House Prices collapse deflated US household net worth

Since the sub-prime home loan bubble burst in 2007 causing house prices to fall 40%, Americans have suffered a record decline in household wealth to 1992 levels

According to a Federal Reserve report on the recent recession, the median family's net worth dropped nearly 40 per cent during the three-year period, and this is linked directly to declines in house prices.
This was the biggest drop in net worth since the survey started in 1989.

House equity linked to net worth?

The problem I have with this notion is that the family home should never be viewed as an investment, and no self respecting financial planner would use the family home as a gauge of personal wealth.

Household wealth in the US now stands at 1992 levels as house prices slid

The median net worth, [the value of assets less debts], plunged from $126,000 to just $77,300 in 2010 , which brings it thudding back to 1992 personal wealth levels. These figures also show that most people's "wealth" is tied up in their homes. Which says a lot for the real wealth of people in the US.

Personal wealth in the US appears to be a mirage, if you accept the notion that a home should never be included in a net worth sum.

"Housing was of greater importance than financial assets for the wealth position of most families," the Fed said.
"A substantial part of the declines observed in net worth over the 2007/10 period can be associated with decreases in the level of unrealized capital gains on families' assets," the Fed said.
"The share of total assets of all families attributable to unrealized capital gains from real estate, businesses, stocks, or mutual funds fell 11.6 percentage points to 24.5 per cent in 2010," it said.

We must be forget that many in the US used their homes as cash machines and extracted all the equity from them to fuel their lifestyles, so they would have suffered hard, and many of those would have lost their homes or had their net worth under water.

Household debt levels overall are unchanged

While the overall level of debt owed by families was unchanged, debt as a percentage of assets rose to 16.4 per cent in 2010 from 14.8 per cent in 2007 because the value of the underlying assets, especially housing, decreased faster.

People shed credit card debt.

The share of families carrying a credit card balance fell 6.7 percentage points to 39.4 per cent in 2010. The median balance fell 16.1 per cent to $2,600 in 2010 from $3,100 in 2007. The proportion of families with debt payments greater than 40 per cent of their income was nearly unchanged between 2007 and 2010. These were obviously people who were caught in the debt trap but retained their jobs.
People have hitched their wagon to house prices always appreciating, as a way to built net worth. This is faulty thinking in my view, and why the US housing market has not recovered. It is simply seen as a bad investment, instead of what it is, Place to live and bring up a family in a stable environment.
 Mr Mortgage

Payday Lender: 5 year ban from the Industry for unlicensed lender

Australian unlicensed payday Lender get 5 year ban from the Industry by ASIC

The Australian Securities and Investments Commission [ASIC] has handed a five-year ban to an unlicensed payday lender, saying unlicensed lending poses a risk to the public.

Banned payday lender named

Victorian payday lender Victor Manatakis has been banned by the regulator after an investigation uncovered that his business was conducting credit activities without an ACL.
Manatakis's business, Billpal, was the operator of payday lending business Cashpal.
ASIC found that between August and October of 2011, Billpal issued credit contracts despite the fact it held no licence.

Unlicensed lending could pose a risk to the Public

ASIC commissioner Peter Kell said the unlicensed lending could pose a risk to the public.
"People in the consumer credit industry need to be aware of the licensing requirements and the implications they will face if they fail to meet these requirements," Kell said.

Mortgage Broker: Paperwork and compliance relief announced at FBBA

Australian Government Announces reduction in broker compliance burden at FBAA conference

What I like about the FBAA is that they get results that benefit Mortgage and Finance Brokers, not just lenders.

As an ex-Mortgage broker, I have been lobbying the Federal Government Ministers, including the Minister for Small Business [ The HON Brendan O'Connor, whom I consider a real asset to small business in Australia] about the burden that recent laws have placed on Mortgage brokers.
So I am happy to see that they are looking to relax the compliance requirements placed on brokers.

The FBAA Conference announcement

Speaking at the inaugural FBAA conference in Sydney yesterday, the leader of the deregulation task-force told attendees that the government was in the process of reducing the costs and time associated with regulation and compliance.

