THE Australian dream of owning a home is more affordable now than it has been for five years following lower interest rates and greater Government subsidies, a report says.
The Housing Industry Association and Commonwealth Bank First Home Buyer Affordability index improved by 39.2 per cent to 153.6 points in the December quarter from 110.3 index points for the September quarter.
First home buyers last had housing this affordable in the March quarter 2003, according to the index.
HIA chief executive Chris Lamont said lower mortgage rates and the boost to the first home owners scheme made it easier to buy a house.
"For would be first home buyers, conditions have improved significantly and clearly many Australians are taking up the opportunity to get into home ownership,'' Mr Lamont said in a statement.
"Cuts with interest rates and the first home owners grant have made a large impact.''
The Reserve Bank of Australia (RBA) lowered the cash rate by three percentage points to a six-year-low of 4.25 per cent in the last four months of 2008.
And the central bank cut the cash rate another one percentage point to a 45-year-low of 3.25 per cent on February 3 in a bid to cushion the domestic economy from a possible recession.
Commercial banks have lowered their standard variable mortgage rates by an average 3.75 percent points in response since September last year.
Repayments on an average home loan fell by 26 per cent to $2,056 a month by the end of the December, from $2796 the previous quarter.
In mid-October, the Federal Government doubled the first home owners grant to $14,000 for established dwellings and tripled it to $21,000 for newly built homes until June 30.
Households would need an income around $70,000 to buy a modest home, the report said.
"Previously, a household would have to be earning in the order of $85,000 to afford a modestly priced home without going into severe mortgage stress,'' Mr Lamont said.
"The improvement in housing affordability means those on a more modest income can now contemplate a home of their own.''
"The improvement in housing affordability means those on a more modest income can now contemplate a home of their own.''
Date: February 2009
Source: AAP (Australian Associated Press)
First home buyers rush to property market after interest rate cuts and boost to grant
THE share of first home buyers in the property market rose to a seven-year high in December, lured by falling interest rates and increased government subsidies, economists say.
However, they a rising jobless rate may temper any further increase in their market share, economists warn.
First-time buyers were 25.4 per cent of the home borrowing market, its highest share since 2001, Australian Bureau of Statistics (ABS) data showed.
Home loan approvals for owner-occupied housing increased by 6.4 per cent in December, seasonally adjusted.
Overall home loan approvals rose for the third month in a row, while just 1.9 per cent fixed-rate loans, the lowest amount since 1991.
Nomura Australia chief economist Stephen Roberts said first home buyers were a major factor in the lift in the number of home loans approved.
In October, the Federal Government doubled the first home owners grant to $14,000 for existing homes, and tripled the subsidy to $21,000 for newly built dwellings.
"This is the only flicker of life and it's on life support from the first home buyers scheme,'' Mr Roberts said.
First home buyer grants in Queensland rose 54 per cent in December, and are up 44 per cent in South Australia.
In Victoria, subsidies to first home buyers nearly doubled between August and December Premier John Brumby said in January.
ANZ Banking Group economist Alex Joiner said falling interest rates and subdued house prices had enticed Australians back into the property market.
In December, the Reserve Bank of Australia lowered the cash rate by 1 percentage point to 4.25, following 200 basis points in cuts from September.
The central bank has since cut the cash rate by another one percentage point to a 45-year low of 3.25 per cent in a bid to cushion the domestic economy from a recession.
ABS data also show average house prices fell 3.3 per cent across Australia in the year to December.
"Cuts in interest rates, solid income growth and softer prices have improved affordability markedly and encouraged some of the significant pent-up underlying demand back into the market,'' Dr Joiner said.
Dr Joiner said the following months were unlikely to produce comparable results.
"A deepening economic downturn and the potential for unemployment to rise sharply will no doubt choke off property market activity to some extent,'' he said.
Housing Industry Association (HIA) chief economist, Dr Harley Dale, said December's figures camouflaged the downturn in the building industry, namely in the 'trade up' and investor markets.
Date: February 2009
Source: AAP (Australian Associated Press)
Inflation growing at record rate
Inflation is growing at its fastest rate on record as petrol prices reach new heights and economists say an interest rate cut by Christmas is now looking less likely.
The monthly inflation gauge from TD Securities and the Melbourne Institute shows headline inflation surging by 4.3 per cent in the last year, after rising by 0.5 per cent last month.
It's the highest year-end figure in the five-year history of the gauge and well above the Reserve Bank's two to three per cent target.
TD Securities senior strategist Joshua Williamson says it's a truly shocking result which could jeopardise the chance of a rate cut this year.
The Reserve's board is widely expected to leave interest rates on hold at 7.25 per cent when it meets tomorrow morning.
