Mortgage Shopper

Housing Market : How to fix Australia's housing shortage & high house prices

Is increasing land supply the real key to bring down house prices?

Australia's housing market is a key driver of the domestic Australian economy. This article attempts to shed light on the true cause of our high home prices and that over priced land is the the real cause of our our over priced homes.

The case for massive land development for new home construction

New homes not only provide work for hundreds of thousands of construction workers and tradies, they are the main customers of hardware, timber, roofing, and concrete industries.

Once a new home is built there is a flow on demand for cabinetry, curtains and blinds, kitchen equipment, stoves and appliances, furniture, tiles and carpets, landscaping and out door living, with patios, sheds, swimming pools and spas. Yes, its big business and it drives much of the big ticket retail spending in Australia.

This is the type of spending that has stopped in recent months, and the reasons are obvious, New home sales are down, especially in flood affected Queensland.

Is Housing Australia's biggest asset?

The housing market has a $4.2 trillion capitalised value

Housing construction is at a 12 month low, and that theretail sector is having the worst period in 20 twenty years, we can quickly see that the two powerhouses of Australia's domestic economy are connected, and that when new home sales fall, so does retailing.

In fact I would say that there is also a smaller connection with established home sales and retail sales of house hold items, simply because moving home creates new needs for home buyers that these retail sales satisfy.

The problem for Homeowners credit over supply is being reigned in.

In case you haven't noticed f you are a homeowner, expect to see your home values shrink. SInce the 1970's House prices have risen above inflation and income growth. The main driver was the baby boomers buying their first home, their second home and until recently, investment properties.

Many baby are now slowing down, and are cashing in to downsize, become grey nomads or retire. In the future these homeowners will move to retirement villages and nursing homes.

Average home prices in Australian capital cities fell 2.1 per cent in the March quarter, according to the Australian Bureau of Statistics.

This will continue as baby boomers leave the housing market, sell off their investment properties and hit the road as grey nomads. Their spending patterns will change dramatically once this occurs.

The impact of the GST on House Prices

The GST and first home owners grant was a major driver inflating house prices
The worst thing that the Howard Government did to house prices was the GST. Besides lifting house construction prices instantly, it also drove many older small builders out of building and into early retirement.

That was followed by the First Home Owners Grant, which added fuel to the home prices inflation fire.

Many people point to the First Home Owners Grant as the problem for raising house prices. They forget that this was brought in because of the GST to compensate the first home buyer for increases in the cost of building a home, brought on by the GST.

One or the other would have increased prices of all homes, The two together created a boom for real estate sales that rippled through the past decade. That caused the interest rate hikes we have to wear now.

When you consider that this was at the same time as the last wave of the baby boomer effect in 2002, a perfect storm for inflation was created. Now the new first home buyers have to pay for all of that, and many are not interested in homeownership. They have better things to do with half their take home pays.
After all, renting is cheaper, and you can invest the difference in a liquid investment, and with the recent figures of falling house prices and the Reserve Bank of Australia's  constant threats to raise interest rates, its easy to understand why new home buyers are being over cautious.

Land inflation the hidden cost of new homes, not construction costs

As I have been saying for some time, GST have increased new home costs, as have the increased requirements in building codes around Australia. But these have added little to the cost of a new home. The main cost increases have been due to land cost increases and Government charges on land development.The drivers for those increases ate the First Home Owners Grants at the same time of land development shortages and deliberate scarcity sales tactics by land developers.

In the year 2000 a block of land was around $70,000 [or less]. In 2010 the cheapest block on the Sunshine Coast was $294.000. Yet land was not supposed to have GST on it!If you leave things to the "free market" you will get ripped off.

Some say that Australian houses are ''overvalued'' and should be halved. I don't believe that homes in Australia are over value is nearly as high, or that house prices will fall much more than they have already. But they are too high right now.

But our house prices being the world's highest, does not make sense, given our abundance of land. Our home values are above that of Hong Kong. But we have abundant land and Hong Kong is a tiny island and has land scarcity. Can you see something wrong with this?

Housing demand is elastic. It depends on the home prices.

Can you remember when people were saying we were 200,000 home short of what we need?Well what happened to all those house buyers? They have evaporated

Some would argue that house affordability is driven by interest rates, others by supply and demand, others by incomes.

