2017 December Newsletter

by Diamond Blue Financial Services | December 8, 2017

It’s December and the countdown to Christmas and the summer holidays has begun. But before we tuck into our Christmas turkey (or prawns), switch on the cricket and head for the beach, there is always work to complete and loose ends to tie up.

The Australian economy sent mixed messages in November. The Reserve Bank’s statement of monetary policy early in the month forecast economic growth will gradually pick up from the current annual rate of around 1.8 per cent to 3.5 per cent by the end of 2019. Inflation, currently 1.8 per cent, is expected to remain low and while the next movement in interest rates is likely to be up, the Reserve is in no hurry to act.

The improving economic outlook is reflected in business profits, with the NAB business conditions and profitability indices at record highs in October, at 21.1 points and 26.2 points respectively. The jobless rate also continues to fall, from 5.5 per cent to 5.4 per cent in October, the lowest since February 2013. Wage growth, however, still lags at 2.0 per cent in the year to September, only just ahead of inflation at 1.8 per cent. Consumer confidence hit a four-month high in November before easing back slightly; the ANZ/Roy Morgan consumer confidence index finished the month at 115.0 points, above its long-term average. This has yet to translate into retail sales which were up just 0.1 per cent in the September quarter while retail prices fell 0.4 per cent. The Australian dollar finished the month around US76c, up almost 6 per cent so far this year.

Discounted Travel Insurance in time for your Christmas Holidays!

When planning your next holiday, keep in mind that you are eligible to receive 30% discount on travel insurance via QBE as part of our client discount program.

30% Discount on Travel Insurance with QBE

Click here to access the travel insurance quote calculator.

Holiday Safety & Security

Holidays are a time when people like to relax, visit family and friends and spend time outdoors at organised events, the park or at the beach. While it's a time to enjoy yourself, there are certain things to keep in mind in terms of crime prevention and safety.

Australian Government's "Stay Smart Online" posted an article with the top 5 travelling tips to keep you cyber safe these holidays. The top 5 tips include:

Use public Wi-Fi safely
Do not over share on social media
Be on the look out for travel scams
Password protect your devices
Notify your bank of your travels

To view the full article, please click here.

Reference : Australian Government, Stay Smart Online

https://www.staysmartonline.gov.au/news/top-5-travelling-tips-keep-you-cyber-safe-these-holidays

Opportunities in the cooling property market

Things are looking up for first home buyers for the first time in years as house price growth begins to slow across the country. While prices have been on the slide for some areas in the West and the North since the end of the mining boom, the housing market in Sydney and Melbourne also appears to be losing steam.

At a national level, house prices were unchanged in October and up just 0.3 per cent over the quarter according to the latest figures from property research group CoreLogic. Significantly, the over-heated Sydney market fell 0.6 per cent over the three months to October, joining Perth and Darwin which have been falling since 2014.i

Hobart is the top performing market, fuelled by mainlanders searching for more affordable housing. Prices for Hobart dwellings rose 12.7 per cent over the past year, although price growth slowed to 0.09 per cent in October. It’s easy to see why people are flocking to the Apple Isle; the median dwelling value of $396,393 in Hobart is less than half what you can expect to pay in Sydney ($905,917) where prices are up 74 per cent since the boom began in early 2012.

Melbourne is the second most expensive city, with an average dwelling price of $710,420. And while the Melbourne market isn’t falling, it also shows signs of cooling with growth of 1.9 per cent in the three months to October and annual growth of 11 per cent. Other capital cities show little change with Brisbane up 0.6 per cent over the quarter while prices in Adelaide rose just 0.1 per cent.

Tighter lending begins to bite

The Australian housing market is a tale of many markets, each with their own supply and demand issues. But there are some common factors at play. At a national level, concerns about rapidly rising prices, risky lending practices and worsening housing affordability prompted regulators to act.

In late 2014, the Australian Prudential Regulatory Authority (APRA) announced that lenders were to limit housing finance to investors to 10 per cent of their total home lending. Then in March 2017 APRA announced a 30 per cent limit on new, interest-only home loans to dampen risks in the housing market.

In April the Australian Securities and Investments Commission (ASIC) signalled a crackdown on lenders and mortgage brokers recommending more expensive, interest-only loans to customers who were often unaware of the risks.

Investors paying more for credit

Lenders responded to the regulators’ concerns by lifting interest rates on interest-only and investor loans. According to comparison site Canstar, the average standard variable rate for investors has grown to around 0.5 per cent higher than the equivalent rate for owner occupiers.

And it seems these measures are working. The number of investor home loan approvals dropped sharply in 2015 and again in 2017, while owner occupier loans have shown a significant uptick in 2017.ii

While tighter lending policies have undoubtedly taken some of the heat out of the housing market, other forces may also be playing a role.

