Friday, September 29, 2006

We of the never-never home loans

THE RESERVE Bank is alarmed at the rise of interest-only home loans, warning of negative equity for borrowers who fail to make inroads into the principal of their loans while house prices fall.

Sydneysiders who bought at the peak of the property boom and have faced the sharpest falls in property values are most at risk of negative equity, where the size of the debt exceeds the value of the home.

Despite not having to make principal repayments, borrowers with interest-only loans were found to be twice as likely to fall behind on their payments. "The [nationally] higher arrears rate is hardly surprising, given the general lowering of credit standards that has occurred since the mid-1990s," the Reserve Bank said.

Fierce competition among banks for market share has led to an increase in interest-only loans being offered to people who previously may not have been considered creditworthy. A third of sub-prime borrowers - those who do not meet standard income or credit history requirements - choose interest-only payments.

But by lowering upfront repayments, these loans encourage already at-risk borrowers to take on more debt, the Reserve says.

Its review also found evidence that mortgage arrears are on the rise. NSW suffered the largest increase in loan arrears over the past year, consistent with other signs of stress, including a doubling in repossessions.

We of the never-never home loans

Sunday, September 17, 2006

Bought for $262,500 in 2003, sold for $95,000 last week

The boom is busting — a little. State and Federal govts do nothing to control such capitalist boom/busts based on irrational exuberance, of course, although, when you think about it, just about every single other aspect of property is controlled — what you can build, how high, how densely, to what standard, etc. Why do they let prices go free-floating to the detriment of the economy and individuals?

Macquarie Bank property research analyst Rod Cornish said defaults among mortgage brokers and low-documentation loans were higher than major banks.

However, he said Australian Prudential Regulation Authority figures showed the number of loans across Sydney in default with the major banks had begun to rise.

'You would expect the price impact on homes would be worse in the outer western suburbs where the rates rises and fuel rises would have a higher impact,' he said.

Elliott Shiner First National real-estate principal Angela Elliott said: 'Everything that is selling now is selling for $40,000 to $50,000 less than it was in 2003. Properties have dropped by a good 30 per cent in value.

'You can pick up properties in the Mount Druitt area for $180,000 to $200,000. There are real bargains to be had, but where are the buyers?'

Bought for $262,500 in 2003, sold for $95,000 last week

Monday, September 11, 2006

PM told he's wrong on house prices

PM told he's wrong on house prices

Housing booms and unaffordability are multi-factorial. The Federal Coalition is as much to blame as anybody for keeping negative gearing on investment properties and halving the rate of capital gains tax – these are just two of the inputs to housing price increases. Other factors include liberalised credit products from lenders, low interest rates, a shaky share market, and the 'psychology of booms' or irrational exuberance. However, no government in Australia has done anything particularly meaningful yet to alleviate the housing boom or make life easier for first home buyers, but appear to be cheerleaders who want to join the club in uncritically celebrating every price rise as an 'increase in household wealth'.

Mr Robertson said the needs of first-home buyers were being ignored because most voters were home owners and therefore had an interest in higher, not lower, property prices.

'Neither the Coalition nor the Labor Party in Canberra show any sign of going out of their way to make any significant difference – [First-home buyers] are not a big enough priority for Canberra to do much beyond blaming the states for not releasing enough land,' he said."

Tuesday, September 05, 2006

Priced Out Of House And Home

The Register-Guard, Eugene, Oregon, USA:
There is one clear solution to the affordable-housing crisis: a real estate crash. It's the one housing issue that attracts media attention - because it would hurt the Owns. But while an easing of prices could be devastating for lower-income Owns with risky mortgages, it probably wouldn't bring home ownership within reach for many Own-Nots. Prices have too far to fall; in 2000, two-thirds of the home sales in Fairfax were for $250,000 or less, but last year, fewer than one-twentieth were. And even a modest price slump could trigger a construction slowdown that would make shortages of affordable housing for moderate-income families even worse.
Eventually, politicians may rediscover housing - not as an urban poverty issue, but as a middle-class quality-of-life issue, like gas prices or health care. Homeownership is often described as the American dream, but these days many workers would settle for a decent rental that won't bankrupt their families.