I believe that these are silly arguments. As we in Australia have abundant land on which to build, it does not make sense that land prices are too high and in short supply.

Government needs to step in and ensure Land is developed to exceed housing demand if it wants homes to be affordable.

We cannot expect private enterprise to fix this, because land developers benefit by high prices, and high prices are driven by scarcity, which they use to keep prices too high.
Also we can't expect builders to build homes before they have house buyers, with the purpose of lowering house prices. That would not make sense.
What is required is a Government plan to oversupply the residential housing land market, for sale at half the current prices and restrict the size of homes, rather than have covenants for ever larger homes.
This will boost home building, and mean that first home buyers will choose a new home over an established one, and this will reduce established home prices. So interest rates will have little effect and affordability will not be a limiter.
We are spending too much on homes and banks are getting the biggest benefit, because the proportion of our wages are been received by banks.

The solution to Housing Affordability and reviving the building industry is halving land prices.

The solution is to bring home prices down over the next 5 years, and the way to do that is to massively oversupply the amount of land available to build on at half the price currently offered. This policy would ensure that mortgage stress is a thing of the past and that housing affordability is never an issue for new home buyers.

Author: Mr Mortgage

New Home Construction: Has the HIA lost its way with short term fixes for home builders?

As the HIA advocates more Government handouts to stimulate the home building industry I wonder "has Australia's peak housing body has lost its way?"

The IMF are now saying that Government incentives, Stimulus packages and low interest rates hurt home builders and home owners because they disrupt housing sustainability. That is, they are the cause of our housing problems, not the solution: The International Monetary Fund [IMF] gets it, so why doesn't the HIA get it?

Short term housing solutions [incentives] create long term housing problems

The HIA still does not get what now even the IMF understands. That Government home building incentives cause house inflation that has unintended consequences. Those consequences include collapsing home sales and home values, foreclosures and falling home ownership in Australia. We have avoided what has happened in the US so far, but not because of the efforts of the HIA, but in spite of them. Now we need to make the hard tough decisions, that we might have been wanting to avoid facing.

Are home builders to blame to blame for the housing sales slump?

A recent HIA article has put the fall in home buyers at the feet of House builders themselves, saying that they are not innovating home designs.

I don't buy this argument. Yes, innovation is a necessary part of the home building process, but a home builder's job is to build, not innovate designs. That's an architects job.

The fact is that home builders have had to deal with GST, and added government requirements and standards to build homes over the last ten years, and that the fact is that homes would still be affordable, were it not for the price of the land component. And home builders are not responsible for that. So I feel that the HIA needs to look at why homes are no longer affordable, not blame its own members for falling home sales, because they are clearly not to blame.

What's Wrong with the HIA

An undeniable truth.  Any industry that requires constant Government assistance over 10 years, and still fails to deliver on its true core purpose of housing Australians, needs to have a good hard look at itself.

The HIA did not create the problem. But in my view it has failed to see the problem. They are at the wheel of the train when it crashed.  Not seeing the problem has meant it has not used it resources it has to avert the disaster.

Are interest rates the problem?

If the interest rates are the problem, what is the question? If the question is why are homes unaffordable, too high interest rates are still not the answer. The answer the house prices are too high. If house prices were half what they are, then interest rates at 12% would be affordable.

We have allowed ourselves to overlook the obvious. If land prices were half what they are, then established home prices would be lower, because of competition with new homes, and home builders would be busy.

In my view, house prices have got ahead of themselves because interest rates have been too low for too long. This has allowed land prices to get too high.

By the RBA setting interest rates too low for too long, home buyers have lost their sense of value and affordability.

If the monthly repayments were affordable when the mortgage interest rates were 5.5%, how could they be affordable at 10%? The HIA should have seen this ahead, but has said nothing on the subject. The Government should have seen this ahead. But it failed to.

The HIA just moan every time the rates have been increased from the lowest rates in history. This is hardly a realistic approach to the problem.

Even Governments and Opposition members have a go about interest rates, and blamed the banks. Whilst the banks did claw back some of their rate margins, why has this been seen as such a crime?

The greater crime is to allow lax lending and over lending that drove the prices up in the first place.

