The National Australia Bank welcomed ‘the tough new laws’ which would aid consumers and lenders that charged lower rates than their competitors.

After July 1, a borrower can complain to their mortgage lender and to an external complaint service about their high exit fees. They can also complain to ASIC and/or take the matter to court.

On the other end of the spectrum, mortgage loan borrowers will experience more pain in 2011. “In order to boost their share of deposit funding, banks in Australia have competed aggressively in terms of price. “The average cost of the major banks’ new deposits is now only slightly below the cash rate, whereas prior to the onset of the financial crisis, deposit rates were about 150 basis points below the cash rate,” said Debelle. The cash rate is currently set at 4.75 per cent. Online savings accounts are offering rates in the range of three to six per cent or more.
Term deposit rates are even better –some in the range of 6 to 8 per cent. “Competition has been strongest for term deposits,” said Debelle. And, even better, it seems that term deposit rates have become slightly more predictable in 2010. In April this year, ASIC released a report on term deposit pricing. That report criticised banks for rolling term deposit holders onto a lower rate at the end of the term. Banks often change their pricing on term deposits as they need quick cash.

Almost half of term deposit holders end up in a lower rate at the end of their term, said ASIC. Since then pricing variations from month to month seem to have flattened out significantly. In fact term deposit rates have become more predictable since mid 2010 than any time since the GFC hit in 2008.

The report found that there were 1,079 home loans with a LVR of 95% available in May 2010, compared to 1,110 in  February 2010. For home loans with an LVR of 98% or more, there was only one mortgage loan recorded in May 2010, compared to 20 home loans in February 2010.

According to a new report by RP Data, the average annual increase for houses is 7% and 3% for units.

The report states that in dollar terms, house values have increased by a total of almost $ 140,000 over the last five years and unit values have increased by approximately $ 123,000.”

Sydney was the poorest performing capital city with an increase of just 30% over five years, compared to Darwin house prices which increased by 92%. Melbourne recorded a 61% increase in its house prices.

According to RP data research analyst, Cameron Kusher, Sydney underperformed because prices were already so much higher than the rest of the country.

As for house rents, the greatest increases were also in Darwin – up 77%, while in Perth they increases 60% and just 34% in Sydney.

Top ten reasons to be financially literate:

1. Because being financially literate is smart and sexy!
2. Because it is useful to know that ARM has to do with mortgages and is not a rock band;
3. Because 401(k) is the worse name that could be given to pensions and you still cannot figure out how anyone came up with it;
4. Because you are tired of having to get endless stock market tips from your brother-in-law;
5. Because you would love to criticize banks but do not know what to say;
6. Because you need topics to share with your barber/hair-dresser, taxi drivers, and bar tenders that make you look rich and cool;
7. Because everybody talks about the financial crisis and you have no clues what is going on and whom to blame other than banks;
8. Because you have time to spare now that unemployment is really high and nobody seems to be able to find a job;
9. Because you want to protect granny from scams;
10. Because you want to mathematically prove that the Lexus your neighbor drives with such pride was a bad financial decision.

The annual trend is clearly improving, which suggests that banks may finally be starting to loosen the purse strings on business related finance.

The 0.4% gain in May 2010 is still half of the five year average (0.8% growth month on month), but this slight improvement is a sign that the finance sector is becoming less risk averse.

The improvement in finance conditions will be welcome news for property developers, especially the medium and high density development sector, who have found securing development finance difficult after the GFC. Banks have been asking developers to secure 100% pre-commitment on unit sales before they will approve finance – a condition that significantly erodes buyer confidence when considering an off the plan purchase.

Bankwest retail chief executive Vittoria Shortt said there had been a strong shift in the desire of first time buyers to get onto the property ladder since the March 2010 Bankwest/MFAA Home Finance Index. “Rising rents have shifted many young peoples’ focus back to home buying.”

They also found that first home buyers were changing their expectations, and were prepared to make trade-offs to enter the property market, like looking further away from the city centre or for a smaller property. First home buyers were also looking for family help with deposits now that the First Home Owners Grant is lower.

The Index showed first home buyers are only too happy to make a range of compromises if it means getting into their home sooner. Nearly 25% are continuing to live at home to save money for a deposit, while approximately 55% believe the current economic climate has led them to look for cheaper property in Australia.

There are 3 ingredients to a successful conference: (1) good people, (2) good papers, and (3) good food. We provided a good lunch and we had dinner, surrounded by Chinese art, in a large hall in the University of Pennsylvania museum. But the people and papers were more than good, and I left Philadelphia with a lot of ideas and projects I want to pursue.

Our keynote speaker, who opened the conference, was Michelle Greene, the Deputy Assistant Secretary for Financial Education and Financial Access at the U.S. Treasury. She told the audience about the initiatives and the approach of the office she heads at the U.S. Treasury. Several things resonated with me. She stressed the importance of evidence-based policies and cited several studies, from the FINRA Financial Capability Survey to the FDIC Survey of Unbanked and Underbanked Households. She also stressed that the U.S. Treasury wants to put financial education where it works and where it is most needed. In my view, these criteria are not only critically important but also offer a way for research to make a real difference and to impact policy. She discussed the work that the Treasury is doing with state and local governments and with the private and nonprofit sectors. This is a reminder that while we need a national financial literacy policy, a lot of work is done at the local level, thus a grassroots approach when dealing with financial literacy is important. The U.S. Treasury is also coordinating the many federal agencies that are doing financial education programs. I was particularly pleased to know that the White House has joined the Financial Literacy and Education Commission and, in particular, that the White House Council on Women and Girls has become involved in financial literacy. As I have mentioned in many of my blogs, there is a real need to focus attention on women and girls and to address the existing gender gap in financial literacy. Michelle also mentioned that the website www.mymoney.gov has been revamped. This is the website to go to obtain financial information, and, again, I cannot stress enough the importance of having a trusted and independent source of information to rely on.

