Housing Crisis in Australia
 

Although we live in a wonderful country, it's getting harder and harder for some families to live in this wonderful country. With record numbers of people suffering what is referred to as 'mortgage stress' - meaning that people are finding it hard to pay their mortgage and other bills whilst maintaining the same lifestyle - the Rudd government has come up with a plan to tackle the problem.

In an article in the Courier Mail today, the plan is outlined:

This is good news for those who might be looking at renting down the track, but what about those people now who can't afford the rent or mortgage? Our inflation continues to climb, pushing interest rates up and up to the point where after today, it's likely that most people will be paying more than 9% interest on their mortgage.

I don't think we'll be needing Mr Rudds new plan. I think a lot of people are going to be forced to sell their homes and live somewhere more affordable.

I guess I don't see how that qualifies as a crisis. Having to modify one's standard of living to continue affording basic necessities is not a crisis, it's a part of being a grown up alive in the world.

Let's hold off on the phrase "Housing Crisis" until the supply of housing shrinks so far below the demand that roving bands of armed indigents fan out through the suburbs slaughtering home occupants and moving in, 15 to a room. Then, we can call it a crisis.

Right now, it's a correction. You know, like markets do.

So your advice is sit back and wait till it reaches epic proportions before its worthy of being labled a 'crisis'?

I think when average income earners with steady jobs can't find somewhere affordable to live there's a crisis.

At least, that's how it is here.

It's Bush's fault.

No, I don't think so. It's partly cyclic, but it wouldn't have the potential to be so severe if our previous government hadn't created a situation where inflation and interest rates were forced down for so long that it has become a pressure cooker situation.

There's really no alternative than to allow events to cool off which probably means ripping the lid off and letting it all boil over.

There's going to be a mess to clean up though.

Then its Cheyney's fault

well it damn well must be someone's fault. you certainly can't expect these people who were innocently minding their own business before someone forged their signatures on documents and stuck them with overwhelming debt an... what?

they bought the houses knowing what the selling price was, you say? oh, they're still living in these houses? and they still have electricity for their tv's? oh, well carry on then.

Too many people living too high on the hog for too many years after being lulled into a false sense of security by the previous governments financial decisions.

$350 is so cheap, I'd take a dozen.

That's not near the city. I don't know how to compare actual prices, but families are spending on average, over 30% of their total income on either rent or mortgage repayments.

I don't know what the percentage would be in the US, but that'd probably be the best way to compare the values.

In the US, we can spend 30% of our income before breakfast. And that's just for PopTarts (tm).

30% of income seems really, really low.

in your neck of the woods 50% isn't unheard of though smooth. the rest of the nation the target has been around 35% for some time. until they all folded you could easily get a loan qualification that would take you to 50% total Debt/Income ratio.

There are plenty of financial analysts who suggest that the amount should be no more than 25% of gross income and moving over 30% is what's caused the problems you're having in the US and what has also caused the problems we're having here.

Yes I know that the problem is exacerbated by 100% financing of home loans, but that's not the only reason this problem has occured.

You also have to look at the fact that some incomes are high enough to support a 50/50 ratio as you're suggesting - if the mortgagee lives within their means. Most don't. - but an average income is not.

Our monthly mortgage (which includes a property taxes escrow) is currently 42% of our monthly net income if you count just my husband's salary, or about 38% if you count the average of my net income, which is sporadic and unreliable in any given month.

Somehow we do just fine, and were never 'lulled into a false sense of security by our government's financial decisions.'

Obviously this scenario does not apply to everyone Clod. Surely you realize that.

The problem is, it does apply to enough people to cause a major problem.

For example, if someone only earns 20k/annum and they're mortgages 50% of that, it only leaves them 10k (minus tax) to live on. What if they have a family, or even just a partner they support?

Obviously the individual is ultimately responsible, but a part of the problem is also irresponsible lending, such as that seen with sub prime of course, and also some lenders here in Australia. They make it seem possible to the mortgagee when it's really not.

companies that used poor underwriting go out of business.
people that used poor self discipline lose their houses.

that's how imbalances are corrected.