They may also have a hand in house inflation in lax lending practices, and over lending, but they are not doing that now, and the result is sliding house prices. Tighter credit rules would have stopped at lot of the inflation by not allowing money to be thrown at home sellers.

So interest rates are still too low in my view. Ironically, if interest rates were higher over the last ten years, then home would be more affordable now.

The fruits of low interest rates

The consequences of high interest rates are:

1. Higher House inflation. That means we are all paying too much for our homes than we should be.
2. Higher Land costs. Land costs seem to be set at the cost of  an established home, less the cost of building a home on that land. The problem is that this has gotten ahead of itself, and now land is over $100,000 more than it should be based on that assumption.
3. This means that people that own raw land want a piece of this profit, and that;s created a new problem.
4. The Government has joined in the fun. They have stamp duties and taxes that have helped make new homes unaffordable.
5. Bigger mortgages. Bigger  home prices mean mortgages, and that means more profits for the banks.

So how is this the home builders fault? It clearly isn't. So why have the HIA chosen the blame its members? I suspect that they have been talking to land developers, the ones that have allowed the problem to be created in land being too expensive.

What the HIA needs to do.

The HIA did not create the problem either. John Howard gave us the GST, and the housing inflation that that created. The First Home Owners Grant was the spur that doubled that housing inflation pressure. Successive stimulus packages have allowed us to mask the real problem, until now, when we are all groaning under the weight of mortgages too big for us to maintain at  have normal interest rates. What the HIA needs to do is:

1. Stop asking for lower interest rates, and Government handouts.
2. Start lobbying for lower land prices and the Government to treat development land as infrastructure, and invest in it.
3. Start leaning on land developers to reduce the cost of their land. The sooner the land developers get the message that builders want land prices to fall by 40%, the sooner they will stop buying land at silly prices, and allow governments to put taxes and duties on the land they shouldn't.

The way forward for Australian Housing

If we are to create a sustainable housing market we need to ensure the low cost of housing land, and tighter lending practices. The banks are doing this, the Government needs to act on land, and the HIA needs to get behind housing land price reform, and treating the delivery of cheap land for housing as a basic necessity of life, and an essential infrastructure.

Queensland Home building at crisis point

Home builders are having it tough as home buyers shun high land prices.

The Housing Industry of Australia [HIA] wants more tax payer stimulus, instead of fixing the problem.

What is the problem you might ask?

Land prices are ahead of where they should be.

So what part of the above does the Housing Industry of Australia [HIA] not get?

When you take away the sweet deals for first home buyers, everything falls in the construction industry falls into a heap.

The HIA blame game avoids the Elephant in the room. The Cost of Land.

A brief history of the HIA blame game for anyone that might be interested

1. The RBA for increasing interest rates [houses were easier to sell when interest rates were 12%, if you check your records]
2. Then the Government needs to restate the first home owners grant boost.
3. Westpac and CBA banks for double dipping on interest rates goodness  thathappened because the HIA and the Government chose not to support the non bank lenders when they needed it]
4. Then the HIA turned on its own and blamed the builders for not innovating in home design. This needed to happen 10 years ago, but where was the HIA then?
5. Then they have a talk to the culprits of this mess, the land developers, and are told that its the builders fault because they don't chase up lookers using crm software programs.

The latest HIA statement.

A battling construction industry means a battling employment market. Unemployment goes up. The retail market suffers badly. It's already suffering.

This is just not the case. 

Why I feel like the one eye man in the land of the blind on the home building industry.

I have worked in the home building area since 1985.

I have worked with nine different builders, the good, the bad and ugly, as well in home mortgages.

Each time I went back the home construction industry the customer and the offers had changed.The one thing that matters was the price of land compared to the home.

In that period land prices had risen three times faster per square, than house building prices per square metre.

Now you have to spend more on the land than the house! In a nation as big as Australia? Get real!

This is the core reason that people don't buy new homes anymore. it does not make sense, and that because land owners and developers have constantly gotten more and more greedy.

You can buy homes in cities for less than virgin smaller land lots in the sticks.

Land costs are too high, so holding costs are out of reach. So people don't buy new homes.

Most people building today are second home buyers who have equity in their homes, or who have sold in better markets. People trying to sell now will be as deflated as their home prices are. 

