Housing Market: Mortgage Brokers are asking what happened to the housing shortage?

Falling home prices and home sales tell me that the housing shortage has evaporated. Mortgage loan demand has tanked with it. So what happened?

Four years ago the HIA claimed we had a housing shortage of 80,000 units. Rents were growing and people were on waiting lists. Home Builders had and field day and so did mortgage brokers financing both homes and investment properties. Things were good.
By late last year the housing shortage had ballooned to "120,000", then 180,000 this year and was tipped to reach 200,000 homes needed to satisfy our need more homes and units by years end.

Who stopped the mortgage merry-go-round?

Most of these claims have come from the Housing Industry Association. They are echoed by real estate agents everywhere as the reason you should buy now, the best reason to sell now.
When you go and see real estate agents they tell a different story. My local area in Ormeau, has had a slow and steady rise in real estate prices for the past ten years, until late last year. Then the the last mortgage interest rate rise cut in and people stopped buying and the music stopped for the real estate merry-go-round.
I asked one of the local real estate agents what was happening to real estate prices and we had had a 10% drop in the Ormeau [North Gold Coast] area. The first drop in home values I had heard on since moving here and building anew home in 2002. Homes were selling, but not at Ormeau's solid and brisk pace.
Nice homes on large level and elevated blocks, with wide tree lined streets. this is a lovely area.

Where are the home shortages, and the mortgage business potential that goes with them?

The issue is not so much the Gold Coast but the general theme of housing shortages which dominate the property industry talk and the HIA spin nationwide. It's a grave concern to mortgage brokers

Vacant Land Sales down to the lowest levels since 1994

Mortgage brokers that haven't been seeing too much vacant land mortgage loan deals come their way lately may be interested to know that Land Sales are at the lowest level they have been since 1994.

The January floods would not have helped sales any, but the Queensland floods never affected the Gold Coast at all! So we have to conclude something deeper is happening.
According to a recent report on the Gold Coast we have 13 months of land supply at the current sales rates. So land shortages are out the window when we look for a reason for low new home sales and construction loans that go with these building contracts.
The same is true for "House and Land" sales. They are just not happening.
Lan developers on the Gold Coast say that land production over the next 12 months will reach 2455 lots. This is twice the current level of annual demand. Something will have to give.
Remember that next time you hear the Housing Industry Association or the Master Builders Association complaining about the lack of land sales or new house sales.

Boomtime with lower Home Value = oversupply

We are in a boom time, make no mistake. So the only reason that we would see home value declines is a homes for sale glut. Home buyers can pick and choose all month long and wait for prices to fall further.
The number of dwellings for sale is at its highest levels since early 2009.

Why have land sales plummeted?

There is a current lack of demand for land. I believe I have the answer to this one. Block sizes. Land developers have been cutting the size of land lots now for ten years and the prices climbs ever higher.
People are just nor seeing value in buying land that is smaller than to cam buy already built on.
As the established home prices fall, why would anyone buy a smaller block and build a smaller home and wait 12 months to move in when they could buy a finished home now that is bigger and better for less money? Your are right they wouldn't.

The biggest boomtown in Australia is Perth, but land prices are falling there too.

Land sales dropped 27 per cent in Perth in the December quarter, while average prices fell 3 per cent.
Such things do not occur amid a "chronic housing shortage crisis".
There's certainly no shortage in Adelaide, where vast areas are being opened up for new development in the north of the city.
The over-supply of building land is a fact in Western Australia Australia's boom State and in Melbourne. Victoria, Australia's biggest home market.

Mortgage Brokers need to think Refi

Mortgage brokers will have to become proactive in writing mortgage loans and should look to the mortgage refinance and home equity loans to grow their business. Home buyers and new home builders will be thin on the ground for sometime to come.

Greedy banks to raise your mortgage interest rates above the RBA moves

CBA, Westpac, NAB and ANZ are tipped to raise mortgage rates over any RBA rate rises to fatten record profits.

Homeowners and home buyers are being warned to brace for their favourite bank to lift their mortgage interest rates by more than any rate rise from the RBA.
So if the Reserve Bank of Australia sees a rate rise as important, then expect a double whammy from the bank you have your mortgage loan with.
The RBA is widely tipped to lift rates by 0.25 of a percentage point next week, but your bank may ask you to pay more on your home loan, with some saying they will up rates by a total of 0.4%. [Mr Mortgage disagrees with this view by the way.]
Ant increase in mortgage rates will hurt mortgage stressed homeowners and put off a lot of home buyers, but the banks don't see this as their problem.
They have been writing heaps of quality loans, and now see this as a time to lock in the good times and not worry about writing new business.
So the big banks can afford to lose a lot of mortgage customers and still make a killing with the their extra margins in place on the remaining mortgage loans.

We have all heard the Banks excuses for increasing mortgage rates.

The banks have complained that the higher costs of funding their loans is squeezing their profit margins.
The banana smoothie story. Remember the Westpac Bank analogy of the banana smoothie vendor?
But Treasurer Wayne Swan has attacked any banks thinking of double dipping, saying they have reported solid profits. Mr Mortgage says they have all made record profits, but are addicted to ever increasing profits, so good luck with your plan Wayne.