I totally agree, that person cannot afford the house they're in. But the answer is not to pay homebuilders to keep building the same size/quality houses and charge less than the market value for them. The answer is that person needs to live in a smaller place. Not everyone is going to have a 3-bedroom house. Sometimes a 1- or 2-bedroom apartment is what they can realistically afford.

I think the point is that the market is inflated beyond all reasonable expectations.

I don't think the governments proposal is a good solution. I think the industry is going to deflate naturally. The problem is, if interest rates are high and people are paying interest on a loan that far exceeds the value of the property, that's not good for anyone except maybe the banks, although they still lose money in many cases.

That was once how this problem was avoided. Back then, a mortgage company was a mortgage storehouse. But with new fianancing skemes, a mortgage company moves (does not hold) mortgages. Still that would not have been a problem if the mortgage buyers bothered to study what thosed CDOs contained.

Everyone now should be fully aware of this problem created by new accounting principles. NINJA. No Income, No Job Apparent. With companies such as Merrill Lynch playing money games, then no one bothered to notice how many mortgages were far more than 25% of total income. NINJA is always a perscription for disaster. But Fed rates were so low as to not make the problem apparent to bean counters who cannot see past the next quarter or year.

Normally, investors and financial rating companies (Moody's, S&P, etc) would have seen these problems and lowered credit ratings. So called professionals in hedge funds are paid to see such disasters. But the same accounting problems that created Enron were ignored by the SEC and George Jr's Administration.

One reason why no one saw Enron coming was a new accounting trick called SIVs. All risk is moved to off-balance entities where nobody but the fraudulent MBA knows it exists. Now losses, risk, and even NINJA is completely unknown to everyone until suddenly ... welcome to today's economy.

As noted long ago, the current American finanical crisis is a liquidity crisis. Normally, Bear Stearns, et al will lend money to Merril Lynch on a sort term basis so that even Country Wide Fiananical always has temporary financing during cash flow problems. But who can be trusted when spread sheets are better known as myths? Nobody will loan money when the spread sheets are unknown. Even that individual company does not know how large their exposure. Fear is rampant. Housing defaults are only a trivial symptom of a much larger problem.

Well, no consumer would have gotten a loan that was 50% of their income if the mortgage company had to hold that mortgage. Or no consumer would have gotten that loan if the mortgage company could not sell it to financial bankers using NINJA. Screw the risk. America will never go into recession because these investment bankers never knew hard times. Accounting fraud that made sub-prime loans possible are now threatening the destruction of once America's biggest bank Citigroup and of Merrill Lynch. This is only the short list.

Yes, the individual only has himself to blame for home loans well in excess of 25% income. But then he would not be in this problem if Enron accouting had been made illegal. Bean counters in the investment banks, et al were so used to lying (putting risk where the spread sheets never see it) that finanical controls (ie quarterly reports and 10Ks) became almost a joke.

Meanwhile, all this 'creative accounting' caused housing prices to inflate wildly - ie 30% too high. To buy a house, many could only sign with the devil - use sub-prime loans.

In America, for house prices to return to where they should have been often means a 30% price reduction. Housing prices were that much inflated, in part, do to creative accounting in the finanical industry. Welcome to economics that takes revenge when a boom is created by loose money standards rather than higher productivity. Any money game that makes it easier to buy a house only artifically raises (distorts) house prices.

Are the losses among the finanical institutions over? No. Due to accounting games, many such as Citigroup and Merrill Lynch do not now how much more write downs exist. The next grenade is expected in July when the next 'sub-prime' interest change occurs.

We have very little grasp of how bad all this will become and how many other industries must lay off employees. Ford and GM already are cutting back another 10% and 5% in production because their sales were also created by accounting games. That means 10% of the American economy sees a 10% and 5% work reduction. The dollar has dropped to about $0.66 in value. Therefore gasoline and other commodities must cost maybe 30% more. As noted last year by this author, grocery prices had already increased 20% or more while George Jr denied that inflation. Meanwhile, the average American income has been diminishing over the past seven years. Americans have been spending 4% more than they earn. At what point do more Americans suddenly discover they cannont afford a completely excessive 38% to the mortgage - and then discover their mortgage has increases above 50% while the value of the home drops 30%.