Author: Mr Mortgage

Housing : US proposes 20% minimum deposit to buy a home

Will a 20% down payment plan help or hinder the US housing recovery?

The Future of the American housing market is still unclear 4 years after the subprime bubble burst.

From that we know that things that were tried so far have:

1. Not worked,
2. Had limited success, or
3. Are not sustainable. 

What would a 20% deposit minimum mean to home buyers?

One thing we all know is that getting a home loan will no longer be a walk in the park for borrowers or for mortgage brokers.

First home buyers will be the first to suffer. They will have to be motivated to save a deposit, before they qualify for a home loan.

That will have several implications.

1. Less home buyers will mean lower demand and house prices.
2. First home buyers will build smaller homes.
3. Low income earners maybe precluded from homeownership.
4. Mortgage brokers will leave the industry, looking for an easier way to make a living. 
5. Home buyers will be more reluctant to pursue a home loan, and save the deposit, and that means that homes will be a lot cheaper. 

U.S. bank regulators decided to propose a high standard for home buyers to get the best mortgage rates:

• Only those who can make a 20 percent down payment and have not had problems paying mortgages in the recent past would be eligible for the lowest rates. 

What about mortgage insurance?

Well what about mortgage insurance? Think about it.

The lender was saying "I don't want this loan unless you the borrower stumps up insurance to protect me, the bank from you defaulting."

Is that in the lenders or borrowers interest? Some would argue both, because it meant that you did not have to save much by way of deposit. But it had the effect of allowing more buyers to enter the market and that meant more demand and higher prices. These meant that new home buyers had to pay more and that's what a higher deposit will prevent.

It also meant that easy finance, meant more home buyers, and more buyers meant higher demand and higher prices.

So to see how this would play out.

let's suppose that only people with clear credit and big deposits get cheap loans.

One of the key new regulations would require mortgage lenders to invest in the loans they make, so that if the loans went bad, the lender would suffer.

In the years leading up to the financial crisis, lenders could hand off loans, many of which were known to be high-risk or never to be repaid, to other companies at a discount.

By selling the risk to others, they could then continue to make even more risky loans risky loans till the deal went toxic.

The twenty percent rule and a rate for risk scenario

But these rules would exempt banks from having to retain risk in loans made to borrowers who can offer a 20 percent deposit.

They also would exempt Government guaranteed loans, such as by federal-backed mortgage companies Fannie Mae and Freddie Mac.

What's wrong with the 20% deposit rule?

Home buyers’ advocates have criticized the 20 percent down payment rule.

Regulators had considered mandating a 10 percent down payment and this seems to have had broader support.

1. Many feel that a 20% deposit, and clear credit rule combination maybe too steep an ask for people to save, especially first home buyers.
2. Second home buyers can do this on the equity in the home, if there is any in the US housing market right now. 
3. The 20 percent requirement might preclude banks from making any loans that are not Government Guaranteed. 

Summary

There up to eight different proposals in bills that are trying to resolve the US mortgage industry and revive the housing market.

One thing is for sure. It was a lot easier thing to trash the US finance markets than it is to find a solution.

But all solutions point to making credit harder to lend or borrow. That will have to mean that house prices will be lower for some time to come. In the end home buyers and eventually first home buyers will be better off. But homeownership will become harder to initiate in the years ahead, but an easier thing to continue. In the end, it will be worth it.

Mortgage lenders OK with RBA leaving interest rates on hold

Australia appears to have escaped the worst of the world financial crisis and the recession we had to have seems to have evaporated.

The Reserve Bank of Australia in deciding to leave interest rates unchanged at 3 per cent, when the board met today at its June meeting has basically acted on the buoyant retail sales, new home sales and good employment data as well as the recovery happening with our trading partners.

The Rudd government must be dancing in the corridors of Parliament house. Expect them to make the Liberal opposition pay now for its criticism of the stimulus package handouts, and first home owners Grant boost, which saved the building industry from decline and job losses. The Retail industry must also be thankful as the stimulus reaped them a record April shopping spree. Things are looking good.

The decision to keep interest rates at its 45-year low is good news for the housing industry, home buyers and mortgage lenders because there is money to throw at any weakness the RBA board sees later in the year.

In a statement released this afternoon, Reserve Bank governor Glenn Stevens said there was evidence emerging the global economy is stabilising.

