Tuesday, July 31, 2007

Sunday, July 15, 2007

THE POLITICS OF AFFORDABILITY

A great public service article on Neil Jenman's website (www.jenman.com.au), written by Terry Ryder. A fantastic synopsis, well worth reading in its entirety:

It's almost tragic watching politicians and media puzzling over the two-speed property market and the related issues of low housing affordability and record home repossessions.

The reasons are quite simple.

The common factor pervading these issues is this: Australia's economy is booming but the spoils aren't being evenly shared.

Most of the benefits of the resources-inspired prosperity are being gobbled up by the upper echelons. While the top end is rolling in cash, the average person is no better off than five years ago.

The business elite have never had it so good. Record company profits, generous executive salary packages and a buoyant sharemarket mean those at the top have more dollars than ways to spend them. This is driving the rise and rise of the top end of the residential property market.

But down in the real world, the mainstream where 90% of Australians live, the market is going nowhere fast.

More and more households cannot afford to buy a home, those who already own one are struggling with their mortgages after eight consecutive interest rate rises and banks are repossessing homes at record levels.

The wages report shows that over the period of the economic boom wages have grown at roughly 2% to 3% a year. In other words, not much above the inflation rate. The report states that a significant proportion of households have seen no "real" (after inflation) increase in their incomes over the past five years.

But in the same time frame property prices have doubled in many areas and there have been multiple rises in interest rates.

The problem is this: the typical price has risen a lot, thanks for the recent market boom, and the typical monthly payment has risen greatly also, thanks to all those interest rate rises from the Prime Minister who promised they wouldn't rise if we re-elected him – BUT household incomes haven't kept pace, thanks also to that same Prime Minister who has devoted his life to keeping wages down.

In the property booms of the 1970s and 1980s, prices rose a lot and interest rates were high, but incomes were rising at 8%-9% a year, so affordability didn't suffer too much.

Today, the growing gap between the income needed to get a loan and the actual income earned by the average family is the reason why affordability is at all-time lows – and why we have this strange two-speed property market.

You'll notice that there's no mention in the affordability equation of stamp duty or land supply.

This is a surprise because the development lobby has been desperate to convince us that affordability could be solved overnight if state governments lowered stamp duty and raised the supply of land for new residential development.

It's nonsense but they keep saying it because they have a vested interest in lower stamp duty and higher land supply.

So why is this deception not widely known?

Part of the answer is that media doesn't do its job. There was a time when journalists were proactive in investigating major issues like affordability. Today many journalists simply regurgitate the spin-doctored views of politicians and business lobby groups.


THE POLITICS OF AFFORDABILITY

A housing illusion we buy every time

A reasponable attempt at an analysis of the boom. I particularly like the reference to the stupidity of the sheeple in the following opening quote:

It happens after every housing boom - people go from congratulating themselves on the huge rise in the value of their home to wondering how on earth their children will afford homes of their own. So I've no doubt Kevin Rudd is on a winner with his efforts to focus attention on the deterioration in affordability for first home buyers.


A housing illusion we buy every time

The question is what are the politicians going to do to make homes affordable again? Bring down the price of land? Develop huge tracts of Crown and State land themselves affordably and put price cap covenants on them going forward?

Mortgage stress to hit home at election

Enough said. (And Jessica Irvine at the SMH is not running a RE industry market-pumping story for a change, very strange, what could have lead to this change of heart?)

MORE than a third of NSW families with a home loan live in a state of 'mortgage stress', devoting more than 30 per cent of their gross income to mortgage repayments.
This is a massive increase since the 2001 federal election, when the proportion was less than a quarter. Mortgage stress has since risen in every NSW electorate, unpublished census figures show. As housing affordability firms as an election issue, the figures reveal the high level of financial stress confronting many families.
At the same time, buyers are finding it increasingly difficult to get into the market. A survey of 1000 first-home buyers by mortgage broker Mortgage Choice found almost one-third did not expect to buy a home until they were aged 40 or over, and fewer than two in five expected to have secured a home before 30.
NSW is home to the greatest mortgage pain - the figures show 33.2 per cent of families with a home loan live in mortgage stress.


Mortgage stress to hit home at election

Home loans on tap: no deposit, no inspection

Is this somehow connected to the housing boom that the politicians are so earnestly wringing their hands about in Darwin at the Premiers Conference? What to do, what to do?

THE mortgage stress crisis is being worsened by the boom in easy credit, with lenders approving loans without inspecting properties, offering large amounts to borrowers who have no deposit and encouraging buyers to take on debts that would eat up half their income.

Amid concern over the growing practice of loans being approved with no on-site inspection, the Herald discovered yesterday how easily customers can be seduced by quick and simple access to credit.


Home loans on tap: no deposit, no inspection

Sunday, July 01, 2007

Housing costs squeeze budgets

SOARING housing costs are squeezing family budgets in Sydney, even though incomes in the city are higher than almost everywhere else in the country, figures from the 2006 census show.

Mortgage repayments in Sydney are 40 per cent higher than the national median and rents 31 per cent more, even though incomes in the city are only 12 per cent higher.

Housing costs squeeze budgets

BIS warns of Great Depression dangers from credit spree

Here comes the fallout from easy credit and borrowing — see the following post concerning the increasing number of foreclosures taking place.

The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.

"Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived", said the bank.

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be “cleaned up” afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.


BIS warns of Great Depression dangers from credit spree

Surge in families forced to sell their homes

Looks pretty grim for the economy, for families, and for the housing boom. Naturally the politicians who pride themselves on 'managing the economy' when times are good (which is an outright lie anyhow at any time) shut up when this sort of thing happens. Never mind that half the reported GDP growth of recent years has been empty inflationary lending on housing at high, unsustainable prices.

HUNDREDS of families have been forced to sell their homes, or lenders have repossessed and auctioned them, in Sydney's west and south-west in the past year, property experts say.

There were a record 1400 auctions in the region in the year to March 31, nearly double the number in 2005, Australian Property Monitors figures show.

Michael McNamara, an analyst with the company, said the spate of auctions pointed to a big rise in distressed sales and repossessions in the region. Mostly, sellers in Sydney's cheaper property markets were going to auction because they had to, not because they wanted to, he said. "The big rise in the number of auctions isn't because the market is going well," he said.

"It's jumped because auctions are the preferred method of sale of trustees in bankruptcy and mortgagees in possession. I think that's a very disturbing figure."

The median price for an auction in south-western Sydney in the March quarter was $318,000, $22,000 less than the overall median house price in the region.

"This just brings home the fact that most of these are distressed sales," Mr McNamara said.

Dara Dhillon, the principle of Dhillon Real Estate in Ingleburn, near Campbelltown, said 95 per cent of auctions in south-western Sydney were mortgagee sales. But he said there were many more forced sales where lenders had encouraged borrowers to sell rather than face repossession. "This type of [forced sale] is a big proportion of sales at the moment," he said.

Mr McNamara and Mr Dhillon estimate that hundreds of families in western and south-western Sydney had been forced to sell their homes, or had had homes repossessed and auctioned by lenders, over the past year.

Meanwhile, the total debt burden on Australian households topped $1 trillion for the first time last month, Reserve Bank figures published yesterday showed.

Debt on housing accounts for about 86 per cent of household debt, with the remainder personal debts like credit cards and personal loans. The ratio of household debt to household income has reached 160 per cent, one of the highest in the world. Interest payments now soak up a record 11.9 per cent of household income, nearly three percentage points more than in 1989 when mortgage rates were 17 per cent.


Surge in families forced to sell their homes