The only shortage is one of greater fools; Prices start to fall.
July 30th, 2010We are continually told that a shortage of houses means prices will continue to out pace the buyer’s ability to afford them, and that money grows on trees.
However two other shortages are starting to show its head in Australia’s property bubble. The shortage of greater fools - someone that will buy a property for more than what you brought it for is causing auction clearance rates to tumble and prices to drop.
According to RP Data-Rismark figures released today, house prices are on the decline, falling 0.8 percent in June, and the largest fall since April 2008. The lack of greater fools were the most in Perth, where prices fell 2.5 percent, followed by Brisbane which fell 1.3 percent.
The shortage of greater fools has been caused partly by another shortage, one of credit and evident by a plunge in mortgage approvals this year. Australia has been in a credit crunch since January, after many of the banks dropped Loan Value Ratios (LVR) to around the 80 percent mark.
The Australian residential mortgage credit crunch was caused by a boost hangover. After the Federal Government boosted the First Home Buyers Grant, the banks ran after first home buyers like a cat in a mouse plague. Caught up in the frenzy, banks, in particular Westpac and the Commonwealth didn’t cotton on to the number of 100% LVR loans they were writing and that APRA requires LMI (Lender’s Mortgage Insurance) premiums to be put aside an not adsorbed into normal operations.
It was suggested by BusinessDaily in January, that Westpac had to increase the paid up capital of its mortgage insurance subsidiaries by more than $330 million, kicking off the drop in LVRs. Since then, the debt crisis in Europe has only helped exacerbate the problems as money gets more and more expensive.
» House prices hit the wall - Yahoo News, 30th July 2010.
» Home prices drop after 17 months of gains - The Age, July 30th 2010.







