Housing Investors Crowd Out Community

Karl FitzgeraldCommentary1 Comment

Creative Commons License photo credit: fMoya

With auction numbers at record levels, it seems that the pursuit of the greater fool is well underway. Melbourne’s May auction levels were the highest on record and this coming weekend could see almost double the June average of properties up for sale.

Yesterday’s ABS figures on housing lending shows how genuine home buyers are being increasingly crowded out of the market. Peter Martin writes:

New finance figures from the Bureau of Statistics show that while lending to buy homes in which to live slipped a seasonally adjusted 10 per cent in the first four months of this year, lending to real estate investors climbed 11 per cent.

In the past year, lending to investors surged an exceptional 30 per cent nationwide, and by an extraordinary 44 per cent in Victoria.

Why are investors so bullish? Martin reports on the refusal to reform negative gearing and the sharemarket’s rocky road. Let’s hope not too many of these investors are mum and dad investors jumping on the bandwagon after it has left the station.

Concern must be mounting at the underlying health of the economy when you read that without the government’s stimulus, our GDP growth would have been -0.2%.

The pump priming inherent in the school building program is due to finish this Spring. Will many buy a house in the Spring auction silly season to offset this?

Adding to the uncertainty is news that mortgage stress for our sub-prime sector is up 0.19% to 1.44% according to Standard & Poor’s.

With August seen as the next possible interest rate rise, will this push the mortgage stress figures up towards 2%? A rate of 2.5% would spell alarm bells for the property market. Is the RBA setting up a Spring selling season frenzy?

George Megalogenis, one of the nation’s better economic commentators, writes in Property Boom to End:

The total number of men in full-time work is the highest on record, while the total number of home loans approved is the lowest since the GST buyers strike a decade ago. It doesn’t get more counter-intuitive: more people working but fewer people willing to borrow.

Research Officer Gavin Putland believes that we are still 3 – 6 months off any possible calls of a recession. Whilst falling home loans are a proxy for sales, there also needs to be a sustained dip in auction clearance rates for prices to drop.

With household debt at chronic levels, perhaps the panic will be more dramatic and the falls occur more quickly? Whichever way, this Boom Bust 2010 is going to be an interesting one!

Please remind your friends – do not buy now.

If you are a renter and your lease is coming up, double check that it is a monthly lease so you have the ability to move to cheaper locations when the crash kicks in.

We are witnessing a game of truth or dare as housing investors kick back in the knowledge that with every interest rate increase they can put their hand out for greater negative gearing write offs.

With immigration rates having dropped off in recent months, will investors hold their nerve and keep this ponzi game alive? Or will more and more opt for the exit door over the coming weeks to beat the Spring sellout?

The risk inherent in housing investment credit is a boon for the banks and a daring game of chance for the investor. In terms of economic output, this is dead money and should be deterred with the Henry Reviews preference for greater sharing of the spoils from land and natural resources, and less taxes on those who provide the majority of our jobs.

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