Mr Sinodinos has worked in the finance industry says the government wants to hear broker feedback on the matter, so as to speed up the whole process and implement initiatives that are well received by the industry.

“Our job is to identify ways to reduce the cost burdens of regulation and compliance on businesses with a focus on small businesses,” he said.
“I recently spoke to a person in Brisbane and he said that, for mortgage brokers, one hour with a client results in six to seven hours of paperwork.
“I’m looking to reduce this time spent on paperwork. I think there is a way we can save brokers at least $1 billion in compliance and business costs. And, I think we can even go further than that.”

This has to be good news for Australian Mortgage Brokers. Great work from the FBAA!

Other people's low interest money. The scourge that destroyed the US and the European economies.

Is the RBA right on the money with interest rates?

A lot of the Australian media is pushing the story that  interest rates are too high. But is the RBA on the money on this one?

Everybody seems to have a fixation and an opinion on interest rates these days, and you would think that lower interest rates would fix everyone's problems the way the media is attacking the RBA [Reserve Bank of Australia] these days.

But there are a growing number of people who actually want higher interest rates, especially the self funded retirees that gravitate to savings deposits. For them the higher the interest rates, the better.

The fact is that the RBA has two primary functions it uses interest rates. 

1. To contain inflation. And that band has been set at the Goldilocks rate between 25 and 2.8%. Higher or lower it acts.
2. To keep unemployment low.

On the basis that these two factors have been delivered, how could anyone argue against the RBA settings on rates?

Why low interest rates have destroyed the World Economy

let's keep this simple so anyone can understand it. 

What is the Euro, the US and even Australia's greatest problem? 

People have spent too much on over priced assets. Now they pay with higher interest rates and falling asset values. They are caught holding the problem. In Europe those interest rates are going to be sky high.

What made them do that?
They had cheap money thrown at then and they could not resist it.

What we are seeing now is two things.

1. The consequences of that spending binge, as people struggle under that debt and interest rates as their assets deflate.
2. Vested interest insiders pumping up and then deflating the markets with rumours of fixes and ruin, to give them the margins to profit of both rises and declines in values of shares.

The result is that people are constantly bombarded with false information that is repeated in the news. That fact is that a depression is spreading over Europe, and Governments have to force people into lower home values and suffering with lower expectations, or revert to their own currencies and deflate that value of their currencies, and so the value of assets by using the markets. And that means the break up of the Euro.

That's why Britain was wise to realise that it had to retain the Pound, and keep that possibily open to them.

The nonsense we here about interest rates.

What are people saying we need to do? Lower interest rates. Why? So people can suck up more debt, and buy over priced homes, and get retailing at the dizzy heights it was when people were spending like there was no tomorrow? They must be kidding.

If or China slows buying are minerals, we will have to deflate the value of our assets, so isn't it better not to add fuel to the fire now? BUt we have no control over that because we don't control the Euro, or the Chinese domestic economy or the US economy.

The Euro issues, and how it affects us.

There is also a lot of bellyaching about the Euro and how it affects us. The rise of the prophets of doom, headed by their "poster boy" Tony Abbott. Although I am sensing a turn in believing he is a contender for leading the Nation.

What caused the change?

We see great numbers on Australia's economy, so even though interest rates are lowered, the AU$ is rising.

Everyone is waking up to the fact that the Euro problems have been around for four years or more. And they won't go away in the next four years. In fact they won't go away in my view till the Euro is disbanded, or Europe becomes one political power, and that latter won't happen.

Australia will never have that problem because we have a floating Currencies and are the masters of our destiny. Keeping interest rates high is the solution to the problem, not the problem.

What is the connection to low interest rates and the Euro problem?

Its about Nations spending too much of other peoples' money because it was cheap. That created an illusion of being wealthy when you are not.
What does lower interest rates do. Make people want to spend other people's money. The cause of the problem in the first place.

My advice on interest rates to joe public. 

• Cut up your credit card. If you can't pay cash, you don't need it.
• If you don't have the money, don't buy it. 
• If you see a car ad with a 2.9% interest rate, keep walking! that's why we got into this pickle in the first place.

