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Home-Shortage Myth Pits Blogs Versus Banks

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It's always the same VIs coming up with the home shortage fairy tale...


Home-Shortage Myth Pits Blogs Versus Banks in Call Australia Set for Crash

Australia, where home prices are falling at the fastest rate in more than two years, may have a glut of properties and be set for a U.S.-style crash.

The warnings from tax-reform advocate David Collyer, commentator Kris Sayce and academic Steve Keen contrast with banks and developers that claim a shortage of about 200,000 homes will underpin prices. The housing bears say builders and lenders are pushing flawed government data to keep prices afloat in the English-speaking world’s costliest place to buy a home.

“It’s important for the government and banks to keep the myth of a shortage alive,” said Sayce, editor of Melbourne- based online newsletter Money Morning Australia. “Without it, prices drop, and negative equity results in housing repossessions and insolvent banks.”

More than two-thirds of the government’s shortage estimate arises by including people who can’t afford housing, such as the homeless or those living in trailer parks, Sayce said. Collyer at tax-reform lobby group Prosper Australia says there’s actually a surplus of more than 250,000 dwellings after 15 years of overbuilding, while Keen argues the shortage estimate is swollen by inflated demand from handouts to property buyers of as much as A$21,000 ($22,300).

Banks in Australia have more than A$1 trillion of housing loans outstanding, with the four-biggest lenders accounting for about 87 percent of the total. The Australian Bankers’ Association said it doesn’t have a position on the so-called housing shortage myth and declined to comment.

Australia has the most unaffordable homes in the English- speaking world, Illinois-based consulting company Demographia said in January, with homes costing 6.1 times the average annual income.

Slowing Market

The median price of apartments and houses in Australia’s eight state capitals has declined 3.4 percent in 2011 -- the most since 2009 -- to A$455,000 in July, according to a report from Brisbane-based researcher RP Data on Aug. 31. The average full-time workers’ annual earnings is about A$70,860.

The ratio of household debt to disposable income in Australia is 155 percent, higher than the 133 percent Americans accumulated at the height of the subprime mortgage boom. Demand for housing credit in Australia has plunged to the slowest annual growth pace since central bank records begin in 1977, data Aug. 31 showed.

The most commonly cited data pointing to a dwelling shortage in Australia is the annual State of Supply report released by the government’s National Housing Supply Council.

Under Building?

In its inaugural report in March 2009, the council broke down the estimated gap of 85,000 homes in the year to June 2008. It included 9,000 dwellings needed to house people who were homeless, 35,000 properties for those staying with friends or relatives, 13,000 dwellings needed to house people living in caravan parks, and 26,000 needed to increase the rental vacancy rate to 3 percent, and rounded that to the nearest 5,000.

That shortfall had swollen to 178,400 in the year to June 2009, according to the 2010 State of Supply report, which used a different methodology and didn’t specify which areas are short on dwellings. The 2011 report is yet to be published.

“We look at underlying demand, how many dwellings are needed to house our population, as opposed to market demand,” said Owen Donald, chairman of the Housing Supply Council. “There are submarkets that aren’t being supplied adequately and there may well be a surfeit in other submarkets. And in any market, there are going to be people who struggle to find a product they can afford.”

Price Paradox

The Housing Industry Association, a Canberra-based builders’ group, said on Sept. 1 the nation will have a shortage of about 500,900 homes by 2020 if it continues to build at the pace it has over the past 20 years. The greatest shortages will be in Brisbane, Queensland; Stirling, Western Australia; and the Gold Coast in Queensland, the group said.

Recent statistics show that projection is doing little to buoy prices or lower delinquency rates in those areas.

Prices in Brisbane fell 6.6 percent in July from a year ago, the biggest decline among Australia’s capital cities, according to RP Data figures. House prices in the Gold Coast dropped 5.4 percent and apartment prices plunged 7.7 percent in the year to March 2011, RP Data said in a July report.

Stirling, a suburb 10 kilometers north of Perth’s city center, was among the 100 worst postcodes in Australia with mortgage repayments more than 30 days late as of March 31, according to Fitch Ratings. Across the nation, home loans more than 30 days overdue rose to a record 1.79 percent of residential mortgage-backed securities in the first quarter, while the number of riskier “low-doc” loans more than 30 days late climbed to a record 6.74 percent, Fitch said in May.


More at link.

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The warnings from tax-reform advocate David Collyer, commentator Kris Sayce and academic Steve Keen contrast with banks and developers that claim a shortage of about 200,000 homes will underpin prices. The housing bears say builders and lenders are pushing flawed government data to keep prices afloat in the English-speaking world’s costliest place to buy a home.

