Australian Mortgages in 2011 review & 2012 prediction

Mr Mortgage's take on 2010, and predictions for 2012.

Home loans are becoming more affordable as mortgage rates ease, and home prices fall.

The fact that Australian mortgage delinquencies have declined in the third quarter in Australia points to the fact that the worst of mortgage stress may be over. We might see a return to a stronger mortgage market in 2012.

The return of the saver, and the virtue of saving

2011 has seen more Australian households reining in their expenditures, and the biggest fatality of all this is the credit card. Australians seem to be shunning credit card debt like the plague as well as to a lesser extent mortgage debt. This year has been credit card debt reduction as the biggest shift to saving has occurred.

That has to be a good thing for everyone, except retailers who have been riding on the back of credit card debt.

Australia's banks are a multi-channel money machine
The banks however have done well in 2011, despite the loss of credit card revenues, and slower mortgage applications, and that is due to business loans growing to replace the shrinkage in credit card debt and home mortgage loans applications, which continue to fall away.

With customers wanting better mortgage deals and with lower revenues the banks may shed employees.

So mortgage delinquencies may have fallen, which is good for the banks, but that does not mean that home buyers are now queueing to for a home loan, so we are seeing a fall in housing prices in all capital cities, as interest rates fall and wages rise. This is a new set of circumstances that we have not seen in decades.

Did Real Estate become over priced?
The combination of rising wages, full employment, lowering mortgage rates and falling house prices tells me that Australians have learnt the lesson from the US finance collapse of 2008. That Real estate prices can and do get ahead of themselves and must eventually fall when they grow out of kilter with the wages and supply and the desire to own.

US real estate gurus don't understand the differences between the US and Australian Home buyers, so their predictions have been largely unrealised in 2010, 2011. So new predictions of dramatic house price shrinkage are more of the same. 

Australia's house prices has deflated slowly in Australia in 2011, unlike what has occured in the US, the UK and Europe. I believe we may see a similar softening of house prices in 2012 as we saw in 2011.

Buying a home has returned to being a way of securing the roof over your head for the long term. Isn't that what home-ownership should be about?

What's ahead for Mortgages in 2012?

What's ahead in 2012?

1. A flat housing market and steady house prices. Maybe a little more price easing. Hopefully a big fall in land prices that is the real problem in new home prices.
2. Expect to see house price inflation in country areas where the mining boom is happening. Other country areas will see falls in house prices I feel. 
3. House price falls in residential land prices in the country towns across Australia. If I were buying a home in a country town, may sure you know what the true value is. 

Mortgage rates will fall.
The banks are trying to warn people that rate decreases by the RBA may not be fully passed on in coming months. They want to protect their profits even when credit is slow.
However new competition from non bank mortgage lenders and the prospect of Japanese Mega Banks entering the Australia mortgage lending market in 2012 will certainly help to lower mortgage rates.
The Euro crisis could mean a credit crunch, lower RBA cash rates, with not all interest rate reductions passed on by the banks to mortgage holders, because the cost of their borrowing may zoom up.

Actions you need to take in 2012?

1. Be a good Saver. Don't throw money around like a drunken sailor.
2. Keep your mortgage on variable rates, as interest rates may be lower in 2012.
3. Credit may become hard to get. Get in now if you have a strong source of income.
4. Refinance into a 100% offset account. This will allow you to have all your savings offset against your mortgage interest, with no income tax liability on that interest saving.

Author: Rick Adlam, Mr Mortgage

House prices: Will home values rise 20% in Australia over the next 3 years?

Experts are saying that house prices will rise between 9% and 20% over the next 3 years. Mr Mortgage disagrees. Here's why.

Experts are rarely good at predicting the future because their minds are full of facts from the past. I have a problem with future house price forecasts and it is this almost never materialises.

When you have someone who has a vested interest in the result [QBE is a house insurance player] then take house price forecasts with a grain of salt.

A QBE "survey" compiled by BIS Shrapnel says house prices will growth between 9 and 20 per cent in Australia's capital cities over the next three years. Really? So I guess that means that you should be paying 9% to 20% more for your insurance then? I see!

