Derrick Evans Finance Broker, Unit 4, 510 Woolcock Street, Townsville (2026)

29/01/2025

Back of the Envelope Economics

Today the Australian Bureau of Statistics released inflation data for the December 2024 quarter.

Headline annual inflation was reported at 2.4% with the RBA’s preferred measure Trimmed mean now at 3.2%. Very close to the RBA target range of 2.0% to 3.0%.

Goods inflation is now lowest since 2016 however Services inflation remains elevated.

Insurance and Education are still leading the way in price rises. Health costs still rising.

How will the RBA respond to this data? Well, everyone is going to have their opinion and will freely express it. Most will say a February rate cut is now possible.

It’s my view that the RBA could and should cut rates at its next meeting in February. Inflation is very close to the RBA’s target range and there is the lag effects related to policy decisions.

I still don’t believe the RBA will cut in February, employment is strong, and incomes are growing, and this will give the RBA who have been very cautious about getting inflation “sustainably” within target reason to delay. I hope I’m wrong.

I still think our rate cut will be at the beginning of April once the RBA has seen another set of employment data. Again, I hope I’m wrong and the cut will be delivered in February.

To discuss how this affects your mortgage call me on 0428 778 324.
Source ABS

16/01/2025

Back of the Envelope Economics

Today the Australian Bureau of Statistics released the latest unemployment rate for December.

Unemployment now sits at 4.0%, up from 3.9% in November. The October unemployment rate was 4.1%.

Employment data is showing consistent growth in the number of employed people each month.

This resilience in the jobs market will allow the RBA to focus on other areas of concern when making interest rate decisions in February. Inflation data for December will be released on 29 January and this will possibly be the most important data release prior to the next RBA meeting.

I acknowledge a number of economists have now changed their expectations for our first rate cut in February. I’m still expecting our first cut in April given RBA caution.

To discuss how this affects your mortgage, call me on 0428778324
Source ABS

08/01/2025

Back of The Envelope Economics

Today the Australian Bureau of Statistics released Inflation data for November.

The headline rate is now 2.3%, a slight increase from the previous month, with the RBA’s preferred measure Trimmed Mean now down to 3.2%.

This is good news and should start to open the window for the RBA to considering reducing interest rates sooner rather than later but is that a done deal?

The argument for cutting rates is that inflation has been reducing and is very close to the RBA target range. The RBA will be aware of lag effects associated with its decisions and would be mindful not to start cutting rates too late.

All domestic economic indicators, such as GDP, retail sales, employment and wage growth should give the RBA comfort to cut rates soon.

But and a big but the Australian Economy is not immune to world events. The RBA will still consider future inflation expectations and the possibility of “imported inflation” which may result from tariff decisions and potential trade wars if the US President Elect implements all or some of his promised economic policies. Fortunately, he will take office about a month before the RBA’s first scheduled meeting in February so the RBA will know what is real policy to be implemented and what is just bluster.

Also, December Inflation Data is also due 29 January and let’s hope that shows a continued decline in inflation.

I’m still expecting the RBA to be cautious and defer cutting rates with a possible cut at the beginning of April.

To discuss how this affects your mortgage, call me on 0428778324
Source ABS

19/12/2024

Back of the Envelope Economics

2024 year in review. A year where there was not much change but also a lot of uncertainty.

Official Cash rate remained unchanged at 4.35%

Inflation dropped from 4.1% in January to 2.4% in October.

Unemployment was in January 4.1% in January and 3.9% in November.

Growth in retail sales slowed from 5.2% pa in January to 2.8%pa in October.

House price growth nationally was 5.5%, 5.4% in Capitals led by Perth and 6.0% in the Regions.

GDP grew at 0.2% in the first quarter and 0.3% in the September quarter.

For something different Prisoners in Australia grew from 41929 people in 2023 to 44403 people in 2024

Internationally, many countries started to lower their official cash rates although many countries still have official rates higher than Australia.

In summary 2024 was a year where economically we were just treading water. Our economy remained stagnant for the year, showing some signs of improvement and many areas of continued weakness.

So, what is in store for 2025. Uncertainty for sure.
Firstly, an Australian election in the first half of the year. The installation of a new administration in the United States and the unpredictable nature of the President Elect. Ongoing global uncertainty with conflicts in Ukraine and Middle East still ongoing. Economic weakness with China our largest trading partner.

My expectation for 2025 will be for a continuation of a tepid economy which will be supported by a slight reduction in interest rates as inflation slowly moderates. Uncertainty will be ever present with any shocks having an adverse effect on our economy.

All the best for 2025.
Please call me on 0428 778 324 if you want to discuss how this will affect your mortgage.

28/11/2024

Back of the Envelope Economics

How to get First Home Buyers into the market.

