Sunday, March 08, 2009

Housing Credit

The HIA expects that there will still be tough times in 2009/10, but that the market is showing some resilience, possible due to temporary increases in the first home buyers grants for existing, and new, housing.

Low interest rates, and rising rents due to shortages of rental accommodation are also encouraging people to consider buying - sorry, Government House, Sydney, (pictured) is not for sale!

But there are still significant risks for buyers:

  • the mortgage provider sector is still subject to full or partial takeovers, mostly by the big banks. For example, the Commonwealth Bank has taken a $2.5 billion portion of the Wizard Home Loans portfolio from GE Money, from the start of this month.

  • While mortgage interest rates are at a generational low, as the economy recovers, interest rates will likely rise again. The "stress test" is, could you make the extra required if interest rates went up 2%? As interest rates rise, it is probable that the number of problem loans will increase.

  • Buyers with less than 10% deposit, not including the first home buyers grant, will need to factor in the cost of mortgage insurance. Mortgage insurance covers the lender, not the borrower!

  • Building insurance costs are set to increase, as insurance companies cry poor after claims are aid from flooding in north Queensland, and the fires in Victoria. (they also insure in case of large disaster payouts, but will cry poor to the public to justify the increase)

  • The Australian economy will likely still deteriorate in 2009 -2010. Recovery, when it comes, will likely not arrive till the second half of 2010, and be felt until 2011.
It is likely that this is a good time to buy, IF you have the 10% deposit, IF you don't want too much house, IF you can afford the repayments, IF you can pass the "stress test"; IF you can cover the insurance - just do your "homework", so to speak. Lenders, at least, are being less reckless than they were; and that is a good thing.