Date: May 2008
Source: Macquarie National News
Consumer confidence at 15 year low
Back-to-back interest rate rises and market jitters have pushed a leading consumer sentiment measure to its lowest level in almost 15 years.
The Westpac-Melbourne Institute consumer sentiment index fell 9.1 per cent in March to 88.6 index points.
The index, based on a survey of 1,200 people, is below the 100 level, which means pessimists outnumber optimists.
The index is 23.3 per cent below its level of a year ago and is at its lowest point since September 1993.
It also is the first time since March 2001 the index has dropped below 90 points.
Westpac chief economist Bill Evans said the index's 21 per cent fall during the past three months was the biggest quarterly slide since the consumer sentiment series began in January 1975.
"Gloom over the increases in interest rates has probably been compounded by additional mortgage rate increases by lenders and speculation that there is more to come," he said.
The survey was compiled in March after the Reserve Bank of Australia (RBA) raised official interest rates by 25 basis points to 7.25 per cent, their highest level since July 1996.
The central bank also raised interest rates in February.
A month earlier, the major banks raised their lending rates by between 10 and 20 basis points even though the RBA did not meet.
Still, Mr Evans said the consumer sentiment slide was not purely a product of consecutive interest rate rises.
"Confidence on issues such as employment, inflation, international conditions and overall economic conditions has collapsed relative to a year ago," he said.
Mortgagors were the least upbeat in March, with their sentiment levels down 12.1 per cent to 82.6.
A question asking consumers to compare their family finances with a year earlier posted a 15.6 per cent fall in March to 77 points.
Asking people whether now was the time to buy major household items elicited a 10.9 per cent slide to 84.3 points, which also was down 36.9 per cent compared with March 2007.
JPMorgan economist Helen Kevans said consumer confidence was likely to remain weak in the near term as petrol prices remained high, financial market volatility continued and concerns about slowing global growth persisted.
Mr Evans said the survey showed the RBA's tighter monetary policy would slow demand and ease inflation.
The global credit crunch, which has seen banks raise their lending rates beyond official RBA moves, is expected to make further official rate rises less likely.
"We do not expect that the Reserve Bank will raise rates again in the cycle," Mr Evans said, adding that elevated inflation would delay a rate cut until the second half of 2009.
Date: March 2008
Source: AAP (Australian Associated Press)
Mortgage stress to hit 300,000: report
An alarming 300,000 Australian households will be under severe mortgage stress by mid-2008 and at significant risk of losing their homes, as interest rates and living costs rise, a new report shows.
The worrying finding raises questions about banking sector profitability, which is already under downward pressure due to the global credit crunch and rising funding costs, report authors JPMorgan and Fujitsu Consulting said.
"The banks have passed on nowhere near their increased cost of funding," JPMorgan lead banking analyst Brian Johnson told reporters.
"When you speak to them behind the scenes, they'll tell you that probably they'll have to move another 15 basis points."
The JPMorgan/Fujitsu Australian Mortgage Industry Report for March follows decisions by the major banks to increase their standard variable home loan rates by more than the 25 basis point increase engineered by the central bank on March 4.
ANZ Banking Group Ltd, St George Bank Ltd and Commonwealth Bank of Australia have all raised their rates by 35 basis points. Westpac has approved a 30 basis point increase and National Australia Bank Ltd a 29 basis points rise.
The report, based on the results of telephone interviews with 26,000 Australian households, estimates more than 700,000 households will be experiencing some form of mortgage stress by June this year, a four-fold increase on last year.
It identified mild stress as occurring in households that had prioritised or curtailed spending to pay their mortgages.
But around 300,000 households will be experiencing severe stress, meaning they will have missed repayments, be in the process of refinancing or received a foreclosure notice.
The report also pointed to a rise in `affluent stress' amongst high net worth borrowers suffering from rising rates, school fees and margin calls on shareholdings.
It also called on the banks to review their use of mortgage brokers to win market share and to make mortgage processing more efficient.
Meanwhile, the Australian Securities and Investments Commission (ASIC) released its own report, warning borrowers to be careful of "fringe lenders" offering refinancing services at a high cost.
"The crucial questions are whether the repayments will be lower on the proposed loan, and whether they can afford those repayments over the long run," ASIC acting executive director of consumer protection Delia Rickard said.
"If their broker doesn't talk through this issue with them they should be very careful or consider approaching a different broker."
JPMorgan's Mr Johnson described claims by banks that their home loan books were in good shape as "a bit fanciful".
JPMorgan and Fujitsu believe bank methods testing for financial stress are questionable, given that credit bureaus only collect data on impaired credit records, as opposed to the total amount of debt held by individuals.