"The turnaround is clearest in China nd some other emerging countries [from the recession]," he said.

"Recovery in the major countries is likely to take longer to begin and be slower when it does occur."

Mr Stevens said although the effect of low mortgage rates was yet to be seen, future rate cuts were possible if the economy continued to deteriorate.

"The prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed."

The Reserve Bank cut the official cash rate by 25 basis points in April ending 425 basis points worth of reductions since September.

The central bank has since indicated it is in no rush to lower rates further as it assesses the impact of its easier monetary policy stance and the Federal Government's stimulus packages.

The stimulus packages have worked their magic and have lifted the retail industry, with figures out yesterday showing consumers spending a record $19.4 billion shopping in April.

Is Australia building a housing bubble that is yet to burst?

Australia’s housing market has fared much better over the past several years compared to the US or even the UK property markets, and for some that means that Australia’s housing bubble burst has been postponed to a later date. The signs are that the market is heating up due to the housing construction industry being a key a growing Australian economy. And our economy looks in better shape, and do our banks, who continue to lend money to homebuyers, although at lower Loan to value ratios than in the past.

Home mortgage interest rates in Australia are at their lowest since records were kept so home ownership for those with secure incomes is more affordable than for the last 5 years. THe Beserve Bank of Australia has hinted that they have more to slice off the rates if it proves necessary to stimulate the economy further. They are also mindful that a over heated housing market will not be in anyone's interest.

First-home buyers are swimming in the cash streams created by the tripling of the First home Owners Grant for new homes, and this has boosted a flagging home construction industry in the wake of the economic downturn.

With the recent extension of the First Home Owners Grant boost to the end of the year, we can predict that the building boom will continue til then at least for the first home Buyers. And hopefully that will translate into the second home market picking up. 

This all sounds great so where’s the problem I here you ask.

Well here’s the problem. The New First Home Owners Grant Boost is expected to be reduced in January 2010. And on top of that interest rates are expected to rise.

Will the new home owners be able to cope with these new repayments, especially the ones that were shoe horned into tight loans to begin with. These will become the new mortgage stressed depending on how high those rates do go.

Should rising job losses continue into next year one could expect a glut of homes on the home market and that would mean lower home prices, because homes would be less affordable, and the grant would be less meaning secondhand buyers would have a lower grant and this would mean they would have to save more, and put off the purchase till the deposits were saved.

My personal view is that this is unlikely, as these owners will have to live somewhere and rental accommodation has become scarce in Most Capital cities, so they will somehow find the money to stay in their homes, and economise in other areas to do that.

So my advise to you is this. If you can afford to buy now, and you have job or income security, then buy your home now. Uncertainty in your life is something we all have to live with, but it’s a good reason to put off doing what you will have to do at some stage.

If on the other-hand you do have reason to fear you or your partner may lose your job, and you don’t have great prospects to get re-employed quickly, then it may be wise to sit on the fence and see which way the cat jumps.

Even is that is the case, maybe buying a secondhand home at a moderate price may be the best way for you to go. This will give you a quicker transition to home ownership, and lower repayments. It should also mean you are closer to the city cent re and work. This would also reduce transport costs and male it easier to make the repayments should the worse happen.

Australian homes are more affordable than 5 years ago, due to falling property values and mortgage interest rates rates

Is now a good time to buy a home? Some say so. The RBA say that a typical home worth a little over four times the average household's annual after-tax income This is down from almost six times, just five years ago.

Strong growth in incomes over the last three months, [despite rising unemployment levels] and a period of more sluggish median house price growth are working in the interests of first time home buyers.

But housing still remains expensive by historic standards. In the 1980s, it took just three times the average annual disposable income to afford a median priced home.

Australia

remains one of the least affordable countries in the world. In

Canada

the multiple is less than four. In the

United States

it has remained at about three times annual disposable income for the past two decades and precipitous house price falls in some areas of the

US

has reduced this even further.

The governor of the Reserve Bank, Glenn Stevens, said yesterday that the gradual improvement in affordability suggested Australian house prices were not heading for the same large price falls witnessed in other countries.

"In

Australia

's case, the ratio of the median dwelling price to average household income has declined quite noticeably since 2003, without a very large absolute decline in housing prices.