Appreciate the problem. It's not just poeple who should not have gotten that mortgage. Now other factors are making everyone's life financially difficult. Someone has to pay for the hundreds of $billions being written off even by GM. Prices for everything must now increase. Did you forget GM recently declared a what - something like $50 billion loss? Most ignored this as a one time event rather than ask what accounting game was claiming profits while losses accumulated? Eventually, jobs must be destroyed for the same reasons that created job losses in 1974. Accounting games result in massive layoff years later.

So many could get sub-prime loans are same reasons why Warren Buffet yesterday declared a rather gloomy economy. Buffet puts honesty above spin. We still have no idea how much worse all this will become. Worry about the next event in July.

I nominate tw as next Fed Chairman.

You make it sound like people were being forced to buy houses with these loans. They weren't. If more people would have used common sense, and said, "I'm not going to sign an interest only loan at 100% of the home value just to get into a home" and opted to rent instead, prices would not have inflated. You can't discount the importance of CONSUMER greed in this equation.

And that kind of poor risk-taking is being corrected.

Tada! Capitalism rocks.

I fear a whole bunch of people just learned the value of careful money management and not everyone gets to live in a McMansion. Irresponsible lenders and irresponsible buyers share the blame. The rest of us should not have to bail them out.

Actuallly Merc, not everyone who got caught up in this mess was looking for a mcmansion. We foreclosed last year on a McCondo that was $300K when we bought it four years ago. Location has a lot to do with it. On realtor .com this morning if you search for houses in Ventura, CA under $450k, there are 71 available. In Savannah, GA 1,420. And no we aren't making anybody cover our irresponsibility and greed, our place was bought by a greedy real estate speculator at the foreclosure auction for the full amount we owed. And the reason we lived in such a high real estate market was that my husband had a sick parent who needed daily assistance with various things. We have since moved to a more reasonably priced area and bought a house cash with the inheritance we received after she passed away. The only thing that suffered was our credit

You are right. They could have not bought a house. Or they could have done what so many in NYC did - buy their house in Pikes County PA and commute everyday across NJ. Or they could have settled for a one bedroom house. Or they could have stopped buying any car with a car loan. Or they could have lived frugally; no HDTV, no restaurants, take mass transit, leave some rooms unheated in the winter. IOW they should have lowered their standards of living.

Prices of homes increased because sub-prime loans made financing so easy. Just one of so many concepts in that post.

Another point. Prices of homes are maybe 30% too high due to government 'economic stimulus' and financing to people who could not afford it.

Yes, people had choices. How many knew almost nobody should take out an ARM loan. How many simply assumed it was safe because 'everyone' was doing it. How many were also so self destructive as to take out a Home Equity loan?

How many grasped the numbers? Why did so many even in the Cellar believe Saddam had WMDs? How many whose eyes glazed over when numbers appeared - both when George Jr was lying about "Mission Accomplished" and when the loan officer presented the papers. So yes, we can also blame the homeowner for not getting bug eyed everytime a number appears. But then no responsible finance company would have approved those mortgages if looking at the numbers. NINJA. These are MBAs. Being responsible does not happen when the purpose is only profits.

Whether a homeowner is 100% guilty has nothing to do with whether industry benchmarks are 100% guilty. I don't make it sound like anything. I don't do 'feelings' Posted are facts. What it sounds like would be your opinion applied to those facts.

Facts are that many guilty people are suspect. We even had Harvey Pitts - George Jr's SEC commissioner - who refused congressional funds for prosecution of securities fraud (ie Enron). And we have an administration that gleefully approved of accounting where risks and losses can be hidden. Nothing was done to make illegal those Enron accounting tricks. Same tricks also created this sub-prime mess.

Economics has a bad habit of punishing the economy many years later for playing money games. Money games were widespread and approved of by an administration lead by an MBA. It's not an accident. It's not accidental that we voted for a mental midget. Enron was no accident. This sub-prime mess is no accident. The powers that be in formally conservative and responsible organizations were told by their new bossed (Merrill Lynch, Citigroup, CFC, the municipal bond insurance companies, et al) to subvert well proven financial controls. Only profits mattered; not the purpose of those companies. These new top people (who are responsible for 85% of all problems) were encouraged to create and did encourage this mess. In most every case, the problem creator walked off with $hundreds of millions in severance fees - and no prosecution. We approve?