This week the Federal Parliament passed legislation for the Help to Buy Scheme. This is a shared equity scheme where the federal government will give buyers taking part in the scheme an "equity contribution" of up to 40 per cent of the cost of a new home or 30 per cent of existing homes.

You have to be an Australian citizen and at least 18 years of age
You must satisfy the financial capacity test, which considers whether you are likely to be able to purchase the property without the scheme's help.
If you're buying on your own, you'll need to have a yearly income of less than $90,000. And if you're buying with someone else, your combined income must be less than $120,000
You must not currently own any other land or property in Australia or overseas
You have to live in the house.

For a family of 4 earning $120000pa using a loan affordability calculator the maximum loan available is $420000 giving a purchase price of $600000.

For a single earning $90000pa and no children the maximum loan available is $410000.

Both calculations assume no other debt, including HELP and basic minimum living expenses.

Compare this to the median house sale price in all capital cities and many regional markets and it really doesn’t present many opportunities for first- and low-income home buyers.

Also, this week the Senate has been looking at options to make finance for first home buyers easier to access. The key suggestion is reducing the interest rate buffer of 3% used by banks and mandated by APRA to assess loan affordability. By reducing this buffer for first home buyers makes their loans riskier if interest rates rise. If a borrower finds themselves in financial difficulty, selling the home is a common way of relieving themselves of the debt. First home buyers generally have less deposit and less equity so the option of selling is often limited or can leave the homeowner with residual debt.

These proposals both potentially add to demand, which can push prices up.

To really solve our housing crisis, we need to look at supplying more affordable housing. When you consider between 42% and 47% of the costs of a new house are taxes imposed by local, state and federal governments, there are certainly ways of making housing more affordable.

There are also additional costs to build to meet new building codes such as energy ratings and disability access. The additional costs to comply with these codes outweigh the marginal benefits of these codes.

There are many ways of solving our housing crisis, putting more money in peoples’ pockets is the least effective solution. 25 years of First Homeowner Grants prove that.

Governments at all levels must look at making it easier and cheaper to bring new housing to the market whether that be fast tracking approvals, relaxing building codes and reducing taxes associated with housing construction.

To discuss how this affects you and your mortgage call me on 0428 778 324

14/11/2024

Back of the Envelope Economics

Today the ABS released October employment data confirming unemployment remained steady at 4.1%.

Watching the employment data over recent months is about as exciting as watching paint dry.

We are seeing consistent growth in the number of people being employed and hours worked each month.

This will give the RBA confidence it can continue to hold rates.
To me it appears all our economic stars are aligning, inflation is moderating, employment is resilient, wages are growing, consumer confidence is improving, and retail trade is steadily growing. All factors which indicate the RBA and government have steered us through that narrow path of reducing inflation without crashing the economy.

I feel the threats to our economy are going to be from overseas. The election of Trump and the implementation of his policies will be our biggest challenges. His economic policies of tariffs and lower taxes, if implemented, will have an inflationary impact on the US economy resulting in higher interest rates there. Escalation of conflict in the Middle East could see energy prices spike again leading to more inflation.

All we can do is hope the new US administration can implement the mandated changes the US electorate has demanded in a careful and calibrated manner that doesn’t damage their economy and the economies of their trading partners and allies.

To discuss how this affects your mortgage call me on 0428 778 324
Source ABS

05/11/2024

Back of the Envelope Economics

Today the RBA announced that it would keep interest rates on hold at 4.35%.

There is no surprise regarding this announcement.

The RBA is solely focused on inflation and although the headline rate of 2.8% is within the RBA target the RBA’s preferred measure of inflation is still at 3.5%. They do not see inflation returning to the midpoint of their target range until 2026.

Employment data is giving the RBA confidence to hold rates higher for longer. Unemployment has remained steady at 4.1% since June 2024 and has changed little since the beginning of the year. Overall employment is growing with employed people growing from 14.15m people in January to 14.52m people in September. The ANZ Job Ads count has also shown an increase in advertised jobs over the past 2 months.

With inflation still higher than the RBA’s target and a resilient labour market the RBA has the ability to be “risk adverse” and hold rates higher for longer.

I’m still confident the first rate reduction will occur around Easter 2025.

To discuss how this affects you mortgage call me on 0428 778 324

30/10/2024

Back of the Envelope Economics

Today the Australian Bureau of Statistics released Quarterly Inflation Data.

The headline rate of 2.8% is now within the RBA target band.
Good News? Yeeha!!!!! Yer, Nah!!!!!

The other measures of inflation that the RBA rely on is not yet within the target band so we won’t be seeing a rate reduction just yet. The trimmed mean Inflation was down to 3.5% from 4.0% in the June quarter.

The good news from this data is the significant reduction in fuel prices over the past 12 months. Goods inflation is well down at 1.4%.

