Australian’s hit the $1 trillion debt figure

Written by admin on June 30, 2007 – 7:22 pm

The ABS released figures on Friday showing Australians in May had $1.001 trillion in debt. This is up from $886 billion in May last year.

Prime Minister John Howard is not concerned. He said, “I don’t think there is any particular magic in a particular figure, but when you talk about household debt, you should always look at household wealth as well. Sure, people have more debt but they have also got more wealth because their assets are more valuable. It is always wrong to look at one side of the equation.”

Maybe much of the increase in household assets have come from capital gains in property. Lets just hope the Housing bubble does not deflate, as this could cause assets to deflate, but for debt to remain the same.

» Howard defends $1 trillion debt figure – The Australia, 30th June 2007.

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Rising debt keeps Australian dream out of reach

Written by admin on June 27, 2007 – 6:00 pm

THE DREAM of debt-free home ownership is slipping further from reach for the typical Australian family, as rising mortgages outpace growth in household earnings.

Census figures were released today giving a snapshot of 2006 compared to 1996.

In 2006, 33% of homes were fully owned. Ten years prior, 41% of homes were fully owned.

» Rising debt keeps Australian dream out of reach – The Australian, 27th June 2007.

Posted in Australian economy, Australian Housing | 2 Comments »

US Home prices fall at fastest rate in 16 years

Written by admin on June 27, 2007 – 5:44 pm

The news on the US mortgage crisis just gets worse, with little indication the finish is near. Last night, figures released in the US, show house prices in the Standard & Poor’s Case-Shiller 10 city home price index fell 2.7% yoy. This is the largest decline since 1991.

» Home prices fall at fastest rate in 16 years – Market Watch, 26th June 2007.
» Home sales, consumer sentiment hit Wall St – The ABC, 26th June 2007.

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Great Depression II looming

Written by admin on June 26, 2007 – 6:27 pm

The Bank for International Settlements has noted the risk of a 1930s-style economic slump has been heightened by “euphoric” markets tapping cheap global credit. The bank said the conditions which led up to the Great Depression of the 1930s and the Asian crises in the 1990s were reflected in the current environment.

The bank’s concern about the development of asset bubbles in real estate and share prices was mirrored by participants at a World Economic Forum on East Asia conference in Singapore yesterday.

“There is a high degree of complacency, coming out of the long period of low interest-rate environment, and a low volatility environment,” Singapore’s Second Finance Minister, Tharman Shanmugaratnam, said.

» Great Depression fall looms – Sydney Morning Herald, 26th June 2007.

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US Inventory of homes for sale hits 15-year high

Written by admin on June 26, 2007 – 7:30 am

Last night it was reported inventories of homes for sale in the US hit a record 4.43 million, a rise of 5% for May. This now represents a 8.9 month supply. This is the biggest number of houses for sale since June 1992, the end of the last housing bust.

Meanwhile the National Association of Realtors has reported sales of existing homes has last month fallen 0.3% to an seasonally adjusted annual rate of 5.99 million.

» Inventory of homes for sale hits 15-year high – Market Watch, 25th June 2007.

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Australians now floating in a record sea of debt

Written by admin on June 22, 2007 – 6:09 pm

The Age today is reporting new figures from the Reserve Bank of Australia showing income spent to service debt has risen to 11.9 percent in March. In contrast, three months earlier 11.6% of income was spent to service debt.

Credit card debt is also at record highs of $39.6 billion. The average balance in April has risen to $2139, up 8% – the fastest rate in three years. Margin Lending loans are up 40% in the last year, reaching $30.2 billion.

Mr Howard supports the Reserve Bank’s March financial stability review saying most people who took on the debt can afford it. Wages are strong and the unemployment rate at a 32-year low. The increase in debt corresponds with an increase in assets.

Steve Keen, associate professor with the University of Western Sydney, said the argument that the increase in debt corresponded with the increase in assets was misleading because the price of assets such as homes and shares were being driven up by people speculating they would rise.

