Rates leave most tread­ing wa­ter

NT News - Real Estate - - Real Estate -

THE path back to eco­nomic growth is likely to be more un­com­fort­able than the slow­down for many house­holds, as the Re­serve Bank of Aus­tralia moves the cash rate up to "nor­mal" set­tings and em­ploy­ers keep salaries in the deep freeze.

Con­sumers have taken the RBA's de­ci­sion to be­gin eas­ing mon­e­tary pol­icy off emer­gency set­tings in their stride so far, and a West­pacMel­bourne In­sti­tute sur­vey shows con­fi­dence is at a two-year high.

This joie de vivre was helped by a drop in the of­fi­cial un­em­ploy­ment rate. How­ever, the re­lief of know­ing one's job is safer than it was six months ago is likely to be tem­pered by the fact that wages are barely keep­ing pace with inflation. Most house­holds are tread­ing wa­ter when it comes to in­come, while in­ter­est rate pay­ments now look likely to in­crease faster than ex­pected even a week ago.

RBA gov­er­nor Glenn Stevens con­firmed dur­ing the week that the econ­omy was on track to record close to nor­mal growth next year and that the cash rate was on its way back to neu­tral, which is gen­er­ally re­garded as around 5.25 per cent.

Fi­nan­cial mar­kets now ex­pect the cash rate to move up from 3.25 per cent to 5.25 per cent by the end of next year.

Some pri­vate-sec­tor economists be­lieve the RBA will move slower, but the shared fore­cast is for a se­ries of rate rises beginning with a pos­si­ble shift of 0.5 of a per cent to 3.75 per cent on Mel­bourne Cup day, Novem­ber 3.

While house­hold debt-to-in­come ra­tios in some other na­tions have re­duced sig­nif­i­cantly in the past cou­ple of years, Aus­tralians re­main among the most in­debted in the world.

House­hold debt is just above 1.5 times an­nual dis­pos­able in­come and has be­gun to climb back up af­ter a brief pause when the global credit crunch prompted a short-lived spate of delever­ag­ing. Debt-ser­vic­ing ra­tios are sig­nif­i­cantly higher than they were in 2002 and 2003, when the last mon­e­tary pol­icy tight­en­ing cy­cle took place.

Pleas­ant sur­prises in pay pack­ets should not be ex­pected for at least an­other 12 months, ac­cord­ing to a sur­vey of 287 or­gan­i­sa­tions by Mercer. Its re­search shows the rate of growth in salaries had slowed from 4 per cent ear­lier in the year to 3.5 per cent in July and is ex­pected to fall to 3 per cent over the next year. Nick Water­worth, of re­cruit­ment firm Am­bi­tion Group, said there had not been a dra­matic pick-up in the white-col­lar job mar­ket.

"We are not yet back in a tal­ent-short, salary-ris­ing en­vi­ron­ment. There may be up­ward pres­sure on the mar­ket next year but that de­pends on what hap­pens abroad as well as what's hap­pen­ing at home. If the United States con­sumer isn't back shop­ping, it won't help the job mar­ket," Mr Water­worth said.

The im­pact of this month's cash rate in­crease to 3.25 per cent was tem­pered by the fact that most house­holds had used 12 months of his­tor­i­cally low rates to get ahead in their mort­gage re­pay­ments, but more in­creases are likely to erode this mar­gin, thanks to the higher size of the av­er­age home loan.

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