The papers that were presented at the conference spanned many topics. Some documented individuals’ financial mistakes. While the experience with subprime mortgages has made us acutely aware of the problem of financial errors, evidence about the use of credit cards and payday loans adds reasons to worry about the behavior of households who use high-cost methods of borrowing. Families have also started to borrow from their 401(k) plans, i.e., they are now borrowing from themselves and the money they have put away for retirement. And financial literacy seems to be a contributing factor: those with low levels of financial literacy are found to be more likely to borrow from themselves. Low literacy is also found to keep people from investing in the stock market. While one has to understand and be aware of the risks of investing in stocks, it is problematic to shy away from the stock market, particularly when investing for the long run. Moreover, when selecting a pension fund from a menu of possible offerings, those with low financial literacy are shown to rely more on the advice of employers, friends, and coworkers than on cost fundamentals. Those with low financial literacy are also more sensitive to how information is framed when interpreting the relative benefits of different investment choices. Given the choices that people have to make on their DC (defined contribution) pensions, these are worrisome findings.

Other papers documented other aspects of financial literacy. For example, when surveyed individuals are asked to rank their own financial knowledge, many give themselves high rankings, yet responses to a set of financial literacy quiz questions result in relatively low scores for many individuals. This type of overconfidence can negatively influence financial behavior.

Still other papers looked at the effectiveness of financial education initiatives provided by employers or by counseling agencies. Paraphrasing Michelle Greene’s message, we need these studies and rigorous evaluations of financial education programs to be able to allocate our resources to where they are needed, to where programs are proven to work!

The conference did not focus on the U.S. experience only. The retirement commissioner from New Zealand described some of the successful strategies that have been used to promote financial literacy among Kiwis (I mean the citizens of New Zealand, not those delicious fruits). The OECD has been a pioneer in promoting financial literacy and financial education programs and has worked on this topic since 2003. They have been not only a major force behind many important initiatives but are also working on promoting financial literacy in many emerging nations, from India to China to Latin America. Most importantly, they are serving as the coordinator of the activities that many countries are engaging in and serve as a clearinghouse for data and information. The World Bank has recently joined that effort and is devoting resources and expertise to promoting financial literacy among developing countries; in my view, an important and necessary effort.

In the closing panel, one representative of the Social Security Administration remarked that “he had not heard yet that financial literacy hurts.” I would very much agree that there are no obvious downsides to financial literacy.

We ended the conference with a quote that Michelle Greene had included in her presentation slides. She cited President Obama, who said, “If you work hard your whole life, you ought to have every opportunity to retire with dignity and financial security.” We hope that the government, academics, the financial community, and not-for-profit institutions will all work to make that opportunity possible.

The ANZ June 2010 report about inner Melbourne apartments highlights the following points:

• The Victorian housing market is fundamentally under-supplied by about 47,000 dwellings
• This will provide a solid and favourable backdrop for the broader housing market, both in terms of engaging construction and housing finance activity, also also in protecting dwelling values  
• The Victorian economy has out-performed all other state economies in the post-GFC recovery phase

• Intra-metropolitan population movements provide considerable growth prospects for inner-Melbourne’s population
• A conservative estimate for inner Melbourne housing demand over the next 5 years is around 3,1000 to 5,7000 dwellings per annum
• Housing supply will grow at an estimated annual average of 3,700 to 4,500 dwellings

Apartment prices in Melbourne

• An expected lift in rental vacancies towards the end of the development cycle will be frictional rather than structural, reflecting market ‘indigestion’. 
• This could see inner Melbourne prices fall in the out-years. however, given medium and longer term fundamentals are favourable, this weakness will only be temporary

Prices speak volumes about balance between demand and supply – dwelling prices

•  Inner Melbourne dwelling prices have generally outperformed the broader metro average with a notable re-rating evident through 2007. Some ‘clawing’ back of relativities has been evident since then but the ratio remains slightly elevated
• The fundamentals for the broader market remain sound with sizeable pent-up demand, incomes growth and strong population likely to underpin housing valuations in the years ahead
• A slowing will become evident over 2010 and into 2011, primarily reflecting higher interest rates and the emergence of affordability constraints. While these will weaken trajectory, they are alone unlikely to generate price falls

If you are interested in buying property in Melbourne, speak to one of the property and finance consultants at Intellichoice on +61 7 3624 1900 or email info@intellichoice.com.au. Alternatively, visit www.intellichoice.com.au for more details.

The report found the following:

• Weekly rental rates increased nationally by 2.9% over past 12 months
• Unit rents in the city over the past 5 years increased more than houses
• Canberra and Melbourne were the only cities that recorded a rental increase in houses over the September quarter 
• Darwin rental houses are the most expensive of any capital city followed by Canberra
• Pilbara in WA has the most expensive rents of all regional markets at $ 1500 p/w
• The cheapest capital city rents for houses is in Adelaide at $ 320 p/w