Yes I have said that the interest rates were set too high, and should be lower, faster.

But was I right? The figures on the economy have vindicated the RBA and proved me wrong.

Will we see more easing in interest rates. 

We probably will see lower interest rates, but hopefully that will not rise house prices, because they are already too high.

• Low interest rates and easy money caused the problem we now have.
• Lower interest rates will not fix it.

To those that link the Australian economy to the Titanic, I say this.

The iceberg was low interest rates and easy money. That is not the solution to a stronger Australian Economy.
The answer is people saving more, and spending less, so we don't have to borrow money from Europe to meet lending demand.

Interest rates will go lower, but don't let that make you spender too much on your next home. We happy with less. Less home, less gadgets, less debt, less junk, less mortgage.
Source: Mr Mortgage

Credit Cards: RBA Announces end to unreasonable credit card surcharges

Credit Card Surcharge: Reverse Bank to bring the fair and reasonable test to surcharges of credit cards 

Australia's central bank, the Reserve Bank of Australia seems to be coming more proactive in the regulation of the business of banking RBA is targeting excessive credit card surcharges. 

The ripoff off merchants include big brands such as Qantas, Virgin, and Cabcharge

The Reserve Bank has finally set the sunset clause on the credit and debit card surcharge earner on January 2013, with what they term a variation in surcharging standards.

Credit card surcharging standard: The fly in the ointment

Whilst card companies may stipulate a “reasonable limit" how much merchants can charge consumers for using their credit cards, it does not specify what reasonable means.
This will I guess be left to the Trade Practices Act to determine, and regulate, as this seems to fill into the consumer law of equity of contract.

Credit card surcharge standards

And that brings up a question; given the financial services industry's record on setting their own standards, isn't it reasonable that the RBA spend the next six months in talks with the Office of fair trade and the ACCC to nut out some guidelines for these cowboys?
But there are some guidelines of what a reasonable limit might include in the various costs that might come with accepting payment by cards. These include actual fees charged by the credit card providers, the cost of terminals and the like.
One card scheme did propose that the “reasonable” cost recovery should include an appraisal of the benefits merchants get by being able to accept card payment – a concept that could have tied up bank vaults of lawyers and sundry consultants for years to come.

Credit card surcharge relief at last

The obvious change to the consumer will be that Cabcharge 10 per cent rort or that flat whack charged by Qantas and Virgin for actually using a credit card to pay for flights or even buy drinks on board!

Finally we will get a level playing field in the fringe area of credit card  fees and charges, those pushing the envelope surcharges.http://mrmortgage.com.au/

New homes: Project Housing contracts Sales edge up in April

New home sales have come off a first quarter downward spiral to show the sales slump may have bottomed. 

HIA economist, Dr Harley Dale said an April lift in new home sales of both detached houses and 

multi-units was an imperative result. 

According to the HIA the problem looms

"Even with this latest improvement, the aggregate volume of both new home sales and local 

government building approvals imply that in the absence of a rapid and sustained recovery, national 

new home building is heading to a recessionary level in 2012,” said Harley Dale. 

This solution is what I can't agree with

“That’s an unfortunate fact which everybody needs to face and which requires further interest rate cuts 

and immediate government action,” Harley Dale said.  

What's wrong with this statement

1. Nothing new here. We have heard same old song for 12 years. Give us an unfair advantage and give each customer a tax payer funded slush fund, and we'll build those houses for Australia.
2. It will ease the pain, but does not solve the problem. 

What about Retailing? What about manufacturing?

Retailing and manufacturing are much bigger employers, and both have serious problems right now. Do they ask the Government for tax payer funded handouts for their customers?

Yet the building industry has had the lowest interest rates in history, and been supported by Government handouts to their customers, directly or indirectly, for 12 years.

And they are stilling singing the same song?

Last time I checked low interest rates and tax payer funded handouts were not working for you, so why keep asking for things that do not work, and in the end a worse problem for your next customers? In other words. The housing industry has proven that tax handouts reduces demand. 

So why did it not work?

