Is the current first homebuyers grant encouraging a situation not unlike the subprime situation? Where people who cannot otherwise afford to purchase a house are encouraged to buy. Unemployment likely to rise, if and when interest rates rise, could all lead to a flood of houses hitting the market, decrease in market values. Thoughts?
first home buyers grant/subprime
- Thread starter jackstar
- Start date
Hi jackstar, this was discussed at length already here:
http://www.somersoft.com/forums/showthread.php?t=50034
http://www.somersoft.com/forums/showthread.php?t=50034
It's a fair point, but you're bascially taking about affordability.
The grant isn't what's making property affordable, the low interest rates are doing that. The grant is simply bringing people into the market who haven't managed to save sufficient deposit.
This brings up the problem of a savings habit for new borrowers. If a someone hasn't be able to save an extra $7,000, then perhaps they shouldn't be purchasing a property.
To mitigate this, lenders are starting to inist on evidence of some savings over a time period.
I guess new home buyers are at some risk of loosing their jobs and having trouble meeting repayments. I think the risk is that many people will maximise their borrowings whilst rates are low. Rates will rise again. If we're still in a recession and peoples incomes haven't risen to compensate for higher rates, that could cause problems for people, first home owners and existing home owners alike.
The grant isn't what's making property affordable, the low interest rates are doing that. The grant is simply bringing people into the market who haven't managed to save sufficient deposit.
This brings up the problem of a savings habit for new borrowers. If a someone hasn't be able to save an extra $7,000, then perhaps they shouldn't be purchasing a property.
To mitigate this, lenders are starting to inist on evidence of some savings over a time period.
I guess new home buyers are at some risk of loosing their jobs and having trouble meeting repayments. I think the risk is that many people will maximise their borrowings whilst rates are low. Rates will rise again. If we're still in a recession and peoples incomes haven't risen to compensate for higher rates, that could cause problems for people, first home owners and existing home owners alike.
NO
A serial defaulter wont have a show of a loan at > 80 % lvr in Aus
ta
rolf
A serial defaulter wont have a show of a loan at > 80 % lvr in Aus
ta
rolf
Hi, I'm interested enough to add on to the story of FHB.
Husband got a job & been working for the last 4 weeks or so. Low wages but long hours so I estimate he gets around $120 per day.
Isn't it wonderful how fast someone can get a job once he's out of the Centrelink program?
But there's also very little doubt that house prices will fall. At an auction yesterday, it was returned under reserve price.
But at the low end, $250-300 thousand, there are many reasons to conclude why they cannot drop.
KY
Husband got a job & been working for the last 4 weeks or so. Low wages but long hours so I estimate he gets around $120 per day.
Isn't it wonderful how fast someone can get a job once he's out of the Centrelink program?
But there's also very little doubt that house prices will fall. At an auction yesterday, it was returned under reserve price.
But at the low end, $250-300 thousand, there are many reasons to conclude why they cannot drop.
KY
Found this article
Australian housing market holds sub-prime danger
Australia copying US mistakes
Bankruptcy risk driven by stimulus
"First homebuyers most vulnerable"
AUSTRALIA is facing its own version of the US sub-prime housing crisis, with thousands of young homeowners risking bankruptcy as a result of Kevin Rudd's economic stimulus package.
That is the grim warning from the economic expert who first called the debt crisis that is driving the global financial meltdown.
Dubbing the looming crisis "Sub-Prime Lite," Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US.
Professor Keen said in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt.
"Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn," he said.
The top end of capital cities housing market has been suffering for some time as mass redundancies within the financial sector have forced homeowners to sell.
Meanwhile, the first-home buyer end of the market has been booming.
But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels.
In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed.
According to Professor Keen, the First Home Owner Grant has cost the government about $200million, but has inflated property prices by close to $3billion.
"This is all illusionary wealth that could disappear very quickly," he said.
"The additional $2.8billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way."
The Government may well extend the first-homebuyer grant beyond its planned end-date of June 30, which Professor Keen says will end up pumping the market to even higher levels.
The University of Western Sydney professor said he had sold his Sydney house because he feared a property crash, but his gloomy view on the market has been backed by other experts.
Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve.