There are telltale signs that bank mortgage books are under pressure, Mr Johnson said.
Firstly, the amount of money banks will lend has increased dramatically over the past 15 years.
Secondly, banks have reduced the interest rate safety buffer on their loans to about 100 basis points from over 200 basis points.
"Now the scary thing about that is we've seen 75 basis points of interest rate rises come through," Mr Johnson said.
The Reserve Bank of Australia this month raised the official cash rate to 7.25 per cent, from seven per cent.
It was fourth time it had hiked rates in the current financial year. But banks have added additional, internal hikes of between 20 and 30 basis points since January.
Mr Johnson questioned the banking industry's use of the Henderson Poverty Index to assess a client's risk profile and cited conflicts of interest in the lightly regulated broking industry - where mortgage brokers get more commissions for selling bigger loans.
Additional financial stress was also being hidden by credit card debt, Mr Johnson added, with the average Australian's credit card balance currently equating to about three months of disposable income.
With all the extra stress on borrowers, JPMorgan believes recent, sharp falls in bank share prices are justified.
"Rising interest rates impacting borrowers capacity to repay, coupled with tighter global liquidity forcing lenders to ration credit, likely signals subdued housing growth expectations over the near term," the report said.
Mr Johnson believes Australia's banks are facing their worst operating environment in 16 years.
While he declined to question some banks' forecast for earnings growth of between 10 and 12 per cent in fiscal 2008, he said earnings were likely to fall significantly in fiscal 2009.
"Australian households are still highly geared," he said.
"A 25 basis points increase in interest rates increases the interest burden on home loan borrowers by an estimated $1.7 billion."
Date: March 2008
Source: AAP (Australian Associated Press)
Aussie housing affordability among worst in the world
Australia has one of the least affordable housing markets in the English-speaking world and it is not just hurting young people wanting to buy their first home, new research shows.
The AMP-NATSEM (The National Centre for Social and Economic Modelling) report reveals the dream of home ownership is fading for many people.
House prices have jumped 400 per cent between 1986 and 2007 while income has risen just 120 per cent.
The report - Wherever I lay my debt, that's my home - compares the 1995-1996 housing situation to the latest available data from 2005-2006.
It showed households needed 7.5 times their annual disposable income to buy a typical house in 2006, up 53 per cent from 1996 when households needed five times their disposable salary.
"Buying a home has always been a great Australian dream but it is fast becoming out of reach for many," managing director of AMP Financial Services, Craig Meller said.
"Even those who may have been in the housing market for an extended period are likely to be feeling the strain."
NSW is the country's least affordable state, with homes costing 8.3 times annual disposable income - up almost 40 per cent on 1996 figures - while the Northern Territory is relatively cheap at five times disposable income.
Western Australia isn't far behind NSW at 7.45 times annual disposable income after a 63 per cent surge in 10 years, while Tasmania saw the biggest jump, up 65 per cent to 6.1 times annual disposable income.
Compared with other English speaking industrialised countries, Australia has one of the least affordable housing markets with nearly 90 per cent of areas surveyed considered severely unaffordable.
Western Australia's Mandurah is one of the most unaffordable places surveyed, ranked sixth behind centres such as Los Angeles and San Diego, in the US.
Queensland's Sunshine Coast is ranked seventh least unaffordable while the Gold Coast and Sydney both ranked 11th.
But it is not only the younger generation which is suffering from crippling housing affordability.
The report shows that older generations are taking more debt into retirement with more than twice as many people aged over 60 still paying off a mortgage compared with the same age group in 1995-96.
This group also experienced the biggest jump in housing stress which almost doubled to 9.5 per cent in 2006 from 5.3 per cent in 1996.
Outright home ownership has also dropped during the past decade to 34.3 per cent from 42.9 per cent and most notably in the 45- to 59-year age bracket to 35.8 per cent from 54.4 per cent.
The report found that in 2006 only one in 20 Generation Y households (15-29 years) own a home.
They also have the highest levels of housing stress, at 35.3 per cent.
Among Generation X households (30-44 years) housing stress accounted for 31.8 per cent, compared with 18.8 per cent of baby boomers (45-59 years).
Recent first home buyers, understandably, are the most vulnerable to housing stress, being the group with lowest incomes and faced with the highest house prices, putting 62 per cent in housing stress.
"This report clearly confirms what everyone has been saying about the booming housing market - more needs to be done before the great Australian dream of home ownership becomes unattainable for too many," NATSEM director, and co-author of the report, Professor Ann Harding said.
Date: March 2008
Source: AAP (Australian Associated Press)