He's never been to Swansea then :rolleyes:

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YOUNG battlers are resorting to unconventional ways to break into the housing market.

A growing number of parents are using their own homes as security so their children don't have to stump up a deposit.

Others are buying with friends and family, renting out a room or buying an investment property to make a start.

Aussie Carnegie mortgage broker Mark Daly said family equity loans, which can allow applicants to borrow the entire value of a home and avoid costly mortgage insurance, were becoming more popular with younger cash-strapped buyers.

Many had used their savings on flashy cars and big-screen TVs but weren't willing to compromise on location or lifestyle for a home.

"They want everything now and suddenly discover they've got no cash," he said.

"The reason these options are popular is because people don't have the savings.

"They have either spent it or the house they want is so expensive they need a bigger deposit."

Aussie, Commonwealth Bank and ANZ were among lenders offering such deals, which many buyers were unaware existed.

Mortgage Choice spokeswoman Kristy Sheppard said about 1-2 per cent of first home buyers used a family equity loan. "Lenders became very risk averse when the GFC hit and in the couple of years following," she said. "It's only this year we've really seen them becoming less strict with their lending criteria."

But she warned parents' properties could be at risk if such deals went pear-shaped and it was crucial home buyers understood the discipline of saving.

Renewed focus on family equity loans comes after financial institutions raised the amount they lend for regular mortgages to up to 95 per cent of a home's value, plus lenders' mortgage insurance.

RAMS Home Loans and Bank of Melbourne also allow applicants to use rental payments as proof of an ability to save.

JPP Buyer Advocates' Catherine Cashmore young buyers had grown up with what were once considered luxuries, but now regarded them as essential.

"That has been the norm for the generation that is coming up and it is getting worse," Ms Cashmore said.

Single home buyers adamant on living close to the city could typically afford little more than a one-bedroom apartment.

"If you do not own your own home it's a terrifying prospect thinking you are going to be going into old age sitting on the rental ladder," she said. "It's about getting your foot in the door and I would encourage everybody to think outside the box."

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Oz will fall hard, the big four are so underwater, well, they are drowning in mortgage outstanding debt........................


AUSTRALIA'S love affair with property is about to turn sour as an "economic tsunami'' looks set to hit world markets, American economic forecaster Harry Dent says.

Mr Dent, who arrived in Australia today, predicts the world will experience a second, deeper downturn, which will arrive between the beginning and the middle of next year.

Starting in Europe, the downturn will spread to the US, China and eventually Australia, he said.

"Australia is probably the best place in the world to survive this, but we do think Australia will not escape as well as it did from the last crisis (in 2008),'' Mr Dent said.

At the centre of the coming debt crisis is real estate, the forecaster says.

"People in places like Sydney or Tokyo or Miami say, 'Hey, real estate can never go down here, we're a great place, everyone wants to move here, there's not much land for development', and what I say is that is exactly the kind of place that bubbles,'' Mr Dent said.

"Outside Hong Kong and Shanghai, Australia is the most expensive real estate market in the world compared to income.''

Mr Dent said Australia's house prices would return to late 1990s or early 2000 levels.

Driving all these changes is simple demographics, specifically the peak of the baby boomers' spending, Mr Dent said.

"We predicted this (current) downturn in the US 20 years ago,'' he said.

"We said that in 2007 the peak number of baby boomers will reach their peak spending. They would have bought all their homes and then they will start saving for retirement ... and that you are going to see this downturn.''

The drop-off in spending will affect everyone, even mighty China, Mr Dent said.

To survive the incoming "economic tsunami'', Mr Dent said investors should sell their excess real estate and buy up assets in US dollars.

"Gold and silver are going to crash, they're a bubble,'' he said.

"Once we write down all these crazy debts, we are going to destroy a lot of dollars that were created in the boom and that makes the (US) dollar a lot more valuable.''

Edited by Panda

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Most deposit accounts held in Australian financial institutions will be insured under measures proposed by the government.

Treasurer Wayne Swan said on Sunday a new permanent cap for the Financial Claims Scheme (FCS) of $250,000 per person per financial institution would be introduced from February 1, 2012.

The current cap of $1 million, introduced during the global financial crisis (GFC) in October 2008, had been under review since May this year.

Mr Swan said thiswould protect the savings held in around 99 per cent of deposit accounts at authorised deposit-taking institutions (ADIs) incorporated domestically in full.

Implications i wonder, funding this gigantic bubble?

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