce home loan interest rates regardless of the action taken by the RBA.

However, what they weren’t so keen to announce was that it would be raising interest rates on credit card debt by 2.75%. This, the company announced would help Wizard to keep fees down.

The signal it sends is that clearly Wizard (or owner GE) is seeing some problems in the unsecured credit facilities that it is providing and therefore it needs to ramp up the margins.

The Copper Find of the Century

Below, Gabriel takes a look at Cudeco [ASX:CDU]. This is the stock that you may remember traded briefly at $10 in early 2006. At the time, the company found what it was spruiking to be the copper find of the century.Things seem to have gone a little quieter for Cudeco since then, but now Gabriel has dusted off his Fibonacci ratios to give it the technical treatment.

This article is written by Kris Sayce from Money Morning. Money morning is a website that aims to give you intelligent and enjoyable commentary on the most important financial stories of the day, and tell you how to profit from them.

2 Comments to “Australian Mortgage Market Not as Bad as US/UK”

1. on 09 Sep 2008 at 9:17 am1Ademac

   Although this article does not containt the phrase “this time its differant”

   I makes a bloody good effort in trying to convince you that Australia is in someway fundementaly differant from the rest of the Anglo-Saxon countries.

   Sadly the numbers for me just don’t add up. personal debt to GDP in the order of 167%. http://www.debtdeflation.com/blogs/2008/09/02/debtwatch-no-26-september-2008-losing-control-of-the-margin/

   Something has got to give.

2. on 25 Sep 2008 at 10:16 am2Bryan Kavanagh

   I watched Peter Costello’s self-serving comments about his great treasurership on “Lateline” the other night and felt like throwing something at the TV screen. Costello, in fact, presided over the greatest property bubble (1999-2007) in Australia’s history.

   If we all felt much wealthier and borrowed against this inflated asset bubble, then more fool us. Costello failed to curb the residential property bubble, yet still tries to paint himself as having done Australia a great service! How ignorant is that? The astonishing pufferery of it all!

   That says nothing about the Liberal Party, of course, because UK Labour’s Gordon Brown was in the same boat. He was just as economically illiterate: he,too, believed he had done a magnificent job. But at least everybody in the UK can now see he is just a pompous idiot. Are Australians duller than the Brits, because many of us still seem to believe Costello was OK? For mine, anybody who has a good word for either of them is a very sorry case. Of course, Bush and what has gone on in the US with their sub-prime loan, is even beyond the contempt reserved for the aforesaid gentlemen.

   We’ve suffered these poor national leaders and incompetent corporate bosses but still read the same newspaper analysts who failed miserably to call them to heel. It’s beyond time for people to tell the whole lot of them they were abject failures and to quietly take their leave. They’ve lost any credibility by failing to pick the natural rollout from a gross systemic failure.