This
is Melbourne, Australia.
Home
owners facing loan repayment disaster
MANY
people who bought houses on Melbourne's fringes in recent years could
be facing financial ruin after a slump in prices has left them owing
more to the bank than their homes are worth, experts have warned.
9
July, 2012
A
three-bedroom brick veneer house in the western growth corridor
suburb of Melton West was passed in at auction on Saturday at
$195,000 - far short of its $279,000 reserve.
The
owners paid $220,000 for the house in 2008.
Cases
such as this have led some financial experts to warn of a
''depreciation time bomb'' of negative equity for home owners in
fringe suburbs, who owe more to the bank than the value of their
homes.
New
figures from Commonwealth Bank show the annual average pace of
housing appreciation in Australia has been 1.8 per cent since the
financial crisis, substantially below the 8 per cent average over the
prior 20 years. It warned that a lower pace of appreciation was the
''new normal''.
''There
is a risk that some purchase decisions that were made on the
expectation of higher long-run average growth rates may have to be
reassessed,'' it said.
Property
analyst Mark Armstrong predicted appreciation would be slowest for
home owners in outer suburbs, who could see negative to zero growth
in values for as many as 20 years.
''It's
the perfect storm of conspiring factors,'' the director of iProperty
Plan said. ''The average plot of land in the outer suburbs is [worth]
half what it is in the middle suburbs and it is the land that
appreciates, albeit slowly on the fringe. The houses they are
building actually depreciate.
''On
top of that, the quality of construction is often cheap. So that's
what's behind the negative equity.''
Kevin
Bailey, principal at Shadforth Financial Group, said his warnings
three years ago of a ''homegrown subprime crisis'', created in part
by inflationary first home buyer incentives, are now playing out. He
said the schemes enticed mostly young people, without savings, to
borrow heavily and pay a premium for low quality housing in poorly
serviced locations.
''Lots
of baby boomer parents who have made money out of property gave sage
advice to children to pour their money into bricks and mortar because
prices double every seven to 10 years,'' he said.
''Young
people who were sold that lie will find it very difficult to escape
and it's a tragedy.''
''They've
probably got a couple of kids by now, haven't had wage increases,
utility prices have doubled, the carbon tax is coming in and their
costs of living are going up,'' he said.
''To
top it off, no one is eager to buy their houses, so even if they try
to sell out, chances are they'll be taking a loss and still owe
money.''
Despite
the stockpile of a record 55,290 unsold homes in Melbourne in June,
many developers are still offering 100 per cent finance, with no
deposit to buyers.
Finance
company the Dream Deposit is also offering a $5000 furniture package
incentive for low-doc loans.
The
head of the Master Builders Association, Brian Welch, admitted many
buyers paid too much for land in the rush to take advantage of the
generous first home buyer incentives that began in late 2008. He
blamed slow land release at the time for creating an ''unhealthy
price spike''.
''I'm
surprised at the number of houses for sale, but it's not a crisis,''
he said. ''If there is an imbalance in the market, it will sort
itself out over time and Victoria attracting its fair share of
migrants is key to keeping people's investments sound.''
Melbourne
home prices recorded a 1 per cent rise in June to a median $480,000,
as cuts to the official cash rate began to take hold, according to
information from property research company RP Data-Rismark last week.
However, prices were still down 6.6 per cent on a year ago.
Home owner facing loan repayment disaster, sad for the home owners. What about people who don't ever have $1000 let alone ability to borrow $1000 which is the minimal require to buy share in a power company in the vain hope dividends will cover power bills? What sort of mad rat race must one get on to gain an income at which a bank will lend 90% of a $250,000 property to gain the illusion of security vis a vis "home ownership? 40% drop in house prices whoop de effing do. Untill the cost of home ownership drops below $500 or all land belongs to the people so me one can own land, I don't give a flying f**K about real estate bubbles.
ReplyDeletechem1calburns took the words right out of my mouth and made it very colourful :)
ReplyDeleteBut really it is sad to see such things happen and hope that the home loans LTD situation gets better soon.