Let's not forget that if the state of OK did not file charges against Enron executives, then the Justice Department probably would have never done so. Greed is good when your president is an MBA and lies routinely. That attitude propagates down to everyone. Same accounting tricks that created Enron are still legal and acceptable accounting standards.

There are plenty of guilty MBA types. Trivial symptoms are homeowners who took ARMs. The far more serious problem is corrupt accounting that created Enron, Waste Management, Global Crossing, the Federal deficits, and now massive liquidity crisis across the entire financial industry. Same corrupt accounting now means a liquidity crisis because no one is sure who is on the verge to total bankruptcy. Accounting remains that mysterious. It exists even in the Municipal Bond insurance companies - once considered the most stable of financial firms.

How serious did I take this problem? Maybe last November, I warned that things were getting dangerous. Meanwhile, for the first time in my life, I uninvested most every asset that would be at risk. I never did that. Some investments were 30 years old. I find this liquidity crisis created by MBAs doing 'creative accounting' to be that potentially dangerous.

Well, it could be worse. The default rates could exceed 10%. But we still have another wave of interest rate adjustments coming in July. We already have a dollar dropping like a rock (a bad thing), housing prices falling like a brick (necessary), precious metals and commodity prices skyrocketing, a massive need for foreign investments (selling off America), and American corporate profits falling just like when another president lied about everything including a war in 1970s.

Did I suggest things will get as bad as the 1970s? You tell me? What is the tone or feeling in my post? Take a risk. Answer that second question.

08/03/2008 09:49:34 ‹lumbertits› so...what do you think about the housing crisis?
08/03/2008 09:49:54 ‹lush› what housing crisis

oh dayum

Oh that housing crisis.:D

Well I dont' know:neutral: the bottom has fallen out of the property market anyway, so soon everyone will begin losing their houses because they over stretched their own finances because they want eveything bigger better and NOW! So there will be plenty of cheap houses to buy soon enough. A house is worth only what someone will pay for it.

8 years ago we moved the kids out to the country. this house cost us $96.000. 2 1/2 acres two story cape cod house with bungalows and a double story garage. Why did we do this? when we were thinking of selling in the suburbs and looked at the alternative housing I wouldn't have given you a cent for anything we looked at .
Thing is, people are tunnel visioned they think they need to be in the city and they need to be where the action is. So they are willing to put there whole lives on a little shit box that looks exactly like all the other little shit boxes just so they can tell their friends they own a shit box.
I have a certain attitude regarding all of this. Banks don't care if they loan someone money knowing they can't pay it back, because in the long run they are going to end up with your home and all your payments for it anyway. And if you have to send your wife out to work because you want everything in your life 'now' and she has to put off childrearing and have her kids brought up by someone else because if she left work you'd all be homeless? You're a wanker.

All I know is that I didn't lose site of the bigger picture and I have no sympathy for those who do because it is your choice, now you are really going to have to pay for it. You are not only going to lose your homes but everything else too because of the facination with "equity". Can't afford it? just stick it on the home loan:right: Idiots. If you don't like interest rates (which are a fact of life ) then factor it in to your mortgage before you get a mortgage.

(these comments do not include people on welfare or low incomes. That's a whole different situation.)

WOW - heavy shit right outta the box! I agree with most of it too. People made choices and there are consequences to them.

I don't understand people who can make the payments, walking away because the house is no longer worth the balance on the mortgage? So what?

Maybe because the money they're spending on the mortgage is going down the tube when if they walk away and declare bankruptcy, in 7yrs time they can go ahead and start over again with the money they've saved instead of blowing it on an investment that turned out to be dud.

That'd be the only reason I could think of. I don't think it's necessarily a smart one, but I suppose that might be the reasoning.

Interest rates will hit 10% before the end of the year if things keep going the way they are here.

May I ask a question? How many of you have parents that live in the same house they did once they bought their dream home when they were younger? Or how many have parents who lived in the same house for more than 30-40 years?

My father still lives in the 3-bedroom house he and my mother bought in 1983, the first home purchase they made.

