What goes up.....

This commodity price chart squares with what RBA Governor Glenn Stevens has said about Australia at this point in history. Namely, the increase in the terms of trade and in commodity prices is historic and “structural”. If that’s the case, then this period where the Aussie market is influenced by debt woes in Europe and America ought to be transitional. There ought to be a point at which Australian stocks are more correlated to Asian and Chinese growth.

--But we don’t seem to be at that point yet. We seem to be at a point where credit writedowns and the contraction of global credit are leading investors to be pretty bearish about growth. You don’t pay a lot for stocks when you aren’t convinced they’ll grow earnings.

Whats replacing mortgage exit fees?

SO YOU'VE heard that mortgage exit fees have been banned and banks, led by National Australia Bank, are cutting or axing many hated fees and charges.
But beware. Banks are busily replacing that lost income with new fees and higher charges.
Some are clear, upfront and easy to avoid for savvy bank customers who are prepared to compare and switch products. Others will be hidden and passed along the supply chain to consumers who will be unable to dodge them, bank analysts say. The total bank fee take last year was down for the first time, but only slightly, according to the latest Reserve Bank data.Banks raked in $4.25 billion, down 16 per cent, in bank fees levied on households, but their total fee take remained steady, falling just $14 million or less than 1 per cent."Only exception (penalty) fees have gone down," said Damian Smith, chief executive of financial comparison service RateCity.

"Other types of bank fee income have gone up to largely make up for that lost fee income.
"Ongoing fees for maintaining a mortgage have gone up, for example. In 2009, ongoing fees on mortgages listed on our database averaged $165, and now they average $240 per year. That's a rise of $75." Commonwealth Bank, ME Bank, Greater Building Society and Aussie Home Loans have announced increased upfront fees on some of their variable rate home loans recently.
Those fee increases come as exit fees disappear from the market. As of yesterday, all lenders have ceased charging exit fees on their variable mortgages, compared with just 56 per cent on June 1, according to RateCity. The highest average increase in upfront fees was $600, by the Commonwealth Bank, which lifted upfront fees across its suite of mortgages from $64 to $664 on average, Mr Smith said.
However, over the whole mortgage market, the average upfront fee on a standard variable mortgage has gone up just $32, from $374.40 in June to $406.40 now, according to data supplied by RateCity.
At the same time, early exit fees have gone down an average of $326."And upfront fees are both more readily comparable and 'negotiable' than exit fees," Mr Smith said.
Borrowers refinancing to get a better deal are a big driver of growth in the mortgage market, he said.
"We believe that removal of exit fees is the key driver behind this greater level of switching."
Fees on credit cards are changing as well and will change further as new consumer credit protection laws kick in this year.Credit card late-payment and over-limit penalty fees have gone down, but other credit card fees have gone up in recent years. "Some credit card 'exception fees' have dropped," said Mr Smith. "Others, such as ongoing fees, have increased. "For instance, in 2008, the average annual credit card fee (out of all cards that charge a fee) was $78.52, and now it's $92.45. "That's an increase of nearly $14, or around 18 per cent, in just three years, which is more than double the inflation rate over that same time."
The number of credit cards with annual fees has also risen. Three years ago, more than a quarter (28 per cent) of credit cards being offered to Australian consumers carried no annual fee.
Now just 31 credit cards, or 13 per cent, have no annual fee. Another 18 credit cards waive the annual fee if the cardholder meets a minimum spend each month, usually $1000.
Mr Smith recommends comparing your credit card rates and charges with some of the low-rate, low-fee cards now on the market.

Inflation and the housing market

There is mounting evidence to suggest that Australia’s housing market rests at a critical juncture. The evolution of Australian dwelling values since 2000 and 2006, respectively show the latest innovation in the housing cycle, where overall Australian home values have tapered by a modest 2.3%. So the question here is what lies ahead?
Sydney dwelling values have massively underperformed the rest of the Australian market over the last 11 years or so according to current data even though the Perth and Brisbane housing markets have suffered 7.5% and 5.9% declines in the past year, they have actually been our two best-performing conurbations over the past 11 years.
The near-term destiny of Australia’s housing market very much depends on next week’s second-quarter inflation numbers. If inflation is low, the RBA will likely be on the sidelines for the rest of the year. It can argue that it was vindicated for not responding to the very high first-quarter results, and will in any event be downgrading its economic growth forecasts for 2011, which were always on the high side.
Talk in the media will galvanise more firmly around rate cuts. Consumers will start to scale back their still extraordinarily hawkish interest rate views  with 84% anticipating rate hikes. Given the average Australian thinks he will be hit by two or more rate hikes in the next 12 months, it is no surprise that underlying economic conditions have been so soft.
In this low-inflation scenario with no future hikes and the prospect of cuts, the forecast predicts that Australia’s housing market has the ability to start grinding out very modest capital growth, which, of course, should be complemented by healthy rental returns

In the less favourable alternative, where inflation next week is reported high – at, say, 0.8% for the quarter or more the central bank will be very much on the interest rate warpath. That means the likelihood of a rate hike, or hikes, before the year is out and the hold that the RBA currently has on Australia’s housing market will only tighten.
The divergence of beliefs between economists and the financial markets are that ANZ’s interest rate forecasts contrasted against the futures market’s expectations. Whereas the futures market is predicting rate cuts, ANZ thinks we will get hikes.
Who is right? That all depends on inflation. So, if you are looking to buy but have not found a place yet, you should be hoping for a high inflation outcome, which will inevitably result in persistent, interest rate-induced pressure on prices. If, on the other hand, you are looking to sell, you should be praying for a low number next week

Westpac ratecuts

Westpac’s chief economist Bill Evans has shocked the market by forecasting a series of interest rate cuts.
Mr Evans said low consumer sentiment could force the Reserve Bank of Australia to slash the official cash rate by up to 1 per cent in 2012.
“We were all talking not long ago that rates could go up, but if the consumer remains subdued there may be interest rate reductions and if that occurs that would be a very strong stimulus for the consumer to save less and spend a little bit more,” he said.
But it seems not everyone shares Mr Evans’ view on rates.
Last week ANZ’s head of Australian economics and property research Ivan Colhoun said he expects the Reserve Bank to keep the official cash rate on hold at 4.75 per cent until February 2012, when it will start raising rates again.