Mortgage Shopper

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.

New homes sales plunge 12pc from last year

Sales in new homes eased in June and fell sharply during the last financial year, a survey shows.

Units [apartments] recorded the biggest sales drop in the month.

A Housing Industry Association (HIA) survey of 100 major residential builders and developers found new home sales slipped by 0.8 per cent in June to 8321 dwellings.

Multi-unit sales were down 20.1 per cent in June after posting rises in the previous two months.

But private new detached house sales went up by 2.3 per cent following a 6.9 per cent fall in May.

Overall, new home sales fell 12 per cent during the 2006/07 financial year.

HIA chief economist Harley Dale said record low housing affordability was hurting the home building industry.

"New home sales is the first financial year update for new housing in Australia and shows a considerable weakening in conditions over 2006/07," Mr Dale said.

"This update is a telling indictment of the impact record low housing affordability is having on the home building industry.

"Addressing the shortfall in supply is critical to alleviating the housing affordability crisis."

Mr Dale said federal government action was needed to help improve low housing affordability.
Source: AAP

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.

US Housing market and bank profit losses forces the US dollar to record low against the Euro

The US dollar touched a new record low against the euro in Asian trade today, hit by jitters about the US housing market troubles caused by subprime lending problems for banks, and recent falls in global share prices, dealers said.

The euro rose to as high as 1.3845 US dollars in early Tokyo trading, just beating its previous all-time best of 1.3843 seen on Friday.

By late morning in Asia, the euro stood at 1.3830 US dollars, up from 1.3820 on Friday in New York.

The dollar was at 120.93 yen, close to a six-week low, after 121.26 in New York. The euro eased to 167.21 yen from 167.70.

"The dollar remains weak because of concerns about the US housing market and worse-than-expected corporate earning reports which weighed on stocks," said Kikuko Takeda, currency research manager at the Bank of Tokyo-Mitsubishi UFJ.

Disappointment over company results and worries about problems in the US sub-prime mortgage sector – loans to homeowners with patchy credit histories – caused sharp falls on global equity markets on Friday.

Dealers said the falls were affecting carry trade as investors grow more risk averse.

Carry trade is a risky but popular practice of borrowing money in countries with low interest rates such as Japan and investing in countries with high interest rates such as Australia or Britain.

Many Japanese have also been sending their savings overseas in search of higher returns than at home where interest rates remain very low.

Some analysts expect this trend to continue and see the recent rise of the yen against the dollar as a temporary correction, while others believe the outlook for the greenback is worsening due to the sub-prime woes.

Japan's financial markets are keeping a close watch on political events this week ahead of Sunday's upper house election, with polls showing Prime Minister Shinzo Abe's ruling party heading for heavy losses.

A bad result would not automatically cost Abe his job as the ruling coalition enjoys a majority in the more powerful lower house, but it would likely bring pressure on the premier to step down.
Source: Agence France Presse

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

Easing credit standards are blamed for worsening housing and mortgage crisis

Mortgage lenders are approving home loans without inspecting or valueing real estate properties, signing up home buyers with no deposit [nothing down] and encouraging home buyers, and especially first time homebuyers to shoulder debts far beyond their means.

More than half of all standard mortgage applications are now done without an onsite inspection and lending competition is encouraging mortgage banks and other home finance institutions to extend loans quickly and cheaply, Fairfax reports today.

Banks are also urging home buyers and real estate property investors to take on mortgage debts which swallow up to half their income.

One-quarter of loans to people with bad or incomplete credit histories had been approved without on-site inspections, relying instead on a drive-by or statistical analysis of local sales data.

The average loan-to-value ratio of new home loans in NSW has risen from 51 per cent in 2003 to 75 per cent this year.

Australian Property Institute president Gregory Preston said home buyers were at risk.

