First Home Buyers “got totally suckered”

A new survey has found First Home Buyers are selling up in droves, no longer able to afford their houses purchased with the lurer of free money from the First Home Buyers Boost.

The survey, conducted by Mortgage Choice shows 10 percent of first home buyers who have purchased within the last two years have either sold or are selling up.

If interest rates rise a further 1 percent, another 6 percent said they would sell. An additional 14 percent would flood the market if rates rise 1.5 percent.

Andrew Robb, Shadow Minister for Finance and Debt Reduction said young homeowners “got totally suckered”.

“The Government propped up the market by luring in young people but there were no warnings about what might happen within a year or two – with interest rates in particular.”

“Now young people have had a double whammy because not only have interest rates added $6000 a year to typical repayments, the cost of living is soaring, with electricity prices up nearly 40 per cent in three years, water up 27 per cent and rates up 15 per cent.”

Treasury minutes about the First Home Saver Accounts (FHSA) released under freedom of information said “The short term stimulus [BOOST] was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market. Contrary to this measure, the FHSA is designed to encourage saving over the medium to long term.”

If the first home buyers boost was designed to prevent the collapse of the housing market, one has to wonder what the government’s plan was when the stimulus finished and the unsustainable housing market built on record levels of household debt starts to collapse again. You can’t keep propping it up.

ยป Homeowners face tougher times ahead – The Daily Telegraph, 20th February 2011.




15 Comments

  1. “…if you can’t afford the house now, you can’t afford it in seven years time when it doubles in value…”
    – Robert Kiyosaki.

    I know Robert has said some “way out” stuff, but he has said some profound stuff too.

    In a far away place called the U.S. This is what’s happening to housing (Thought I’d chuck it in, sort of on topic too).

    A Frightening Satellite Tour Of America’s Foreclosure Wastelands
    ————————————————————————–
    http://www.businessinsider.com/satellite-tour-foreclosure-cities-2011-1#20-boise-idaho-1-in-21-homes-in-foreclosure-the-red-dots-show-foreclosures-1

    Hope it doesn’t come to this here.

  2. BotRot, in the US you can walk away from your home, cut your losses and happy days. In the land of Oz it’s not so easy as the banks have got you by the crown jewels. Our economy needs to collapse so that pricing goes back to normal standards. This is happening in Ireland and Spain right now! Yes people will suffer, the economy will suffer but it needs to happen.

    If this bubble keeps afloat from many years to come (which looks like a possibility) then our collapse will much more severe than the US.

  3. @Domenic, isn’t that fantastic! That’s freedom and liberty alright. Imagine being able to go to the bank and say;

    – You’ve released far too much credit.
    – Oh yeah! Housing prices have shot up, but no one can afford my house anymore. Thanks!
    – Interest rates are on the up thanks to you, why should I pay all money to you for your blunders.
    – AND! The general economy is paying for the first point I raised, all my bills are on the up and up.
    – HERE ARE YOUR KEYS BACK!!!

    I know in the U.S you can do such things, but do people really want to hand their keys back? Wouldn’t one prefer to hold onto that house? I see that the U.S. statistics paint a bad picture cause people can do such things, I see as well the reasons for doing so would be similar, to a degree to the financial position or situation to people are in here. I guess we here (in Australia) are ‘convicted’ as opposed to free. I think our position is a bit more scary that the U.S. I think your last sentence is very scary if it does turn out that the bubble continues.

    And one thing I do find real scary (there a lot of scary in this) is how every person, their dog, and their canary keep saying (convincing themselves perhaps) how good things are in Australia cause of our current house prices.

  4. When I wife asks me when we’re going to buy a house again, I always give the same answer… “look at the charts on the zeta oz housing forum”… and then she is forced to agree with me that the housing bubble MUST pop, soon. I’ve been telling her this for years and I’m certain the crash day will come, soon. For anyone else in doubt, look at the charts in the gallery below…..
    .
    http://s4.zetaboards.com/Australian_Property/pages/gallery
    .
    Can anyone seriously look at those charts and tell me Australian property is not in the midst of the greatest ponzi bubble ever? Indeed I have been telling my wife the market will crash for years, and rightly so. That was the reason we sold our lovely home at the beginning of 2009. As for our landlord yes he’s a pain, but I can’t really complain too much since it was my decision to sell and rent, and my wife is the breadwinner anyway. I want to get a secure home again and I’m kind of regretting selling, but I refuse to buy in the current ridiculous market. Sadly my choice of shares have been dismal laggards in our share portfolio, and the money sitting in my wife’s bank accounts is going backwards since I advised her to move into cash. Again, yes, prices need to crash before we can afford to get back in the market, but my wife earns good money, so hopefully we’ll be OK? Clogwog.

  5. Wow! “First Home Buyers Abound” !!!!!!!!!!!!! it says so here:

    http://www.theage.com.au/money/investing/what-are-you-waiting-for-20110221-1b1rt.html

    What the hell are you waiting for, “House Prices Set To Soar” !!!!!!! Mortgage Choice says so !!!!!

    When you read this article it is more like looking through a brochure of propaganda than a serious article about the current state of realestate, who knows, maybe the “investor” in the photo is also a realestate agent as well.