Understanding supply and demand

So far there is little sign of a housing bust in Australia, with significant unmet demand from first home buyers, high levels of migration and land shortages in major urban areas. But when house prices rise as far and as fast as they have in markets like Sydney and Melbourne, it’s natural to expect periodic corrections.

Commentators have been warning of an oversupply of apartments in Melbourne as well as in Brisbane. The Brisbane market has been cooling for some time, and now property values in Melbourne are rising at their slowest quarterly pace since 2016.

Despite the slowdown in price growth, Australian housing is still far from cheap. But with tighter controls on investor lending and continuing low interest rates for owner occupiers, the tables may be finally turning in favour of first home buyers.

If you would like to discuss your property strategy, give us a call.

Reference :

i All price data from CoreLogic, 1 November 2017, https://www.corelogic.com.au/news/growth-conditions-remain-flat-national-basis-while-sydney-values-fall#.WgEZ3uQUnIU
ii ABS; RBA

Separating needs from wants

Even those of us who have been paragons of responsibility for 51 weeks of the year can be tempted to take a budgeting holiday when Christmas and the summer vacation roll around. Unlike overindulging at the Christmas lunch, this has more than short-term consequences.

Last December, Australians spent $25.6 billion in retail stores. A survey conducted at the time by peer-to-peer lender SocietyOne found shoppers planned to put over half the cost of the presents they bought on credit or store cards. SocietyOne’s research also found that while shoppers believed they’d pay off their festive splurge by April, most actually wouldn’t.

If you don’t want to stagger into the New Year with a painful debt hangover, it’s worth taking a moment to sort your needs from your wants. Separating wants from needs can be one of the toughest aspects of budgeting, particularly around the festive season.

Needs are not the same as wants

The line between needs and wants can be a little blurry but a good rule is to ask yourself ‘Do I absolutely need to have this?’ If the answer is no you’ve probably identified a want.

You may want to serve French Champagne at your Christmas lunch but you don’t need to. Nobody’s suggesting you shouldn’t splash out at this special time of year. But your lunch guests are likely to be more than satisfied with a sparkling wine. You don’t need to spend money you don’t have on extravagant gifts and entertaining to express your love for, or try to impress, friends and family.

This is no time to take a budgeting holiday

Your wants are very much driven by emotion. We all want to shower the people we love with gifts, an abundance of festive food and other treats. However this can lead to impulse spending we did not originally plan for. Focus on the essentials and plan how much you’re going to spend before you head to the shopping mall then stick to that budget once you get there.

Avoid buying now, paying much more later

Just because you want something but don’t need it doesn’t mean you shouldn’t buy it. Make sure you’ve got enough to cover your needs or basic day to day expenses, then with what’s left over, prioritise your wants.

It’s also important to consider how you are paying for the little luxuries. Watch out for the temptation to put them on credit. The average credit card balance is $3,130 with interest being paid on $1936 of that amount. The amount of interest varies, but at a time when interest rates are at unprecedented lows, Australian credit card users typically pay 10-15 per cent interest. The interest rate for most store cards hovers around 20 per cent.

Credit cards are not even necessarily the most expensive form of retail debt. If you enter into one of those ‘pay nothing for 6, 12, 18 or 36 months’ deals you’ll be looking at an interest rate of almost 30 per cent once the interest-free period ends.

A more recent market entrant called Afterpay – a type of reverse layby where you get the product now and pay it off afterward – has rapidly gained traction in Australia. A big part of Afterpay’s appeal is that no interest is charged on the amount owed. But fees are levied if repayments aren’t made so it’s possible to end up paying $68 in fees on a $100 purchase.

Avoiding debt

The simplest way to avoid pricey debt is to avoid spending money you don’t have. Wherever possible, limit yourself to using lay-by, cash or a debit card to cover Christmas expenses.

With a bit of planning you can manage to take care of your day to day needs and still afford some luxuries of the festive season – without copping the credit card hangover in January.

Ref: Advant Plus

Please note this information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial advisor, whether the information is appropriate in light of your particular needs and circumstances.

Copyright in the information contained in this site subsists under the Copyright Act 1968 (Cth) and, through international treaties, the laws of many other countries. It is owned by EFDB Pty Ltd unless otherwise stated. All rights reserved. You may download a single copy of this document and, where necessary for its use as a reference, make a single hard copy. Except as permitted under the Copyright Act 1968 (Cth) or other applicable laws, no part of this publication may be otherwise reproduced, adapted, performed in public or transmitted in any form by any process without the specific written consent of EFDB Pty Ltd.

EFDB Pty Ltd | Sydney CBD | Northern Beaches | ABN 64 112 871 922 | AFSL 311720