On the other hand, in 1989 my mother moved out and bought a house with my stepdad (it was also his second house,) and then left that situation and has now bought a house by herself. The house with my stepdad was the biggest, but none of them were McMansions.

when my mom died in 96 we sold the house she and dad bought in 63-64

my mom will be in her house 30 years this June. wow.

Pop built the first house in '50/'51.
Then while Mom had both hips replaced in '67, he built the second house with no cellar (laundry on the same floor), where Mom still lives.

My mum lived in the house she and my dad bought when they first got married till the day she died. We sold it a couple of years ago. She'd been there over 30 years.

My house was built over 50 years ago. Still have most of it. Mom & Pops home.

To answer the implied second half of the question, my husband and I are currently in our second purchased house, having owned the first one for just under three years. But that was the intention from the beginning--it was a big fixer-upper, and we did almost all of the work ourselves and sold it for 50% more than we paid for it. (At the same time, we made sure we were okay with the neighborhood long-term if it turned out we had to stay there longer than we'd anticipated.) Of course you can never say for sure, but we don't intend to ever move out of this house we're in now.

My parents are in the same house they bought in 1968. They are talking now about putting an addition on it so they can grow old in it. First floor bedroom and bathroom, etc. My dad retires this year.

My wife and I have been in our house for 11 years, and we plan to stay here at least 20 more years. May live here forever.

We're talking about putting an addition on ours, but I'm not sure we have enough $$ to swing it. Have to look into loans/refinancing and see if it's doable without changing our lifestyle or extending the term of the loan too much.

My Dad still lives in the house he and Mom bought in '62(?) for like $5,200. Obviously, they weren't market speculators.

Wow. I bet their yearly property taxes are close to that, at this point.

Well thanks for the answers but I think you all know where I'm coming from. Once people used to save up and buy their first 'home'.
But the trend over the last twenty years is to save up and buy your first 'investment'. And if you are only in it for the investment then you're prone to the investment markets and it's fall outs. In conjunction with that people are building more and more little investment properties and I personally believe that's why we have the 'urban sprawl'. More and more little boxes on the hillside waiting to become slums. Two many investors in the property market and too many people wanting to get rich all at the same time.

lush, I think you could be right except for the fact that very few of these 'little boxes' are unoccupied which posits that they were required anyway.

The other alternative is to build more high rises closer to the city, but in general, the rents in those have traditionally priced most average income earners out of the market. Not to mention Australias fascination with family pets making inner city apartment living simply not feasible.

I think the real reason our urban sprawl is sprawling is our growing population. People need homes to live in and our cities till now have been comparitively small when you consider other capital cities around the world.

Also, times have changed. People are much more mobile and jobs require people to move much more than in previous generations. As John Howard once said, "Australians have never had it so good", and to a point he was right, although I think Johnny might have had his blinkers on at the time. Unfortunately, those good times are proving to be very tough times now, but we all know there's going to be hangover if you party too hard in the first place. (at least, the responsible ones among us do)

little boxes, on the hillside, little boxes made of ticky-tacky...

Nobody invests in something where the monthly costs increase from an affordable $800 to an unaffordable $2000. But when the 'investor' is not investing - is instead looking for something at a magical discount - then people sign for ARMs and praise the party in power for making it possible. They are not investing. They were doing what was encouraged at the highest levels of finance and government.

This 'free money' was not possible when loan companies had to worry about the 'quality' of their clients. NINJA. No Income No Job Apparent. Once loan companies were all but required to know such facts. Now we have a money game. Everyone involved was not investing. Everyone saw free money; including the George Jr tax cut. When does economics take revenge on an economy playing money games? In 1968 and 1970, Nixon was doing just that complete with lower interest rates. So in 1976 and 1979, economics took revenge. Deja vue.

In the late 1920s, a 'free money' mentality took hold. An early symptom of that revenge was in 1928 - a stock market crash. When did a Great Depression finally take revenge? Early 1930s. Deja vue. We must now pay for money games such as George Jr's tax cut, ignoring the reasons why Enron, et al occured, a war that is not even in the Federal Budget, a massive dependence on China, et al to finance our debt, and so many wacko extremists who both created this problem and would now blame it on anything but them.

It's silly to blame homeowners for doing only what people at highest levels wanted them to do and who encouraged it by massive "economic mismanagement". That's not my phrase. That phrase is what others in the world are blaming this on.