OECD data shows house prices in Australia is overvalued by more than 80%. Most debt is in housing, which should be viewed as long term. It is great that unemployment is low and wages high now, but what will it be in 5 years time?

“They’ve risen because you have borrowed money and leveraged up the price. What really matters is the debt-to-income ratio and it’s huge,” he said. “Ultimately, we can’t keep on doing it (taking on debt). A recession has to happen at some point.”

» Australians now floating in a record sea of debt – The Age, 22nd June 2007.
» Household debt hits record – The Australian, 22nd June 2007.

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It’s a blood bath

Written by admin on June 21, 2007 – 5:42 pm

Bloomberg reports the worst is yet to come for the U.S. housing market.

“We’re talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit” said PIMCO Executive Vice President Mark Kiesel.

“It’s not just a housing recession anymore, it looks more and more like an economic recession,” said Nouriel Roubini, from Roubini Global Economics in New York.

In the past 5 weeks, the 30 year mortgage rate has increased a half a percent to 6.74 percent. This, coupled with a tightening of subprime lending standards after the collapse of many subprime lenders earlier in the year is causing pain among home owners.

The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago” said Kiesel.

» Rate Rise Pushes Housing, Economy to `Blood Bath’ – Bloomberg, 20th June 2007.

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Worst housing recession in 16 years

Written by admin on June 20, 2007 – 7:42 pm

» Housing recession gets worse – Bloomberg, 20th June, 2007.

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Casey Serin is in Sydney – Australia.

Written by admin on June 19, 2007 – 6:34 pm

In May we mentioned the story of Casey Serin who tried to make it rich in the Sacramento property market by ‘flipping’, only to come unstuck with the downturn of the US property market. He now tells his story on his blog at The USA today brands Serin “poster child for everything that went wrong in the real estate boom”.

His blog today has an entry :

My stay with my current Australian host is coming to an end this week due to some complications. So I figure I take advantage of some recent exposure in Sydney Morning Herald (and Argentina) and ask.

Can somebody offer me a place to stay so I can finish up some stuff here in Australia?

Preferably on the east coast: Sydney, Brisbane or Melbourne. But I’ll consider other areas. “Beggars can’t be Choosers” right? Some help with travel expenses would be much appreciated as well.

His trip to Australia does remind me, what happened to all those stories on Today Tonight and A Current Affair about these property experts buying 10 or more properties on 100% finance?

» Need A New Place in Australia (and Maybe Overseas) – I am facing foreclosure.
» Blogger learns how to monetise hate – The Age, 19th June 2007.

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Economy follows property by 12 to 24 months.

Written by admin on June 18, 2007 – 10:17 pm

The Advertiser today reports on a 34 year study showing that the rise and fall of the economy follows the housing market by 12 to 24 months.

National Australia Bank chief economist Alan Oster said this has a wide economic impact, as people decide to either spend more or spend less.

Mr Oster said property prices, more than anything else, affected spending patterns, often with major economic consequences.

“Changes in house prices affect people’s perception of wealth. Research we have done suggests that if house prices move by 10 per cent either way then consumption activity overall will change by around 1.2 per cent,” Mr Oste said.

“So if someone tells you your house is now worth $100,000 more than you thought, on average the Australian consumer will spend $10,000 more than if they hadn’t known the higher value.”

Previously we have shown this graph suggesting a similar thing :

Confidence among home builders shows in stock market 12 months later

It would seem the confidence of home builders, based on the strength of the housing market can be used to predict the stock market 12 months in advance. This could suggest consumers reduce their spending, which in turn impacts corporate earnings and hence the share price.

» Property paves the path – The Advertiser, 18th June 2007.

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Our real estate experts are at it again – Spruiking.

Written by admin on June 18, 2007 – 8:29 pm

It looks like our real estate experts are trying to pump the markets again. In Adelaide, readers woke to an article in yesterday’s Sunday Mail, House Prices Set to Boom :

HOUSE prices are set to jump up to 15 per cent – or an average $45,000 – in the next year, with real estate experts predicting a South Australian property boom.

