Home owners taking on more risk

[Punchy]

Home owners taking on more risk
By Nicki Bourlioufas
February 14, 2005 From: NEWS.com.au

AUSTRALIANS are borrowing more money to buy homes despite a fall in prices, indicating they are raking on more risk and making them more vulnerbale to interest rate rises, analysts say.

"The average loan size rose last year even as house prices began to fall," said ABN AMRO economists Kieran Davies and Felicity Emmett said in a research note on Friday.
"This indicates that both borrowers and lenders are taking on more risk."

The average loan size for owner occupiers was $212,200 in December 2004, a big jump from $185,700 in December 2003. The rise comes despite a fall in house prices in real terms through 2004, the analysts said.

In New South Wales, the average loan size in December 2004 was $262,500, leading the Australian Capital Territory at $234,600, Queensland at $210,800, Victoria at $206,100, Northern Territory at $168,900, Western Australia at $167,000, South Australia at $156,700 and Tasmania at $143,100, the Australian Bureau of Statistics reported last week.

Total housing finance by value, and housing finance by value for owner occupation, both rose 2.8 per cent in December, seasonally adjusted.

Home borrowers also face the increased risk that interest rates will rise in less than four weeks, which would boost mortgage repayments.

Davies and Emmett expect the central bank to raise interest rates by 25 basis points in early March, followed by a similar increase in April, which "should see (home) lending drop sharply."

Official interest rates are set at 5.25 per cent. Most analysts expect the central bank will raise interest rates by at least one-quarter of one per cent at its next meeting in March, with a follow-up rate rise of the same size in April, which would push home lending rates to their highest level in four years.

The last time official interest rates sat at 5.50 per cent was March 2001.

A 50 basis point rise in interest rates would push the prevailing standard variable lending rate to 7.57 per cent from its current level of 7.07 per cent.

 

[Big Will]

Does that mean the housing prices will fall in a huge way since no-one can afford their new houses and very few people will buy???

 

[Pete]

Lies, damned lies & statistics?

I wouldn't read too much into those numbers, or the conclusions.

The research paper has been done scientifically (hopefully). However, I think the way it is reported in the paper you could draw just about any conclusion you wanted. One assumes they considered if the homes were for investment or residential; if loan interest rates were fixed; what is happening with the economy, house prices (a bit more closely than statewide), average wages, employment, etc, etc, etc.

Is it really saying much when commenting that people borrowing money are vulnerable to interest rate rises?

Reminds me why I don't buy newspapers - other than maybe to get the quarterly median price data! I don't watch TV either!

 

[OSienna]

Reminds me why I don't buy newspapers - other than maybe to get the quarterly median price data! I don't watch TV either!

Ah, the head-in-the-sand approach. I can picture you with your hands over your ears going "lah lah lah lah lah". Sorry, it's not a dig at you or anything Pete. It's just the image that I get when someone tells me they don't buy the paper or watch TV, especially if they don't like what is being reported.

I always take everything I hear, see or read from the media with a grain of salt. Sometimes the words being uttered can be deceiving e.g. stating an opinion as a fact, use of emotive words, misleading statements etc. The media can be quite powerful when used in cunning ways. For good and for evil.

For me, if I feel that something being reported is dubious or biased I often go and do my own research to verify the facts being stated. In the age of the internet this has made the job much easier. Google is my best friend. Blogs and forum boards like this one challenge my own beliefs and assumptions and forces me to open my mind to other ways of thinking. If the facts are verifiable and they back up the opinions being expressed then I don’t have any trouble accepting it as a credible viewpoint. I won’t dismiss it just because I don’t agree with what is being said.

 

[Pete]

Agreed OSienna.

But what does the report say? It reads at a primary school level.

As I wrote last time, "Is it really saying much when commenting that people borrowing money are vulnerable to interest rate rises?"

Data is not presented to allow intelligent analysis.

regards,

 

[OSienna]

Agreed OSienna.

But what does the report say? It reads at a primary school level.

As I wrote last time, "Is it really saying much when commenting that people borrowing money are vulnerable to interest rate rises?"

Data is not presented to allow intelligent analysis.

regards,

Precisely! That's all it said. The only conclusion drawn by the author was "Home owners [are] taking on more risk", as summed up by the headline. Nothing more, nothing less. It may be stating the bleeding obvious but it's not deceptive or biased in any way. I also think the statistics presented support that view. The numbers can be verified by visiting the ABS website if I was so inclined.

Big Will then alluded to another conclusion by asking the question "Does that mean the housing prices will fall in a huge way since no-one can afford their new houses and very few people will buy???" There was nothing in the article that mentioned anything about the direction of house prices.

I had to comment because the title of your response suggested that the statistics were inaccurate or biased in some way: "Lies, damned lies & statistics?"

 

[Pete]

OSienna,

I'm missing your point. To me the article is a waste of time. It is not biased. It is not deceptive. Rather useless.

Per my original comments, statistics can support just about anything.

I don't agree with the bleeding obvious. To me, nothing in the report allows me to know if owners are taking on more risk.

As I tried to answer Big Will, one can't really read much at all from the report.

cheers,

 

[OSienna]

Sure, Pete, you have all the right in the world to think that it's useless but that's your opinion, of course.

Statistics are just numbers. People try to extract trends and projections based on these figures. Sometimes conclusions are drawn from the analysis but it doesn't mean that it's fact. Statistics can also be fudged to support certain viewpoints if the researchers so wish but there is nothing in those quoted figures to suggest that they have been diddled with.

If people are borrowing more and more money and their wages aren't increasing at the same rate, isn't it possible to conclude that they are taking on more risk if rates start to head north? Sure there can be other opinions you can draw from those statistics (like the fact that you think it's meaningless) but no one has put one forward with credible arguments to back it up.

 

[Pete]

Yes, OSienna. It is entirely possible to conclude they are taking on more risk; it would be a common interpretation.

Also, it is entirely possible to not draw that conclusion.

Somehow, I think we agree on much of this. As you just wrote, "conclusions are drawn from the analysis but it doesn't mean that it's fact."

regards,