Well it did, but them everybody sucked the goodness out of the situation, 

and now we have people wanting homes the can't afford. So who sold them on that?

People don't want postage stamp blocks where you have to have a two story home. Who wants that?

They cost $20,000 more to build, have less usable space, are a health hazard,and have countless issues that will unfold down the track.

Clearly the HIA have never presented a solution to the problem.

I believe because they Have looked in the wrong places.

Its the cost of land Dummy

If land were half the price more people would build a new home. If interest rates were 12% that would not stop them, because it would still be affordable.

What the HIA can't see, is that selling homes that go on postage stamp blocks in Sardine City is not the Australian Dream.

Selling what State Governments and land developers want sell but people resist buying is no way to run a business.

Creating an abundance of cheap residential land with block sizes that people want is the way to go.

 My Story

I planned to build a home two years after this one I am in, and then five years after, but never did. Why not? But the land prices were too high and the blocks were ordinary, and the streets were too skinny.

So what chance have you ever got of selling me a new home? Buckley's. Even though I want to build. 

State Government and Federal Government grants only make things worse. they actually make homes unaffordable down the line and create a worse situation.

Sure if you wave money at people some will drop their pants. But the ones that don't won't when the grants are gone. They want more for waiting.

The HIA solution? More grants, bigger grants. Its pathetic.

What's needed is less whinging, less begging, and more working on the problem. The problem is the price & availability of cheaper land, and keeping homes single level.

Source: Mr Mortgage

Credit cards out of reach for 3 Million Aussies

Nearly 3 million Adult Australians do not have access to a cluster of fundamental financial services, including credit cards, bank accounts & car insurance

Australia's banks need to take a good hard look at themselves

    Got a $3,000 emergency? Save yourself the embarrassment of a decline of a credit card and don't ask your bank! Your family and friends are more likely to respond to your emergency than a bank.

Pay day lenders fill the gap

Payday lenders, who will charge much higher rates will fill the gap. And a little known source for smaller amounts can be Centre-link, if you are a client.
How can you operate without a bank account today? Move to Woollongong or the ACT!

Parts of NSW have the highest number of people without even a basic bank account, let alone a credit card.
But the Wollongong region tops the nation, with 7 per cent of adults without a bank account.
The number of adults in Sydney's southern suburbs and the ACT without a bank account is running at 5 per cent, with the National Australian average of 3 per cent of adults.

And that excludes Aborigines and Torres Strait Islanders. If you add those, then up to 43 per cent operating outside the mainstream banking system.
Why do people have problems getting credit cards or insurance?

Main issues in credit exclusion cited were:

1.     The cost of basic financial services remains too high.
1. The average annual combined cost of banking, credit card and either car or home insurance is $1794. 
2. The level of documentation needed to establish an account can often be a hurdle, 
3. Many banks won't lend less than $5000 as a personal loan, instead steering customers to credit cards.

National Australia Bank says Australia's banks need to lift their game

The National Australia Bank were part funders of this survey, and NAB chief executive Cameron Clyne says the banking industry needed to "lift its game" by providing affordable products to more people.

    "The absence of access to mainstream financial services does preclude people from advancing socially and economically,'' Mr Clyne said yesterday.

When the fridge, telly or car breaks down or someone needs to get to a job interview the banking system needs to improve financial inclusion and community spirit.

Access to credit is improving

While efforts to improve access to basic bank accounts & to promote low-cost credit products are being made, more needs to be done.
The Government has recently chipped in with Federal Treasurer Wayne Swan brokering an agreement with the banking industry to provide free ATM transactions for indigenous people in remote communities. That still leave millions left to help.

Source: Mr Mortgage

Home savings are what home buyers are buying

Home buyers want home savings

Home Savings has become the new investment. If you are buying a mortgage, that is what your should be looking for, and if you are a mortgage broker, that is what you should be selling and delivering today.

Home buyers spending money like there was no tomorrow is becoming a distant memory. I suspect that this behavior will return, but not anytime soon. So don't hold your breath.
Remember when the real estate frenzy drove everyone to buy, regardless of the price, because they assumed that prices would always go up? Well, that bubble burst years ago, and home buyers are beginning to see the light now, 5 years on. They are also getting angry with banks.