"People paid Hamptons prices for properties up there but it is not the Hamptons," he said.
"Traditionally what has hurt people has not been rising interest rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast."
Mr Minack said while he understood the motivation behind the grants, encouraging marginal buyers to enter the market at this stage of the cycle (just ahead of a sharp rise in unemployment and with interest rates so low), Australia risked "creating a sub-prime underbelly in our own housing market".
With unemployment currently at just over 5 per cent, many economists are forecasting it will peak at 8-9 per cent in 2010, which will lead to a "bloodbath" in the property market as thousands of mortgagors default on their loans.
Most buyers were also taking out low, variable-rate mortgages, which left them exposed to rapidly rising rates when the economy began to recover and this would also spell trouble for many buyers.
Australian housing market holds sub-prime danger
Australia copying US mistakes
Bankruptcy risk driven by stimulus
"First homebuyers most vulnerable"
AUSTRALIA is facing its own version of the US sub-prime housing crisis, with thousands of young homeowners risking bankruptcy as a result of Kevin Rudd's economic stimulus package.
That is the grim warning from the economic expert who first called the debt crisis that is driving the global financial meltdown.
Dubbing the looming crisis "Sub-Prime Lite," Professor Steve Keen told The Sunday Telegraph Australia was making the same mistakes as the US.
Professor Keen said in trying to avoid an economic crisis caused by too much borrowing, Australia was in effect encouraging the poorest in the community to take on even more debt.
"Yet these low-paid first homebuyers are the people who are most vulnerable to the economic downturn," he said.
The top end of capital cities housing market has been suffering for some time as mass redundancies within the financial sector have forced homeowners to sell.
Meanwhile, the first-home buyer end of the market has been booming.
But economists fear this flurry of activity at the lower end has inflated prices to unsustainable levels.
In Sydney, the average property already costs nine times the average household income, while the UK and US reached a peak of only seven times average income before their markets crashed.
According to Professor Keen, the First Home Owner Grant has cost the government about $200million, but has inflated property prices by close to $3billion.
"This is all illusionary wealth that could disappear very quickly," he said.
"The additional $2.8billion or so has come from increased mortgage debt taken on by those most vulnerable to a serious economic downturn at a time when we can see very clearly that the global recession is coming our way."
The Government may well extend the first-homebuyer grant beyond its planned end-date of June 30, which Professor Keen says will end up pumping the market to even higher levels.
The University of Western Sydney professor said he had sold his Sydney house because he feared a property crash, but his gloomy view on the market has been backed by other experts.
Gerard Minack, chief economist at Morgan Stanley, said property prices were likely to fall by 20 per cent in some cities, while the value of houses on coastal strips such as the NSW mid-north coast and the Gold Coast could halve.
"People paid Hamptons prices for properties up there but it is not the Hamptons," he said.
"Traditionally what has hurt people has not been rising interest rates but rising unemployment. I don't care what rate you're paying, if you have a mortgage five times your income and you lose your job, you're toast."
Mr Minack said while he understood the motivation behind the grants, encouraging marginal buyers to enter the market at this stage of the cycle (just ahead of a sharp rise in unemployment and with interest rates so low), Australia risked "creating a sub-prime underbelly in our own housing market".
With unemployment currently at just over 5 per cent, many economists are forecasting it will peak at 8-9 per cent in 2010, which will lead to a "bloodbath" in the property market as thousands of mortgagors default on their loans.
Most buyers were also taking out low, variable-rate mortgages, which left them exposed to rapidly rising rates when the economy began to recover and this would also spell trouble for many buyers.
this is australia i believe it wont be as bad as others, affordibility of an individual has nothing to do with confidence, people will just buy and then share houses like 2x family live in one house i think indians, asians already been doing this for quiet sometime thats why they save more money 
Just for interest sake, my sister sold her house last week. It's in the middle of FHB territory price-wise. It was on the market 5 days, and she had 2 offers, one of which was for $1k MORE than the advertised price.
Where I live, FHB priced property is flying out the door.
Where I live, FHB priced property is flying out the door.
Hi there jackstar and welcome to SS,
KRudd has influenced the most vulnerable people in our society, apart from the poor ole Pensioners, to purchase property. My belief is, if they couldn't afford to save the 7-14k Stamp Duty to buy a property in the first place, they shouldn't have bought at all.