"If they get caught out and are forced to sell the borrower is sort of out on a limb," Mr Preston said.
Source: AAP

Housing Market crisis has Rudd suggesting a tax credit system help lower lower rents so renters can save and become home buyers

Australia's housing market crisis has would-be Prime Minister Kevin Rudd today suggesting tax credits for housing investors as a way to ease the rental shortage of affordable rental accommodation

Australia's opposition Labor Party has suggested tax credits for those willing to invest in affordable rental housing accomodation.

The Federal Opposition Leader, Kevin Rudd, has suggested offering tax credits to residential real estate property investors who are willing to develop affordable rental housing. Mr Rudd says spiralling rents are making it hard for young people to save enough for a housing deposit. He says tax credits could help address a tight rental market. "The Commonwealth Government could establish a pool of tax credits for those who are proposing to invest in affordable rental accommodation," he said. "Once they've invested in affordable rental accommodation and offer cheaper prices for those renting that accommodation, they become eligible to apply for tax credits from the Australian Taxation Office."

Source: AAP

House prices out of reach for first time home buyers

Debate is raging in the Queensland community about housing affordability and the official statistics show first-home buyers today are faced with fewer choices than their parents.

The Queensland State Government has offered some mortgage duty relief to all homebuyers, not just first time home buyers. This is after and inline with other Australian State Government lowering or abolishing of State mortgage stamp duty, whilst retaining the transfer duty.

In a bid to counter the affordability crisis for all home buyers, mortgage duty will also be phased out over two years and land tax thresholds changed to reduce the cost of buying properties.

First time home buyers are already exempt from duty on mortgages up to $250,000, and are taxed at a lower rate on larger amounts, so the savings are minimal.

Michael Matusik, property market analyst, says Queensland homebuyers are paying on average 35 per cent of income to service a mortgage, compared to 40 per cent in NSW.

Another measure of housing cost is to plot the median house price as a multiple of median incomes.

Over the past 50 years, Mr Matusik says people spent three to four times their median household income on buying a house, now it was 6.2 times in Brisbane.

Sydney at present has a median multiple of 8.5 times, Perth 8, Hobart 7, and Melbourne and Adelaide 6.5.

"This began to accelerate rapidly over the last decade and especially over the last five years," Mr Matusik says.

"All of the Australian cities above rank in the top 25 most expensive places to live in the world. Sydney is now ranked the seventh least affordable city in the world, beaten by six American cities including California, San Diego, San Francisco and Honolulu."

Mr Matusik says there is simply not enough developable land within urban areas and more needs to be released.

"We believe that land supply is a key issue with regard to affordability and it is no accident that the top 25 most expensive places in the world have little or no land left to develop, however the public does not think so.

"The second solution involves improving development assessment that is clearing backlogs and fast-tracking standard applications."

Mr Matusik says Australia's tax system also needs a complete overhaul.

"Contrary to popular opinion, there are not enough residential investors, and owner-residents are more often than not (and increasingly so) speculators.

"The average time between sales of an owner-residence is approaching six years and was over 15 years just a generation ago.

"More than half of the owner-residences resold over the last five years had undergone a substantial renovation (meaning more than $50,000 was spent on the property) between sales."

The average new home loan in Queensland broke through the $300,000 mark in May, up from $288,000 in April, according to AFG, Australia's largest mortgage broker.

"The $300k Club now comprises Queensland as well as NSW, where the average new mortgage is $382,000, and Western Australia ($359,000)," Mark Hewitt, AFG general manager of sales, says.

The AFG Mortgage Index also shows fixed-interest home loans have fallen from a peak of popularity in November 2006, when they represented a quarter of all new home loans, to 20.3 per cent in May. Property buyers may be less concerned about rate hikes than they have been in the past.

Wizard's Tomorrow's First Home Buyers series reveals the number of Australians intending to purchase their first home in the next 12 months jumped six per cent to 523,000 in the March quarter.

Wizard chairman Mark Bouris says the growth was largely driven by first-home buyers with higher household incomes keen to capitalise on their financial gain through property investment.

"We are seeing the emergence of a new breed of higher-income first-home buyer with their sights set firmly on the property market as a way to build their wealth," Mr Bouris says.
Source: Courier Mail, Queensland Australia