  6. It took 30 years of credit expansion to get the house price this high. It may take a similar time to get back to acceptable levels. After all, we are in a soft depression. Japan has been going backwards for twenty years and their currency is near worthless because of the government debt.
    Good luck selling your house, credit is collapsing and as a investor I wouldn’t touch property until it equals 14 times the annual rent received. Sorry vendors , no bids fom me for a while.
    Whats the go with Silver at the moment? Is it rarer than gold?

  7. The writing was on the wall late last year when Australia’s First Home Buyer pin-up couple Matthew Tregent and Sarah Zajac was selling their Deer Park home:
    http://theage.domain.com.au/home-investor-centre/stressed-home-owners-sell-up-20101103-17e4m.html

    Only in March 2009, they used $26,000 in free money from the government to build their 464 square metre home in Deer Park :
    http://www.theage.com.au/national/grants-help-teens-into-a-house-of-their-own-20090305-8q2y.html
    http://www.abc.net.au/7.30/content/2009/s2511439.htm

    But everybody knows that the days were loaded :
    http://www.youtube.com/watch?v=1PLr2pKkzEs

  8. Actually, only 16 states in the U.S. have non-recourse loans. I see little evidence to suggest this had anything to do with the bursting of their property bubble.

  9. Our zombie housing market is being kept alive by China’s insatiable demand for resources.

    To my knowledge Japan has very limited mineral resources.

    Not really a fair comparison.

    I reckon our economy is more like Canada.

  10. @Domenic:

    I don’t know exactly what you mean by: “Our economy needs to collapse so that pricing goes back to normal standards.”, but if you are insinuating that there will be a major -XX% correction in house prices like in the US, you are wrong. Banks in Australia are much, much more tightly regulated and conservative about who they loan money to, especially after the GFC. Prices in Australia will stagnate, but you will not see a flood of foreclosures like in the US.

    The one thing that I think may raise the risk of a major -XX% correction is the fact that there are people out there who are getting their homes re-valuated and mortgaged on the revaluation to invest in interest-only properties to benefit from negative gearing and capital gains. I would like to see stats on how much % of investment properties are on interest only loans because as soon as capital gains slow (less than 3-5%), the property market may go bust as a flood of investors bail out and sell their investments, which are making losses. Negative gearing is the only incentive keeping this investment strategy viable.

  11. @Homebuyer2009,

    I don’t know whether there will be a XX% correction in property prices, or if property will increase by XX% again. These days of Government bailout schemes and stimulus packages have made some strange days indeed.

    As for our tightly regulated banks, or an implication of some degree of prudence (or luck) in our financial institutions and banks, is not the case. Not since the 2008 GFC where;

    – N.A.B. (Not given but) borrows $4.5 Billion from the US Federal Reserve
    – Westpac borrows over $1 Billion from the US Federal Reserve

    Or face the possibilty of kaput. When the Government comes out and states, “we knew nothing of this”, they’re most likely telling the truth this time.

    Put that on top of the RBA borrowing $53 from the US Federal Reserve, and I’m starting to think just how well the banks here are regulated (or not). Makes me wonder if the CBA and ANZ had an injection from the FED as well.

    Strange days, especially with property prices.

  12. Not really it is also embedded belief high capital gains in the next 5- 10 yrs. Investors will wear the losses longer than you think.

  13. @ Homebuyer2009

    “Banks in Australia are much, much more tightly regulated and conservative about who they loan money to, especially after the GFC.”

    now thats just plain wrong.

    I’ll steal someone elses good work from here..
    http://www.bubblepedia.net.au/tiki-view_forum_thread.php?comments_parentId=14961&topics_offset=15&topics_sort_mode=lastPost_desc&forumId=7

    Readers can do multiple examples for themselves from the web. I just randomly used an Australian calculator and a US calculator I found on the web for a single first homebuyer with an annual salary $100,000, credit card of $5000 and no other loans or dependents for a 30 Year principal and interest mortgage. From this Australian site, I could borrow around $600,000 at 6.8% variable. From this US site I could borrow around $420,000 on an equivalent basis at 5.1% fixed.”

    Aus site:

    https://www.mortgagechoice.com.au/calculators/how-much-can-i-borrow.aspxexternal link

    US site:

    http://www.mortgage-calc.com/mortgage/howmuchcaniborrow.htmlexternal link

  14. Homebuyer, Speculators have contributed to this bubble as you may recall back in the early 2000’s there was all this hype about investing in property encouraging mum and dad investors to buy an investment property. Property prices were already high 2 years ago when the GFC hit. After the Govt prop up this increased prices even further, especially in Sydney when prices jumped 20-30% from already high prices in 2008.

    Even if they stagnate for a few years (which I doubt) this makes negative gearing redundant so I agree with you that investors will flock to the market as they already have in many states like VIC and SA and try and recoup while the prices are still relatively high.

    I am already seeing many properties in the Sydney area that have been sold well under the reserve, in many cases 20% less. People are becoming more informed and are realising the market is completely overvalued.

  15. @BotRot: the AU banks are probably borrowing at an interest of around 2-3%. They are charging local borrowers a net margin of 2-3% and making a killing — see recent news about 2010/2011 annual profits. Aus banks offer low interest securities, and US banks buy them because their own economy is less stable. It is just the way things happen. And I’m sure if either of us are able to find out how much they are borrowing, the Fed Reserve/Govt regulators were the first ones to know.

    @Brian: I just entered my data into both web sites and i got max monthly repayments of 2.4k from the Aus site and 16k for the US site — I can borrow much more from a US bank than I can from a bank in Aus based on an income of 60k.

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