Judd wrote:Next door neighbor (4 bedroom in need of lots of TLC) went to Auction in September dreaming (literally) of high 5's based on the property which sold in March. Got one offer of $350k. Still on market. Soon to go bankrupt I feel as the bank is apparently pushing.

Judd wrote:The couple a few doors down was to go the Auction in August. Sign was quietly taken down before the Auction date. They seem to be keeping a very low profile.

Judd wrote:Still on the market but with a different agent. Somehow, I don't think that the message has got through to them that the offer of $350k was probably the best they were going to get. Yet despite their debts went off on a week's holiday: "We haven't had a holiday for over five years." I suppose that once you're so far in the do doo's and used to it, more debt doesn't matter. I admit I am surprised that they are still in the house and the bank hasn't repossessed it by now.

The Rudd Government's boost to the first-home owners grant stirred up many old wives' tales that have sustained the great Australian dream of home ownership. It's time to dismiss a few of them.

Across the country, baby boomer parents whisper in the ears of their progeny that now is the time to buy. They warn: "You'll never get in if you don't." They say: "You're better off paying off your own mortgage than your landlord's." For those not yet convinced, they resort to the old catchcry: "Rent money is dead money."

What they forget is that average house prices are now seven times the average annual salary, up from about three times when the boomers first bought in. They forget, too, that in the months since the temporary boost to the first-home owners grant - $7000 for established homes and $14,000 for new ones - house prices in the sub-$500,000 category have ballooned.

Seemingly unaware of the false economy, first-home buyers have engaged in a game of mutually assured destruction, and in fact, have been bidding house prices up.

Australians are frustratingly single-minded when it comes to owning property. It's like an affair in which a lover is so besotted by their partner, they forgive all their minor foibles, and even some outright abusive behaviour.

For the record, rent money is not dead money. Renters are paying for a service - shelter and protection from the cold. Hardly wasted money. Worse still, the deriding of rent as "dead money" incorrectly implies that money spent on mortgage interest payments is somehow "alive money", or a useful investment.

Last time I checked, a mortgage holder with a $300,000 mortgage pays $1400 a month in interest payments straight to the pockets of those same banking chiefs we all say we despise. Hate them, but you're paying their salary.

But it's not just parents egging young buyers on, it's politicians. As preparations for this year's budget enter their final stages, the Rudd Government must decide whether it will extend the deadline for the increased first-home owners grant past June 30. I don't think they should, but suspect they will.

Labor has undergone an about-face on housing policy. The contrast between pre-election posturing and the reality in government is stark.

On July 27, 2007, the Labor opposition hosted a "housing affordability summit" in the main committee room in Parliament House. About 150 housing experts from all over the country braved Canberra's winter chill to discuss solutions to the housing affordability crisis.

I was there. There was little agreement on what needed to be done, but summiteers were unanimous in what shouldn't be done. Everyone agreed that increasing the first-home owners grant would simply result in higher house prices.

Labor seemed convinced and produced a discussion paper quoting the chief economist at ANZ, Saul Eslake, saying: "Anything which puts additional cash in the hands of buyers … results merely in more expensive houses."

As the paper concluded: "This analysis suggests that simply increasing the first-home owners grant in isolation may not make housing more affordable in the long run if it leads to inflationary pressures on the cost of homes. It is important that policy proposals designed to assist first-home buyers, are economically responsible so that the benefits are not eroded through additional pressure on house prices."

Labor went on to design a suite of housing proposals to take to the 2007 election including first-home saver accounts, a $600 million National Rental Affordability Scheme, a $500 million Housing Affordability Fund, and a dedicated housing minister.

The key attraction of the first-home saver accounts was that savings would accumulate incrementally over time and not put immediate upward pressure on house prices. Money - plus Labor's co-contribution - could only be retrieved after four years.

What a difference being in government makes.

John Howard once said that political parties always favour improving housing affordability while in opposition, but when in government, always try to stop house prices falling. "A true housing crisis in this country is when there is a sustained fall in the value of our homes and in house prices," he said.

Thanks to the global recession, that is now a real threat. House prices have plunged in many advanced economies, including Britain.

Australia is somewhat different, as we have not built enough new homes to keep pace with demand. But rising joblessness will make it harder for families to keep up with mortgage repayments, meaning forced sales and lower house prices, in some areas at least. It has already happened in the richer suburbs of Sydney, where thousands of finance sector employees have been sacked.

So the Rudd Government, which was elected promising to improve housing affordability, now wants to seek re-election next year as the party which stopped house prices from falling.

They're being egged on by Treasury boffins who think reduced housing affordability for first-time buyers is a small price to pay for the confidence boost that existing home owners get from homes that maintain their value.