The bad news was services inflation was still high at 4.6% and slightly increasing. Higher prices for rents, insurance, education and medical, dental and hospital services were the main contributors to Services inflation. Costs we can’t avoid.

So, what does this mean for interest rates? Essentially no change. The RBA will consider the trimmed median figures and will look through these figures taking into account subsidies such as electricity rebates. We need to see services inflation sustainably fall without government subsidies.

I’m still expecting the first rate reduction around Easter of 2025.

To discuss how this affects you and your mortgage, call me on 0428 778 324
Source ABS

22/10/2024

Back of the Envelope Economics.

Each morning I receive an email from Homefront today. It’s a lite and informative read to start off my day.

This morning’s email was written by Eliza Owen Head of Research at Corelogic Australia. She is one of Australia’s best analysts of the property market, understanding both the economics of the property market and the psychology / sentiment that drives the market.

The email piqued my interest with one comment and to me highlights where this country has really gotten it wrong with the housing market.

“unit development in Melbourne may not be the right kind of supply for increasing home ownership, as unit values are still below record highs and may not lead to wealth creation for owners”
I don’t believe this is Eliza’s personal view, but her understanding of the psychology of the market.

We need to look at housing as an essential expense, not wealth creation. Owning a home gives the homeowner security, sanctuary and peace of mind. Children living in secure housing have better educational and health outcomes. Importantly retired homeowners experience a better quality of life than retired renters.

26/09/2024

Back of the Envelope Economics

Yesterday the Australian Bureau of Statistics released the monthly CPI data for August.

The monthly figure was down to 2.7% which is well within the RBA’s inflation target band and has sparked debate between commentators that the RBA should now cut rates.

Looking into the data it is clearly evident Government Electricity Subsidies (a one off) has affected this month’s data. The sticky areas of inflation in rents, insurance, Education and health still remain high and show little signs of easing.

The RBA’s preferred measure of Annual Trimmed mean is still at 3.4% so there is little likelihood the RBA will act on this monthly result.

The good news is on nearly every category measured there is a downward trend in inflation and should this continue the RBA will soon be in a position to start cutting rates.

I’m still estimating a first cut in rates in May 2025 however if inflation continues to moderate across all categories we may just see that rate cut come through in February 2025.

To discuss how this affects you mortgage, call me on 0428 778 324
Source ABS

24/09/2024

Back of the Envelope Economics

Today the RBA announced that it would hold interest rates on hold at 4.35%.

A result widely expected with more interest being in the RBA commentary to gain some insight as to when interest rates are likely to change.

Inflation, Inflation, Inflation. In the RBA’s 802-word statement, the word Inflation appeared 23 times. The word Inflation represented 2.86% of the statement, well within the RBA Inflation target band.

Bottom line is the RBA, whilst alert to other economic indicators is primarily focused on inflation. It is relatively satisfied with our economic growth and employment conditions.

It will take either a sustained drop in inflation or a significant deterioration in employment and economic growth for rates to be cut.

On this basis I still expect our first cut in rates probably won’t be until May 2025.

To discuss how this affects your mortgage, please call me on 0428 778 324

19/09/2024

Back of the Envelope Economics

Today the ABS released the latest Unemployment data.

Last night the US Federal Reserve announced its first cut in official rates.

In Australia the Unemployment rate remained at 4.2%. Unemployed people fell by 10000 and 47000 new jobs were created; hours worked also increased.

Full-time employment was slightly down, and part-time work up by 50600.

In summary, a resilient labour market in the face of slow economic growth.

Overnight the US Federal Reserve cut rates by 50 basis points, joining Europe, United Kingdom, Canada, New Zealand, Denmark, Switzerland, China and many other countries.

Comparing two key economic measures. US Unemployment is also at 4.2%. US Inflation is sitting at 2.5% whilst in Australia inflation is 3.9%.

Does this mean that the RBA should follow suit and cut rates sooner? The answer is no. For starters the cut to US rates still leaves their official rates higher than ours. Our inflation rate is still higher than the US and throughout this inflation cycle we have been between 3 to 6 months behind the US on the inflation curve.

There are also differences between us and the US on how we borrow money. In Australia most mortgage holders are on variable rate loans or on a fixed rate for a short time. In the US most mortgage holders are on a fixed rate for up to 30 years. Another key difference is our labour market / industrial relation environments, we have a highly regulated labour market with minimum wage requirements, the US has a far more unregulated industrial landscape with many states in the US not having minimum wage requirements.

Overseas interest rate cuts seem justified, but the RBA doesn’t yet have that same list of justifications to start cutting rates soon. In fact, our inflation rate and a still growing labour force, gives our RBA justification to keep rates on hold.

To discuss how this affects your mortgage call me on 0428 778 324
Source ABS

Derrick Evans Finance Broker

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