I must say, if I had a penny to spare and could buy another IP now, I would not. I would be waiting....waiting......until the Gvnt stops the FHOG and unemployment rises and those poor FHOB'rs begin to lose their jobs.
I would not wish it on anyone, but without agreeing with Keen's sensationalised report, I do believe there is some truth to the fact that we have not seen the worst of the sub-prime crisis here in Australia. Even KRudd is finally mentioning the big "R" word.
Regards Jo
Agree entirely, Jo.
I'm seeing it everywhere in the areas I've been looking at (Redcliffe peninsula, inner northern suburbs and middle ring southern suburbs) - FHBs are crawling everywhere, and prices are on the up, up, up. KRudd's 'bribes' have manipulated the market to price levels that simply can't be justified - and his original claim was that BBs and investors were making the market too expensive?!?!? Hmmm ...
IMHO, it will all end in tears in 2 to 3 years time when IRs begin their inevitable upward climb, the FHOB has stopped and unemployment continues to rise (can't believe I've actually agreed with something Keen has said).
What this country needs desperately are a few pollies with common-sense policies and real-life experience ..... but we'll be waiting some time, I fear.
Cheers
Lynn
I'm seeing it everywhere in the areas I've been looking at (Redcliffe peninsula, inner northern suburbs and middle ring southern suburbs) - FHBs are crawling everywhere, and prices are on the up, up, up. KRudd's 'bribes' have manipulated the market to price levels that simply can't be justified - and his original claim was that BBs and investors were making the market too expensive?!?!? Hmmm ...
IMHO, it will all end in tears in 2 to 3 years time when IRs begin their inevitable upward climb, the FHOB has stopped and unemployment continues to rise (can't believe I've actually agreed with something Keen has said).
What this country needs desperately are a few pollies with common-sense policies and real-life experience ..... but we'll be waiting some time, I fear.
Cheers
Lynn
I also agree Josko. Having the most vulnerable prop up the property market while unemployment is on the rise and IR's set to rise years later, is a terrible idea..
I think there is a thread running about changing the FHO's grant to a investor's grant.. I'm all for this as it will stimulate the whole market instead of inflating the low end. I think the gov could do this by relieving duties paid instead of a cash payment.
I think there is a thread running about changing the FHO's grant to a investor's grant.. I'm all for this as it will stimulate the whole market instead of inflating the low end. I think the gov could do this by relieving duties paid instead of a cash payment.
Well you must know more than all of them because they have not announced it one way or the other.
My guess is that it will not be extended - but I don't know for sure either.
Agree entirely, Jo.
IMHO, it will all end in tears in 2 to 3 years time when IRs begin their inevitable upward climb, the FHOB has stopped and unemployment continues to rise (can't believe I've actually agreed with something Keen has said).
What this country needs desperately are a few pollies with common-sense policies and real-life experience ..... but we'll be waiting some time, I fear.
Cheers
Lynn
The arguement of IR's rising is moot. Any rise in IR's would be in conjunction with a recovery and by extension full growth in the property market.#time to sell# Tears will only be those who overextended.
Yes, I believe that the FHOB is assisting SOME prospective FHBs in overextending.
For the past several weeks, I have been attending OFIs with one of my daughters who wants to buy her first home. What we are seeing is a large number of properties where the vendors are asking - and, in many cases, achieving - much higher prices that the property is worth. At some point the FHOB will end and the price of these properties will fall back to more realistic levels. And at that point, there will be a number of FHBs whose loans are greater than the value of their properties.
IMHO, there is an inherent danger in making such grants to those who have been unwilling or unable to save a decent deposit for a property. And it is sheer madness for financial institutions to lend, when the only 'deposit' consists of grant money ..... if a person hasn't been able to save anything, one has to seriously question their budgeting and money management skills. How are they going to manage to meet the myriad of costs involved in home ownership (rates, repairs, maintenance, etc). let alone any future increases in IRs.
I am pleased to note that a growing number of financial institutions are requiring 3% of genuine savings before agreeing to a 95% lend - not before time, IMHO.
Cheers
Lynn
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