After successive years of double digit property price growth in the early 2000s, Adelaide recorded a below-inflation increase of just 3.6 per cent last year, the smallest in a decade.

But the Real Estate Institute of SA said the market was now as strong as the boom year of 2003, which saw average house prices soar 16 per cent.

The following day, the Monday edition of the Adelaide Advertiser had plastered in bold font, Get Ready for Property Boom :

Residential property prices in Adelaide are forecast to rise by 16 per cent in the next three years – the third highest growth in the nation, a report says.

Mr Zigomanis said growth in rents was expected to outpace property prices growth in the next three years. “In the rental markets vacancy rates are very, very low and we are seeing a pick up in rental growth, which means yields will improve and that will bring back investors,” he said.

So our property expert, Mr Zigomanis says rental vacancy rates are very, very low? Gee that is contrary with the article the Sunday Mail published three weeks ago, “What Rental Crisis?” where it reported some rentals were on the markets for up to five weeks.

I’m confused. Anyone else?

» House prices to boom – Sunday Mail (Adelaide), 17th June 2007.
» Get set for new housing boom – The Daily Telegraph (Sydney), 18th June 2007.
» House values to rise – Herald Sun (Melbourne), 18th June 2007.

Posted in Australian Housing | 1 Comment »

Super raided to pay off debt

Written by admin on June 17, 2007 – 5:29 pm

Figures from Fairfax Newspapers indicate the amount of money Australian’s have withdrawn from Super to pay off debts have quadrupled in the past five years. Applications can be made to access superannuation in cases of severe hardship, such as to prevent foreclosure on your home. In 2001, there was 13,871 applications made to withdraw $35 million dollars. Last year, there was 16,500 applications, withdrawing a total of $135.3 million.

Labor’s assistant treasury spokesman, Chris Bowen said “These figures are more evidence that all is not rosy in the Australian economy.”

Household Net Savings figures presented here @ shows Australian’s have been dipping into their savings for the past 6 years since 2002.

» Super raided to pay off debt –, June 17th 2007.
» The Super news isn’t, well, that super – The Age, June 17th 2007.

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ABN Amro fears world housing crash

Written by admin on June 12, 2007 – 5:47 pm

The UK daily mail reports Investment Bank ABN Amro has warned of housing slump on a global scale due to soaring borrowing costs.

Families have taken on ‘unsustainably large’ mortgages, leaving them vulnerable to the sharp increases in bond yields and official interest rates seen in recent weeks, wrote economist Dominic White.

Although fears for the health of the US housing market have captured headlines, the degree of over-valuation is more ‘severe’ in Britain, Australia, Spain and Ireland, ABN Amro calculates.

This compares favorably with data from the OECD’s recent OECD Economic Outlook No 81 showing house prices are as much as 65% overvalued in the UK and 81% overvalued in Australia.

» ABN fears world housing crash – Daily Mail, 11th June 2007.

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Queensland’s Housing Crisis

Written by admin on June 9, 2007 – 8:55 pm

More data out today about the housing crisis, this time in Queensland.

Housing repossessions in Queensland for the last two years is up 88%, while the number of mortgage relief loans, an interest-free loan of up to $12,000, is up 166% in the past year.

Labor treasury spokesman Wayne Swan said “The dream of home ownership is slowly disappearing for many Australians, especially the young. Housing affordability has reached record lows right across the country, particularly in capital cities.”

» Home ownership dream fading for young – The Australian, 9th June 2007.
» Housing crisis grips state – The Courier Mail, 9th June 2007.

Posted in Australian Housing | 1 Comment »

Lender’s mortgage insurance claims up 500% for the year

Written by admin on June 7, 2007 – 9:48 pm

According to accounts filed with ASIC, Australia’s two big mortgage insurers, Genworth and PMI had a large surge in claims by from home lenders.

Lender’s mortgage insurance (LMI) is normally required for home owners borrowing over 80% of the LVR. Should the home owner default on the loan, the insurer will pay the lender the difference between what the property is sold for and the amount owing on the mortgage, protecting the lender from large losses.