"This is evidence for at least the possibility that these adjustments can take place over reasonably lengthy periods and without being terribly disruptive to the economy."

Also working in favour of prospective home buyers has been the drop in mortgage interest rates to their lowest since the 1960s. Mr Stevens said this had already delivered a significant boost to household spending power. "I don't have much doubt that certainly for the household sector, this is an expansionary setting of policy."

Mr Stevens has also held open the possibility of further small interest rate cuts if needed to boost consumer confidence.

Australia's housing problem to get worse with rising mortgage rates and house prices forecast

Australia's housing affordability will get worse before it gets any better, with home mortgage interest rates more likely to rise over the next year or so, the federal opposition's housing summit was told today. Financial markets are already betting the Reserve Bank of Australia will need to raise interest rates next month to kerb renewed signs of price pressures.

Any mortgage rate rise will compound already stretched household budgets after last year's three interest rate rises. More than 100 experts in finance, economy and politics have joined federal and state Labor politicians at Parliament House in Canberra to find solutions to the housing affordability crisis. ANZ Bank chief economist Saul Eslake told the conference that high interest rates were the cause of the last housing crisis in the late 1980s, which was later countered by low interest rates.

But this time the problem was also rising house prices, which would be “a problem for some time to come,'' Mr Eslake said. Lower mortgage rates would help, and authorities should aim to put downward pressure on interest rates, and “saving more from the resources boom than the present government,'' he said.

Young home buyers are the victims.

The conference was told that the main victims in the current housing crisis are under the age of 35 that typically borrowed too much during the 2000-2004 housing boom. This group is now suffering from rising interest rates, and in some cases are having to take on a second job to meet repayments. NSW Planning Minister Frank Sartor said the cost of building houses was accelerating, and needed to be countered with a quicker turnaround in housing permits. But he disagreed with the federal government's solution to the housing problem that it was just a question of releasing more land for housing and cutting state housing related taxes.

Mr Sartor said cutting taxes would just lift house prices by the amount of the tax cut. This is a similar argument the government uses for not raising the $7,000 First Time Home Owners Grant. But in any case, the conference was told that the value of the grant has been hugely diminished due to the rise in house prices. The Government is undertaking a national land audit to find suitable areas to build new housing, and continues to press states and territories to cut land taxes as part of the GST agreement.

Infrastructure is key

Australian Local Government Association president Paul Bell says it is not just a question of building new houses, but building them where people wanted to live, with proper services and infrastructure. ”Supply has to be where demand is,'' he said. Housing Industry Association managing director Ron Silberberg says states will suffer a $50 billion shortfall over the next 10 years as they try and keep up with new infrastructure needs. He said there should be a residential infrastructure fund, similar to Auslink and the government's new roads initiative, to allow for a synchronised roll-out of infrastructure with new home building.

Another problem for new home buyers is they are competing with investors who can gain tax benefits from investing in property, and are driving up house prices. But Mr Eslake said saving initiatives to help fund the deposit for a new home, such as a superannuation-type scheme, should be aimed at buying a new property rather than inflating the price of an existing home.

Mortgage Brokers lending skills blamed for mortgage home loan default rise.

[As the Howard Government tries to play catch up with the Labor opposition, they are looking for people to blame [don't they have mirrors in Canberra?] and have turned on the innovative mortgage brokers and non bank mortgage funders, blaming them as the source of Australia's Housing market meltdown and debt crisis, instead of the fact that Liberal's work choices scheme is preventing Australians from earning a decent wage so that they could pay their mortgage when due.]

A Howard Government inquiry into mortgage finance may [wait for it] recommend first time home buyers be required to put up a deposit of 20 per cent. [That would spell the end of the first home buyer in Australia. 20 percent deposit hasn't been the norm since mortgage insurance cam into the market thirty years ago, when homes and land on a quarter acre could be bought for $20,000 to $30,000 dollars. If people could not save $6,000 for a deposit then, how can they save $100,000 for a deposit and all the costs that Governments suck out of home buyers and developers now?]

The parliamentary economics committee has called the snap inquiry into home lending as the number of people defaulting on mortgages continues to rise.

Personal bankruptcies up 17 percent 

Despite low unemployment figures, economic growth and high consumer confidence, personal bankruptcies went up by 17 per cent in the 2006-07 financial year.