Although the four big banks' total first-half profit climbed by $1.3 billion this year, they have complained that their profit margins are being squeezed because it costs them more to borrow from overseas than before the financial crisis. This beggars the question, so where did the record profits come from?

The RBA dismisses banks excuse to rise mortgage interest rates

The Reserve Bank of Australia yesterday dismissed the banks' concerns about their operating margins, saying they have shown little sign that they are under pressure and the interest rates they charge already have been enough to make up for the higher costs they pay for overseas funds.

Why your bank will raise its mortgage rates higher than the official cash rate increase

Your bank will raise its mortgage loan interest rates higher than the RBA increase simply because the big four banks simply have no effective competition.

The non bank mortgage lenders were all but wiped out in the wake of the Global financial crisis. This is the reason we are now paying higher mortgage rates than we should be.

Until the Government gets serious about a Government sponsored mortgage industry, initially for first home owners building new homes, then we will continue to have the banks ripping us off  with higher mortgage rates and be perpetually seeing house prices rise due to housing shortages.

Author: Mr Mortgage

Variable rate home mortgage loans among highest takeup in the world

Australians have indulged in a long running love affair with variable rate home mortgage loans, but as times get tougher is it time to fix or split?
The Reserve Bank has just raised the official cash rate by 25 basis points to 6.75 per cent - meaning the standard variable home mortgage loan rate is likely to rise to 8.57 per cent.
Fixing home loan rates can provide certainty about repayments and insure borrowers against future rate rises. On the flip side if rates fall, borrowers can be stuck with a high rate. Splitting a home loan gives borrowers a foot in both camps.
Timing is everything
Even the experts are reluctant to commit one way or another about fixing home loan rates, but in some circumstances splitting your mortgage into fixed and variable portions makes sense.
Shane Oliver, chief economist at AMP Capital Investors, says people who are on the brink of mortgage stress should think about splitting their home loan into fixed and floating portions as a way to make sure they don’t lose their house.
“If you’re at a point where you absolutely can’t afford another interest rate rise or it will tip you over the edge into default then having a fixed rate is a good way to cover it.”
Dr Oliver says while there’s a slight advantage in being fixed at the moment people still need to think ahead to where variable rates might be in a year’s time. He thinks the Reserve Bank is almost done with rate rises, meaning rates could come down over the course of a fixed term home loan.
Although Dr Oliver thinks further rate rises are unlikely, he warns economists have been picking the end of rate hikes for the past couple of years.
“The peak of the cycle has turned out to be a lot higher than people anticipated a couple of years ago, so there still is a risk that maybe we’ll be surprised on the upside and banks will have to continue raising the variable rate.”
Saul Eslake, chief economist at ANZ, thinks there could be two more rate rises in the pipeline, and agrees it makes sense for people to think about fixing at least part of their home loan.
“But people contemplating that need to be very confident about their future income and cashflows, both on the upside and the downside.”
If a homeowner’s circumstances change for the worse they may struggle to meet repayments, and if their circumstances improve they will be penalised for increasing payments.
“Because interest payments on mortgages are not tax deductible people have a strong incentive to pay it off as quickly as possible, including by using any money which happens to come into their hands unexpectedly – from a bonus, a win on the lottery, a pay rise or even from interest rates going down. Fixed rates exclude you from doing that," Mr Eslake said.
Fixed versus variable
A recent survey by mortgage provider QuickDirect found that 83 per cent of people with a fixed rate home loan ended up worse off then their counterparts. But quite a few NEWS.com.au readers disagreed with these findings.
“Worse off? How?” asked one reader. “Mine is locked in for five years on 7.79 per cent with the option of uncapped repayments, and a mortgage offset account. Just as long as I don't pay the entire loan off in five years.”
This view was echoed by another reader.
“In late 2002 I fixed a home loan at 5.9 per cent for 5 years ... this was taken out just before rates started to rise again . It will expire at the end of this year .Who has that rate nowadays? This has helped immensely in reducing the principal considering that we have been making regular extra repayments.”
While some readers liked the flexibility of being able to make extra repayments with a variable rate, others wanted the certainty of fixed rate loans.
“Last week I divided my loan into part variable part fixed for 3 years. This allows me the option of still having a redraw and to make extra payments while the bulk of my loan won't be touched by the rises,” a reader from Tasmania said.
While in most instances extra-repayments are not possible or are penalised on a fixed rate loan, in a rising interest rate environment, some banks and lenders will allow borrowers to make extra payments, if their fixed rate is lower than the market rate.
Australian fixation
According to the Reserve Bank of Australia over 80 per cent of home loans are on a variable rate.
Only Britain has a similar proportion of variable versus fixed rates.
Fixed rate loans were around in Australia in the 1960s but disappeared during a time of high interest rates. They were reintroduced to the market in the late 1980s at a time when variable rates were as high as 17.5 per cent. Home owners who fixed their home loans at between 13.5 and 15.5 per cent won out in the short term, but were burnt when variable rates then fell rapidly.
Before today's hike the major banks were offering fixed rates of between 7.67 and 7.89 per cent for fixed terms of between one and three years. This was lower than the standard variable rate of 8.32 per cent, but pretty much in line with basic variable rates – which range from 7.69 per cent to 7.82 per cent. Today's hike is likely to flow through to the market within the next few weeks.
Source: Newcorp