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article imageOp-Ed: Australian first home buyers hit the wall

By Paul Wallis     Sep 17, 2012 in World
Sydney - For a country which bases so much economic power in home ownership, Australia is really creating one hell of a mess for itself. Almost half of first home buyers are likely to lose their homes, according to a new survey.
The Telegraph cites a report by Digital Finance Analytics:
"Most people don't realise that the average loan size is twice as big as it was in 2005 so many people are still mortgaged to the hilt,'' DFA director Martin North said.
"The second driver is that overall costs of living are still going up but especially for middle suburban Australians.''
Severe mortgage stress is defined as falling behind in repayments, being driven to refinance or being pressured by lenders to sell.
As if that wasn’t bad enough, there’s a real killer in the figures here:
…bureau of statistics figures showing 35 per cent of all housing loans written in the past 12 months were borrowers refinancing their existing mortgages with another lender.
That means the supposed “stability” of home loan figures is effectively non-existent. The 35% figure is a massive amount of money moving off the books of lenders and onto the books of other lenders. It’s paper shuffling. Volumes of actual new home loans and new home construction, which are trickling along at a few percent up or down per month, are obviously not in the same league.
In Australia, the family home is also a portable cash machine. Capital gains are not charged on the place of residence. That little perk was one of the main sparks for the boom in Australian housing prices. If the home owners can’t afford the home, however, even those who had a big grant of up to $21,000 to start them off, the wheels are falling off.
The property market is stalling, based on home prices which are hitting the top of market capacity to service them. Domestic costs are also going up, including the ridiculous 20% increase in electricity prices inflicted on the nation by the utilities. Mortgagees can’t be blamed for having budget problems under these absurd conditions.
Australia has been in denial for a good reason about home prices. The amount of capital tied up in housing is astronomical. It’s bigger than the economies of some other countries. A big downward swan dive means a lot of money, hundreds of billions, will have disappeared. It would be a huge hit, comparable to the US housing market’s mass suicide some years ago. Banks will be left holding properties in a terrified buyer’s market.
The good news, such as it is, is that resistance to lower prices will be ferocious. Nobody wants to lose money. Sellers need to stay afloat.
The bad news, sadly, is that a big number of properties coming on the market will hit prices hard. That’s already been seen at the top end of the market, with mansions slicing almost the whole prices of other homes off their selling prices. The next stage is likely to be a devaluing of the upper middle and middle tranches of the market.
More worryingly for policymakers, if that’s possible, is the fact that successive Reserve Bank interest cuts have obviously had no effect at all on the mortgage belt. This is traditionally the heartland of the economy. Young families and other perennial prime movers of cash through the economy are being buried by debt and costs.
The future is looking very iffy indeed for the housing market. Some may say it’s the price of greed or innocence. I’d say it’s the price of failure to keep costs in the economy under proper control.
The theory of modern economics is that commercial competition reduces costs. That simply hasn’t been happening. More costs have been piling on personal budgets, and the result is looking horrible. People can’t participate in an economy without any money. The gouging has gone on for so long that personal debt is now a very serious issue.
Politicians have done nothing at all about it. Lenders aren’t finding better loan options. What’s wrong, exactly, with a standardized loan system for everyone, government-backed, pay a percentage of your income? You can buy a home and simply pay within your means. Easy enough?
I ask because the alternative, which is “kill yourself to save a deposit and spend 30 years in fear scraping by on whatever you can” doesn’t seem to be working too well. Perhaps misery and insane price aren’t the answer, after all?
The truly sick joke here is that a recent Australian study found that those who do own their own homes are far more economically productive than those who don’t. They can afford to buy services, education and products, strangely enough, because they’re not being crucified every month by home loans and ridiculously impractical budgets.
Just a thought, but here’s another- What happens if the wheels really do fall off? Can the Australian economy take a hit like that? If so, how? With what? Cheerful smiles? Because at this rate, that’s about all these kids will own.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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