The chair of the committee, Bruce Baird, today said the inquiry would bring together banks, the Australian Securities and Investment Commission, the Reserve Bank of Australia (RBA), the banking regulator and consumer groups. [Not the 'villian' mortgage brokers and the non bank mortgage industry players.]

Discussions would focus on discovering the extent of the problem, the role of mortgage brokers and whether fierce competition between the banks was eroding prudent lending practices, Mr Baird said.

One outcome could be tighter controls on mortgage brokers, he said.

"Also some requirement there is adherence to a degree of equity, it's normally 20 per cent equity but if that's being eroded stricter controls can be brought in,'' Mr Baird said.

He said the inquiry would also consider whether the root of the problem lay with consumer attitudes.

The McMansion dream

"There's also the question of whether we have just normal greed coming in, where people want their McMansions.''

The RBA had been concerned for some time about the ease of securing home loan credit and the abandonment of the normal prudential requirement of 20 per cent equity, he said.

"We are seeing that eroded and we are seeing more of a 100 per cent of the value of a house being borrowed,'' he said.

Falling house prices in areas such as western Sydney left many homeowners with negative equity, saddling them with a debt if they were forced to sell due to financial shocks such as job loss or pregnancy, he said.

Debt explosion

The financial divide is growing between those struggling under debts and those with the resources to pay off their home, according to research by the Melbourne Institute.

Rising interest rates and the drought have led to an increase - from 10.8 per cent to 15.1 per cent over the past year - in the number of people running into debt or drawing on their savings.

The Melbourne Institute research also shows that the number of people devoting more than half their salary to debt has increased from 5.9 to 7.5 per cent over the past year.

Rural stress

Financial stress is greatest in rural districts, where the number of people running into debt or drawing on savings has soared from 9.9 to 20.8 per cent.

But there has also been an increase in metropolitan areas. The number of people succeeding in saving some of their income in metropolitan districts has dropped from 57.7 per cent to 50.7 per cent in the past year.

The study confirms Reserve Bank research showing that people with the highest debt service burdens are generally those with higher incomes.

More than 80 per cent of people earning less than $40,000 a year spend less than 10 per cent of their income on debt. Most are either in the rental market or, in the case of age pensioners, have a fully paid-off home.

The survey nevertheless found that 28.8 per cent of the people who spend more than half their income on debt service earn $50,000 or less.

Source: The Australian

[PS Someone needs to tell these Liberal and National Party pricks that mortgage brokers don't make decisions on who is accepted or declined a mortgage. It is the bank, the non bank lender and or the mortgage insurer who decide that. All the mortgage broker does is take applications and put them to lenders. How these Howard Govenment dunderheads believe that they can change mortgage defaults by blaming someone who has no control over the decision, explains why the Liberals are lagging in the polls. They don't know the problem, so how can they figure a solution?]

Mortgage market growth tipped to slide

Fewer Australians plan to take out a mortgage home loan over the next 12 months, leading to fears the mortgage market will slow.

A survey in May by the Mortgage and Finance Association of Australia (MFAA) and BankWest found almost one in five of the 814 respondents expected to take out a new home loan in the next 12 months, down from 25.9 per cent in November 2006. The number of people who are unsure or never expect to take out a home loan rose to 37.2 per cent from 32.6 per cent in November. MFAA chief executive Phil Naylor said the changes indicated more Australians perceived home ownership to be out of reach. The survey showed that 61.6 per cent of respondents expected residential property prices to rise in the next quarter, up strongly from 43 per cent in November. However, Mr Naylor said other findings showed a more positive outlook than six months earlier. "More people are confident interest rates will stay put for now ... and more people said they are in a better financial position than last year." Some 45.1 per cent expected interest rates to rise in the next quarter, down from 81.1 per cent in November. BankWest head of broker sales Phil Colton said the potential for a slowdown in home buying was likely to affect all states, as the survey showed no major difference in expectations between states. "We are coming off an active time in the home loan market in Queensland and Western Australia and there is some expectation that this will slow, which is further supported by this latest research," he said. Recent Australian Bureau of Statistics data showed the number of home loans for owner-occupied housing inched up 0.1 per cent in May to 66,040. The result was 5.5 per cent higher than in May last year.

Source: AAP