Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Australian Housing Bubble: California Repeated?

Australian Housing Bubble: California Repeated?

Hugh Pavletich FDIA
Performance Urban Planning
Christchurch
New Zealand

May 25, 2010

Mish's Global Economic Trend Analysis: Insanity Down Under: ING Says Thanks to Capital Appreciation, Paying Principal on Mortgage Loans is Unnecessary

Within the above article Mish (Mike Shedlock) of Global Economic Trend Analysis responds to a report from the Australian Daily Telegraph "Revealed: The home loan that could save you a fortune", where Australia’s fifth largest mortgage lender ING Direct, is now selling interest only mortgages with no fixed terms.

This is an understandable response (although a seriously unwise one) by financial sector participants due to the grossly inflated Australian housing prices, as illustrated within the 2010 6th Annual Demographia International Housing Affordability Survey, where Australia’s major urban markets at 6.8 times annual household earnings (3rd Qtr 2009 data) were the worst, in what is loosely termed the Anglo world.

Expect the next “idiotic innovation” from Australia’s finance sector to be teaser interest rates at the initial stage of the mortgage, that progressively increases over time.

It would appear the Australians are following the example of the Californians across the Pacific – where the Global Financial Crisis was triggered.

The Californians had perfected distorted mortgages to the extent that they were lending 11 times household earnings, where households on a gross income of $90,000 a year were borrowing $1,000,000.

Herb Greenberg explained this following the housing crash in California "Straight talk on the mortgage mess".

The reality is that housing should not cost any more than 3 times gross annual household earnings, with mortgage loads of around 2.5 times household earnings.

Australian Governments do not allow housing to be built at affordable prices – and have failed to learn from the land use and mortgage laws of the State of Texas, where housing prices stayed at 2.5 times annual household earnings, while bubbles raged in other poorly governed United States housing markets.

The Demographia Survey found New Zealand housing prices 5.7 times household earnings; United Kingdom 5.1; Ireland and Canada 3.7 with the United States overall 2.9

For specific urban market details refer Schedule 2, Page 39 of the Demographia Survey.

Australia’s housing markets have inflated further since then – as they blindly repeat the mistakes of California.

ENDS

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Climate Summary: NZ’s Equal-2nd Warmest Year On Record

Annual temperatures were above average (+0.51°C to +1.20°C above the annual average) across the majority of New Zealand... 2018 was the equal 2nd-warmest year on record for New Zealand, based on NIWA’s seven-station series which began in 1909. More>>

ALSO:

GDP: Economic Growth Dampens In The September Quarter

Gross domestic product (GDP) rose 0.3 percent in the September 2018 quarter, down from 1.0 percent in the previous quarter, Stats NZ said today... GDP per capita was flat in the September 2018 quarter, following an increase of 0.5 percent in the June 2018 quarter. More>>

ALSO:

Up $1.20: $17.70 Minimum Wage For 2019

Coalition Government signals how it will move toward its goal of a $20 p/h minimum wage by 2021... “Today we are announcing that the minimum wage will increase to $17.70 an hour on 1 April 2019." More>>

ALSO:

Retail: IKEA To Open In New Zealand

Inter IKEA Systems B.V. is today announcing its intentions to grant the Ingka Group exclusive rights to explore expansion opportunities in New Zealand. More>>