The biggest problems I see with House prices forecasting using median house prices

1. The median price is not an actual price. Any house price survey relies on the notion of the median price of a home. These are the homes that are sold.
2. There are two problems with this.
   1. Many homes sold are new, and therefore are usually better than an established home and worth more to buyers.
   2. Most established homes are dolled up prior to sale [paint jobs, renovations, staging and the like]. They are "pushed" and "promoted" and "marketed" to fetch a higher price. Even then many are not currently selling.

We need a segmentation of median house prices

At least if we got a segmentation of house sales [new apartments, new homes, established homes etc, I would be more comfortable believing these figures. That won't happen because the output is designed to deceive buyers and sellers to believinghouse prices are higher than they are.

Here's an example of how median house prices distort true values.

A new apartment block is released for sale with the penthouses at 2.2 million a piece, and apartments from $400,000.

One of the penthouses is sold, and two older units down the road sell for $220,000.

How median house prices are calculated

The median house price is $2.64 million divided by three. That gives a median unit price of $880,000! Whilst this may seem a silly example it is how median house prices are calculated.

Home buyers might begin to believe that the older units down the road are worth more than $220,000, and the $400,000 are worth more too.

Can you see why median house prices is not a good guide?

What about interest rates affecting housing prices?

Australia's housing market [some say housing bubble] has so far fared better than most parts of the US and the UK markets.

In the US for instance they have 30 year fixed interest rates retailing at under 5% pa., and they could go lower to help keep people in their homes, let alone prop up the housing market. No such luck here in Australia.

Australia's mortgage interest rates will rise over the next twelve months

We face a home mortgage interest rate in Australia of over 8% over the next 12 months.

Whilst the "experts say fix your mortgage interest rates now, that's fine if you are buying now or if you have a variable mortgage already. If you are buying in 12 months time that is not going to help you because I believe that rates will be as much as 1.25% higher than they are now.

Result? I see "median" house prices moderating, and home prices for Joe average softening over the next 12 months.

What Mr Mortgage believes.

Anytime is a good time to buy a house that is well priced and what you need to live in, and is affordable, if you intend to live there for more than 5 years. If not its better to rent and invest the savings and housing costs. If you are an investor, there are better places to park your money.

Australia's "Housing bubble" will not pop but lose some of its froth and just shrink to a less inflated size.

Lower returns for property investors, and more certain yields and easier picking elsewhere will keep investors out of the housing market, and moderate home values.

Future house prices will not be a mirror of our past. The RBA has it eye on house prices and the board will do what ever it takes to keep a lid on the housing market to ensure affordability for future home buyers.

The baby boomer influence has run its course in the general housing market, and as they move out of established housing this will take more heat out of house prices.

Author: Rick Adlam Mr Mortgage

Housing prices tipped to rise

The rich will get even richer this year as the nation approaches another massive property boom, a property expert has tipped.
Michael Yardney - who runs buyers' advocacy service Metropole Property Investment Strategists - says that despite the record low in affordability, there was no doubt the great divide would keep growing, with the more affluent suburbs set to be the strongest performers in 2007.
"I think, looking at the stage of the cycle we are in in SA, this is a year where the rich are going to get richer," Mr Yardney said.
He said Australia was on the cusp of one last momentous real estate boom caused by strong immigration, a lack of land and an increasing proportion of single-person households. As the price climb continued, home ownership levels would also continue to fall, he said.
The Australian Housing and Urban Research Institute has predicted that by 2011, the number of renters across the country will have risen 12 per cent, to 40 per cent of the population.
"Now that is just an amazing figure," Mr Yardney said. The property commentator predicts Adelaide's median house price will be $13.5 million in less than 40 years.
Recent State Government figures peg Adelaide's median house price at $300,000, up from $110,000 in 1996.
He said while such a rise seemed unimaginable, he pointed to countries like the United Kingdom, where house prices were beyond the reach of average people.
Source: The Advertiser