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Home loan punters beware

Go they’re racing but the finish line we all should care about won’t be just after three in the afternoon on the first Tuesday of November.
Instead, it will be 9:30 am the next day when we hear if we’ve won in the interest rate stakes.
At this stage, the winners don’t look like being home loan borrowers on variable interest rates.
On the other hand, savers looking for better interest rates will get them if the Reserve Bank Board follows the chorus of media commentators who think we need another rise. They call it ‘insurance’ against inflation getting out of control.
Personally, I’d love to see the Board hold fire on another rise for a number of reasons. But I think the media pressure on the Big Bank is close to record levels, if anyone ever measures this sort of thing.
The economy is burdened by drought and a rising dollar that is stressing out many local businesses, which compete abroad. The big story this week of Toyota thinking about its production future here is a case in point.
Also the rising Oz dollar should contain some inflationary forces with imports sold in places like Harvey Norman becoming cheaper. Meantime the pumping petrol prices, which are set to go higher, are eating into Aussie consumers’ income.
In addition, home building has been weak, and while we saw building approvals show signs of life this week, rising by 6.8 per cent last month, an interest rate rise now could choke of any recovery.
But wait there’s more.
A US economist has raised doubts over the underlying rate of inflation measures the Reserve Bank has been using. Recall, the headline rate is a low 1.9 per cent but the underlying rate is close to 3 per cent.
And then there’s the big dive on Wall Street on Thursday with the Dow Jones off 362 points to 13,567, which is a tad scary.
Meanwhile, PIMCO’s Bill Gross, one of the world’s best experts on the price of money, thinks the Yanks will have to keep on cutting rates to avoid a recession. This is another reason to be cautious on rates now.
I reckon the strength of the world economy will force us to cop another rise eventually but is now the right time?
If they do raise interest rates, Cannex’s says the lowest rate product in Australia is 7.1 per cent at Money Saver Home Loans. For depositors the best 90-day term deposit was RaboPlus at 7.08 per cent.

More on this next Saturday if Wednesday produces the result no home loan punter wants to see. 

Published on: Monday, November 03, 2008

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