Nightmare street for house buyers

I rarely comment on the situation in Australia. It is not that I don’t care. Rather, there is little worth mentioning from my POV. The main stream media here and most people that I know think Australia is doing quite allright in the current econmic crisis, though some may suffer financial hardships. But is this the calm before the storm. Jeffrey Francis, a columnist for the Malaysia paper The Star, predicts more problem will arise in days to come. People are living beyond their means. What we have seen is just the tip of the iceberg. How bad will it be for Australia, in months  (or weeks ) to come?

IT’S a great dream that has turned into a nightmare for many Australian families whose debts are overtaking their earnings.Some describe it as “the first wave of a tsunami” on Australian soil; others believe the situation is “just the tip of the iceberg”, with many low and middle-income people unable to pay their monthly home mortgages.Consequently, the number of applications for property repossession in the Supreme Courts in all state capitals of Australia is leapfrogging between 55% and 76% over the previous year’s figures.

In Western Australia, there were 958 claims by banks or financial institutions before the court at the end of 2008, Queensland had more than 1,200 and New South Wales more than 5,000.Most of the owners are young, who bought the homes at top prices during the property market boom in 2007, and are paying mortgage premiums as much as 40% of their income. It was all right then as China and India were importing much of the iron ore, oil and gas supplies, especially from the northwest of Western Australia. The home buyers then were getting top wages working in the remote mines.

And the global property boom was particularly strong in Australia, which, at one stage, had the highest prices relative to rental levels, the third highest prices relative to incomes, and the fourth highest levels of household debt relative to incomes. But by September last year, with property values falling at a rate faster than that of mortgages and the retrenchment of workers in the resources industry (which is still being threatened by the looming global recession), many home buyers began to default in their monthly payments. Since the value of the property has dropped, they have come under financial pressure and could not sell their houses without incurring a huge loss or going into bankruptcy. Losing their jobs makes it even harder for them as they face financial ruin. And with the current economy looking even more fragile than expected, non-bank lenders are repossessing homes for defaults of as low as A$1,000.

Not surprisingly, one stockbroker has warned that there is a one-in-three chance that the Australian economy would dip into a recession. What is worrying, however, is a recent government survey has shown that many people are using their credit cards to pay their home mortgages. This will push most of the 12.6 million credit cards into longer and deeper debts.

Many people are stretched to their financial limits and beyond, the study reveals, noting that they pay an all-time high of 21% of after-tax income on regular financial bills such as mortgage payments, insurance premiums and council rates.

As one financial adviser, Paul Gordon, commented: “Three quarters of the population are spending more than they earn … they are going from week to week, month to month and surviving.”

The report points out that about 23% of households spent more than 30% of their income on housing in 2005-2006 compared with 19% in 1995-1996.

It estimates that there are now about 15,000 households whose housing loans are 90 days or more in arrears. “This is quite low for a country the size of Australia,” it says.

Some Australian families will hang on to their homes even at the expense of scrimping on other essential items, the survey says.

About 24% of the low-income households sometimes cut off their heater in winter and cooler in summer and 23% stopped their children from taking part in school excursions or sports. Some 18% of their children go without adequate health or dental care and about 10% of them sometimes go without meals for a day or so.

One million low-to-moderate income households are paying more than 30% of their disposable incomes on housing.

“The median house price is now 27 times greater than the annual income of the poorest Australians,” said Federal Housing Minister Tanya Plibersek.

“The likelihood of low-income people ever owning their home is now so remote that drastic measures are needed. It has become out of reach for many people.”

Australia’s population growth and lack of supply have driven prices to a level beyond the reach of many low-income families.

As such, she has called for cooperation between the public and private sectors to build a national affordable housing agenda.

The federal government plans to introduce a Housing Affordability Fund and National Housing Supply Council.

The First Home Saver Account scheme, which would allow prospective first home buyers to save for a deposit through superannuation-style accounts, is expected to be rolled out later this year.

Investors are advised to look at how this will impact them. This could have a significant effect on investment strategies depending upon the outcome.

Jeffrey Francis is editorial consultant, Australasia-Pacific Media

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About kchew

an occasional culturalist
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