It's an argument that politicians are only too keen to hear, because the political sums on housing are simple. Australian households can be divided into three, roughly equal-sized, groups: renters, mortgage holders and those that own their homes outright. While the first group like flat or falling house prices, the second two prefer it if house prices rise.

It's not hard to see which way the cards are likely to fall on budget night.

First-home buyers borrow big

Nick Tabakoff and Joe Kelly | May 25, 2009
Article from: The Australian

THE average loan size for first-home buyers has risen by $52,000 - or 23 per cent - in the past two years, raising fears that government incentives for young buyers are artificially inflating the market. [Rather than fear it is most likely reality - Judd]

A report commissioned by Brandmanagement, a market research firm specialising in the finance sector, says the average size of loans being taken up by young home buyers is jumping by an "unsustainable" amount.

Drawing on Australian Bureau of Statistics figures, the report has found the average size of the loans rose by $11,400 in the three months to February, after rising by $18,100 in the three months to November.

In total, the first-home buyer average loan size jumped by $52,000 to $280,600 in the two years to February.

The huge rise in the value of their individual loans in recent months has made first-home buyers become an increasingly important part of the residential market. The figures show that by February they comprised 26.9 per cent of that market: up from 17.3 per cent in February 2008.

The actual number of first-home buyers also rose sharply in the year to February: rising from just over 9000 to more than 14,400 in the year to February.

The federal Government's First Home Owner's Boost scheme - which provides up to $21,000 for new homes and $14,000 for established homes - is being progressively phased out, and will cut out altogether after the end of this year.

Sydney couple David Halter and Kate Tulip, both 25, are among the thousands of first-home buyers who have entered the market - and taken on a sizeable mortgage - since the beginning of the year.

Last month they bought a two-bedroom apartment in Lindfield, on Sydney's north shore, and Mr Halter said the grant was a major factor in their decision to buy.

"We're putting in a new kitchen and bathroom. And we've knocked down a few walls because it was a 70s style unit," Mr Halter said.

While Mr Halter, who works in advertising, and Ms Tulip, a primary school teacher, agree that the first-home buyers grant had inflated the market - particularly for properties valued at below $500,000 - they are confident that they didn't pay too much. "We looked at about 20 places before we bought ... we thought that some of them were inflated," Mr Halter said.

"It just got silly. In some of the areas there were these bidding wars going on. It was hard to get in to see a place before it got sold."

Brandmanagement's principal, Andrew Inwood, said the statistics - which indicate that property prices are rising in line with loan sizes - have raised questions about whether the grant was simply being used by consumers to buy into a bubble.

"What the government incentives appear to have done is transfer the money from the people who are borrowing money to buy their first homes into the pockets of those who are selling at a more attractive price," he said.

Mr Inwood hinted that this mini-boom in the price of properties would not go on forever.

"There'll be a collapse in those prices again," he said.

Australian Consumers Association spokesman Christopher Zinn said the rapid growth in loans to first-home buyers against the backdrop of the government incentives carried certain moral obligations for banks.

"We would trust that the banks were practising what they preached, in terms of lending responsibly in this area," he said.

Even real estate agents admit that the government incentives are creating an unsustainable bubble at the more affordable end of the property market.

Legendary Sydney luxury property agent Bill Bridges said yesterday some agents on entry-level real estate were "loading the prices up" to capitalise on the first-home buyers scheme. [Never. Cannot be true. According to the REIV, real estate agents are honest brokers matching buyer and seller for competitively and realistically priced property - Judd.]

"The market's got to take off and go back to 2005, 2006 and 2007 prices for these poor people to get their money back," 80-year old Mr Bridges said.

Mr Bridges is also pessimistic about the ability of many people taking up first-home buyer grants to service loans into the future.

"The Government is giving them money not knowing whether they can service the loan," he said.

"But what about for those that are going to lose their job? It's lovely for people to be first-home buyers and get a house. But the debt has to be paid, and that's a big worry."

He expressed concerns that if people are stretched beyond their means through incentives, "it will all end up like (the sub-prime mortgage situation in) America".

The review reveals that lower-income earners have a propensity to use more low-documentation lending products, with the proportion at at 22.2 per cent. This compares with the figures for the high-income bracket of 16.7 per cent.

Mr Halter and Ms Tulip put a 10 per cent deposit down for their unit, which cost "between $380,000 and $420,000".

But the couple, who will marry next year, say they "got a bargain". They believe the value of the property will rise by "50 to 60k" after renovations. [Be very surprising if they had said, we overpaid and got a dog of a property that no amount of work will salvage - Judd]

Mr Halter said they were keen to purchase the unit before June 30, when the government grants were originally due to expire.

"We wanted the $14,000. It gave us an opportunity to buy in a better location than we were normally able to afford, and we used the $14,000 to renovate."