» Loan defaults on the rise –, June 07, 2007.

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Climate Change vs a Garrett Recession

Written by admin on June 3, 2007 – 8:11 pm

As we get drawn closer to a federal election, the effects of Climate Change and the cost to the economy gets raised more and more frequently.

Today Howard is scare mongering the voting public with the possible effects a 20% cut in emissions would have on the economy.

“A 20 per cent cut from 1990 levels from 2020 would be the recipe for a Garrett recession, that is not a recession which Australia has to have,” Mr Howard said, echoing the infamous words of Labor’s last prime minister, Paul Keating.

However while these arguments continue, little mention is made about the wholesale price of electricity soaring due to the widespread drought, and a lack of water to cool power stations or run Hydro plant.

The Energy Users Association says spot prices in the national market have jumped by up to 270 per cent in the past 12 months, while wholesale contracts have risen as much as 100 per cent.

More on the topic here.

» PM holds off on emissions target – The Brisbane Times, June 3, 2007.
» High power prices squeeze manufacturers in Australia – Market Watch, 22nd May 2007.
» Power price rise alarms industry – The Advertiser, May 14th 2007.

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John Howard’s white elephant

Written by admin on June 2, 2007 – 6:40 pm

There is an interesting article in today’s AGE newspaper which talks about some of the issues preached here at

JOHN HOWARD may claim to have no rabbit this election — or even a hat to pull one out of — but he does have an elephant. . . .

It’s called debt, and Australia has never had more of it, the article writes.

It mentions Australian’s now have $160 debt for every $100 of disposable income, and that Australian’s are now spending 12 per cent of their disposal income on interest payments, stats we graph and discuss here.

It is good to see an article published showing the true state of household budgets. Normally the media only publishes hype supporting that things can’t get much better for the economy.

Mix that with young home seekers facing the worst housing affordability since 1984 and housing debt for everyone continuing to sky-rocket, and the societal response could be similar to a recession, [Dr Peter Brain, executive director of the National Institute of Economics and Industry Research] says, even though the national economy looks good on paper.

“Maybe what they’re seeing is the same sort of a particular ground shift that a recession causes,” Brain said. “Under Labor it was the businesses that stuffed up the economy. Under the Liberals, it is the households.”

It also paints some cautious figures about the state of Australia’s subprime mortgage market. In figures collected by Standards & Poor, subprime loans in arrears for more than 30 days was sitting at 14.2% at the end of February, up 34% compared to 10.6% during the middle of last year. RBA data shows low-doc and sub-prime loans made up 9% of the mortgage market in 2006.

» The home front – The Age, 2nd June 2007.

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Capital city rental prices up 15pc

Written by admin on June 1, 2007 – 6:42 pm

The Australian Property Monitors released figures today indicating rents for houses have increased by as much as 15 percent in the last year. APM reported the biggest growth was in Brisbane while rents actually got cheaper in Darwin.

“Mr McNamara says it is definitely a landlord’s market. “We do know that the return on investment is as high as it’s been in five years for investors,” he said. “That will mean that the investment fundamentals are once more there for investors to start looking for property as a preferred asset class once again.”

Meanwhile figures from the ABS for the past year to March 2007 shows the following rent increases :

Perth +9.65%
Darwin +8.33%
Brisbane +7.3%
Hobart +7.01%
Canberra +5.52%
Adelaide +4.46
Sydney +4.02%
Melbourne +3.84%

Australia as a whole increased 5.17%.

As rents make up a significant weighting in the CPI, any large increases could place pressure on inflation and ultimately lead to Interest rate rises. “At one end, high interest rates are deterring would be investors from entering the property market,” Australian Property Monitors’ Michael McNamara.

As rents rise greater than wage growth, households will have less disposable income to spend in the economy on goods and services or to save for a housing deposit.

» Capital city rental prices up 15pc – The ABC, 1st June 2007.
» Units renting at same price as houses – The Australian, June 1, 2007.

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