In the first quarter of 2011,The Sydney Morning Herald’s Eric Johnson reported on Commonwealth Bank’s (CBA.AX) decision to raise home mortgage rates by 45 basis points, or almost one-half a percent. According to Ralph Norris, Commonwealth Bank’s CEO, raising rates was the right thing to do for the bank’s shareholders. (Raising rates was instrumental in the bank’s 13 percent rise in profits during the first half of the fiscal year.)
Unlike earlier naysayers, the impact of higher rates didn’t result in higher mortgage defaults. As 2011 comes to a close, Australian finance looks strong when compared with the ailing economies of other developed nations.
Australia’s 2011 mortgage rates
With Australia’s higher 2011 mortgage rates arrives a lower mortgage delinquency. According to Fitch Ratings 30 Day Dinkum Index, Australian delinquent mortgages declined to a mere 1.52% versus an approximately 1.7% delinquency rate in the second quarter. Only about 0.63% of Australian households had 90 days’ plus delinquency.
Australia’s conventional home loan rates average more than 7.30% in December 2011. Loans declined from a higher average of approximately 7.79% in the first three quarters of the year. Approximately 90% of all Australian mortgages reflect a variable rate structure.
The average Australian home mortgage is approximately $350,000 in 2011, according to the Reserve Bank of Australia. Home prices fell an average of 4% throughout the country in 2011 after a decade of steadily increasing home prices.
The nation’s bank decided to decrease mortgage lending rates in consideration of the debt crisis in Europe.
Australia’s bellwether economy
Australia’s economy reflects many concerns of the globe in 2011. The metals index increased by more than 19 percent in 2010 according to the USGS. Metals and mining companies represent the largest single Australian industry. More than 600 Aussie companies, including ASX, BHP Billiton and Rio Tinto, engage in mineral exploration and production. Rising commodities prices often signal increasing inflationary pressures.
Australia and the global economy
The world’s long-term interest rates remain at historically low levels. According to BNY Standish Mellon Advisors in Q3 2009, the world’s global debt markets’ total size increased from about USD 4 trillion in 1990 to about USD 34 trillion. The unprecedented expansion of the global debt markets makes many analysts concerned about how bond loans issued during the period by sovereign entities and corporations will be repaid.
As the United States determines to keep interest rates low, Australia’s bond yields continue to reach new lows. The 5.75% note maturing in May 2021 stand at approximately 3.87%. Concurrently, foreign investors poured money into the Australian dollar. Investors currently seek non-European denominated assets.
This, and a comparatively robust economy reflected by unemployment of approximately 5%, places Australia in strong financial position.