Let's see. George Jr's people said "Mission Accomplished" would only cost $2 billion and would be paid for by oil revenues. Worst case estimate posted here was $400 billion. I was wrong. Those costs have far exceeded even my expectations. Cheney said, "Reagan proved that deficits don't matter". Therefore there is no finanical market crisis? When does economics take revenge for economic lying?

Well his father fought a war that America did not pay for. George Sr's liberation of Kuwait was paid for by the world. How curious that one man can be so smart - and the son be so stupid. But then some will instead blame symptoms on greedy homeowners? And the S&L crisis was also created by the greedy consumers? Nonsense. Congress passed laws that made the S&L crisis possible - removed any requirements for responsible fiancial transactions - even after being properly warned.

To see these problems, start with those who created the money games. Even after Enron, the extremists in power refused to fix accounting fraud. NINJA - if you don't understand why, then you have no idea who to blame.

That's what I said diddle I?

Why ask a question that only you can answer?

Nobody said you did or did not say anything. For a second reason, why the question that nobody else can answer?

I don't think it's silly to blame homeowners at all. IMHO if you listen to a bank you're a bit of a dill. It's like trusting a politician.

We'll be having three rate rises before june this year. The first one has just happened. If people havent factored in fluctuations in the market then they have no business in receiving a loan. The banks arent going to help you, so it is left up to the individual to work things out for themselves
But hey what do I know, I don't own a mobile phone nor an answering machine nor any credit cards. Ha, maybe that makes me a Hick but I'm not about to lose my home nor any of my pocessions because a bank told me a lie. They didn't tell me a lie because i didnt' listen to them in the first place.
People can blame the big banks all they wish, but when it comes down to it, it was their individual choice.

Maybe the problem is in "what is it?" Yes, a homeowner who applied for an ARM with interest rates he could not afford is 100% responsible for his fiasco. But that is a trivial problem. We have a recession resulting in inflation, job losses, or stagflation that will adversely affect every one. The homeowner did not create that. Financial mismanagement did.

Whereas one home loan default is directly traceable to one party of that contract; the bigger economic problem is directly traceable to the other party to that (and other) contract.

You can only blame the homeowner for his mortgage default. The major economic crisis - a more significant problem - is directly traceable to the finance industry that is even still doing fraudulent (Enron style) accounting and 'creative financing'.

Appreciate that there is no 'blame' relationship between foolish homeowners and the others who invented / offered this 'creative financing'. Each is 100% guilty for their side of each contract. Blaming the mortgage applicant does not exonerate anyone else.

Everything is bad - the sky is fallin .....run hide....

:vomit:

Everything is bad - the sky is fallin' ... buy Ultrashort Exchange Traded Funds.

Following the problems in the sub-prime lending market in America uncertainty has now hit Japan, in the last 7 days: Origami Bank has folded, Sumo Bank has gone belly up, Bonsai Bank announced plans to cut some of its branches, Karaoke Bank is up for sale and will likely go for a song, Shares in Kamikaze Bank were suspended after they nose-dived, 500 staff at Karate Bank got the chop, and analysts report that there is something fishy going on at Sushi Bank where it is feared that clients and staff may get a raw deal.

lol @ xob

Watch those very very closely. Those are meant for traders, not investors.

Yeah, I've never really understood it when financial advisers say that. By looking at market conditions and realizing that things were going to go south, I invested heavily in ultrashort ETFs back in October (I like this one in particular: UltraShort S&P 500). I'm up 25% on my investment since then.

That's a 25% gain on capital in 4 months. How is that not an "investment" move?

In Holland (where there are huge housing problems and it is extremely difficult for starters to buy a hous), it is 50% of your income.

Because in theory it would be just as easy to drop 50% in a month as well?

That's true of absolutely every meaningful investment. You are being paid to compensate for the risk of loss.

And, that's what stop loss sell orders are for.

My wife was just talking with some other parents at a little get together yesterday, and the discussion turned to putting additions on houses. One of the people mentioned that her friend is now paying over 70% of the family income on housing.

So this was my wife's friend's friend. I'm only 3 degrees of separation away from someone paying 70%, and now now all of you are 4 degrees away.