​Fed taper announcement good news for brokers

by 20 Dec 2013
The US Federal Government has announced it will wind-back its stimulus program, bringing optimism to the Australian housing market.

The US federal government announced yesterday it would trim its $US85-billion-a-month ($95.7 billion-a-month) bond-buying program to $75 billion, with future reductions dependent on economic data. The buying of mortgage and Treasury bonds were reduced by $5 billion each.

While the announcement of a gradual taper of $10bn per month is “very modest”, the move signals a positive outlook for brokers, the housing market and the economy, HIA chief economist Dale Harvey told Australian Broker.

“It’s no secret that there’s a general hope within the Australian business community that we see a lower average dollar rate for 2014 than we have over the last few years, and news that the Fed’s tapering is underway should bolster the US dollar and therefore lead to some depreciation in the Australian dollar - so in general it’s a tick in the box.”

Ultimately, the news should lead to higher business confidence, more investment in the economy and a “sustained recovery” in residential construction and property transaction volumes, said Dale.

“The question mark is how long it takes for some decent traction in that recovery to form - and that’s probably where there’s still some uncertainty.”

The RBA has made it clear in a number of announcements recently that the Australian dollar is still uncomfortably high, with RBA governor Glenn Stevens stating in its most recent meeting that the board “has an open mind” about the need to lower interest rates further.
 
Speaking at the house of representatives this week, Stevens indicated the reserve bank was increasingly looking to methods other than rate cuts to lower the dollar.

“Watch this space, work in progress, and we will be evaluating these things as time goes by,” said Stevens.

The Federal Government’s announcement has further decreased the likelihood of rate cuts, said Dale.

“If you’re looking at how we assess things on the 19th of December compared to 24 hours earlier you’d have to say that the chances of further interest rates have lessened even further.”

The outcome of the decision should have an overall positive impact on broker businesses in 2014, said Dale, however it needs to be assessed in context.

“There are an enormous amount of small and medium-sized businesses in the Australian economy and all of these businesses are making decisions about buying and selling, owner-occupier and investor property. In so far as a lower dollar might assist business prospects then it might in turn assist confidence, and therefore investment. So there’s a definite link overtime where might see a sustainable recovery but there’s a great many variables that might have an impact on mortgage demand.”

COMMENTS

  • by Patrick 20/12/2013 9:05:46 AM

    With lower A$ the cost of petrol goes up and just like an interest rate rise this flows through to everything. How exactly is this good for OZ.

  • by Brisbane Broker 20/12/2013 11:12:00 AM

    Patrick, you are right. Once A$ goes down prices on everything will start going up and that inflation will start increasing. Can someone explain me in plain English how this is going to be good for us??????

  • by Giles 20/12/2013 11:47:01 AM

    How the Aust Govts & opposition has sat on its hands the last 10 years focussed on political fighting and letting the $Aus go so high is TREASON. Other govts rolled out programs to actively reduce their currency, whilst we bent over to sign up one sided free trade agreements and overly promote foreign buyouts of Aust businesses and property. Govt's all around the world worked to lower their currency in order to effectively steal Australian jobs and industries with us priced out of business. Australians will be paying heavily over the next 10 years whilst we rebuild the non-mining areas of the economy. Many tens of thousands of Aussie jobs are lost forever. Yes a lower $Aud means more expensive petrol, expensive overseas holidays and you will have to pay more for your BMW, but at last our farmers, manufacturers, tourism, service, foreign education and construction industries can start to claw back lost ground. The record forecast Aus Federal Govt deficits show that revenues have collapsed due to our faltering economy. Our housing industry is the only economic bright light, as long as enough people keep their jobs to afford their mortgages.
    Abbott needs to ensure his decisions are focussed on rebuilding the economy and finances instead of being expensive pet political projects.

    PS. It doesn't matter what price petrol is if you don't have a job to pay for it.