Real Estate Prices flat

Real estate will probably be flat [again] at least for the next year, so if you are buying a home, best to test the bottom of the market, rather than pay too much for a depreciating asset.
The RBA Drops mortgage rates .75% in recent months, but nobody is interested in new loans.

Interest rate have fallen, and will fall further

We have had two interest rate drops in recent months totaling three-quarters of a percent drop to the base interest rates, but nobody seems to care, because home savings have not been fully passed through. Not to shoppers in credit card interest and not home buyers in mortgage rate reductions. It's even hard to get duped bank customers interested. The idea in dropping interest rates was to give consumers a reason to open their wallets and use their credit cards more often, but the banks grabbed a big slice of that action for themselves. The result was disinterest by the consumer, and a little anger towards the banks.

Australia: Saving Nation Number one

The result is the spending switch is still locked in the off position. And Australians are becoming addicted to saving, instead of spending. Like all habits, they become addictive as having money in the bank and no debt on your credit cards can be very empowering.
It was not always the case. Aussies have gone from zero to hero in just twenty years, thanks to Paul Keating's push to have a compulsory superannuation plan.

A Change in consumer behavior towards interest rates?

Like well-trained flees, consumers know when they are being manipulated for someone else's benefit. Do they really care that retailers are suffering, and that business bankruptcies are up? When you use people's hip pockets to control their behavior, don't be surprised if that behavior carries the secondary gain trap.
People have been switched off spending so long that they are rusted on to home savings. And the savings habit can be become entrenched.

The second problem is that only people with big mortgages and credit card debts are interested in low-interest rates.
There are people who want higher interest rates. Oh yeh, who you might be asking? The savers. Savers get more for their money when interest rates are high.
And the savings epidemic is creating more and more people who want higher interest rates. Can you remember when interest rates were 12%? I can, and people with savings were easy to sell to.
That's what the ANZ bank CEO said recently, that more of his customers wanted higher interest rates, than wanted lower interest rates.

Mortgage shoppers give the banks no respect. Non bank mortgage lenders on the rise, because they offer savings

Instead of being milking cows for the banks, consumers are becoming interest rate shoppers.
They are paying out their credit cards and using only the interest free element.
At the height of the GFC, home buyers switched to big bank home loans in droves.
Australia's savings rock. The compulsory superannuation Scheme

There is a rock that is bolstering Australia's economic strength, that is growing and gaining strength.

Its called "super" and it will be the foundation of Australian wealth for the future.
Super has zoomed past $1 trillion dollars and will soon reach $2 trillion, simply on the basis that your first trillion is always the hardest one to make. When you then add of the magic of compound interest, let alone more people in the system, then higher participation of the population, and more people putting in extra cash, and than a proposed higher rate of superannuation contributions, you can see the snowball is becoming a mountain of cash to be invested in Australia.

    Savings in the form of Superannuation will be Australia's great stabilizer and provide the fuel for the investment engine to drive growth for the future. The big picture is looking wonderful for Australia, and it's because we are all forced to save for the future. That is catching on in a secondary saving boom, in direct savings of personal income, retaining of profits in companies, and budgets of surpluses by the governments.

How to sell mortgages in 2012? Sell savings!

Right now you might be thinking, how will that help me as a home buyer, or if I am a mortgage broker?
Well this will mean lower interest rates into the future, so that has to help everyone home buyers to qualify to buy a home,homeowners pay their mortgages, and mortgage brokers to sell their home loans. So if you are worried about the mortgage business in this climate, you would be right if you look at the big picture. The big picture is looking bright for Australia.
But what about selling mortgage loans today? Go with the flow!

The answer is if you want to sell anything, it's easier to sell what people really want. 

Selling money is what mortgage brokers have always done. Now they have to sell a different type of money. More money for you. Its time to sell savings.
People don't want a mortgage. There! I've said it. Right now people want savings. They are buying savings. So sell savings that are in your mortgage products.
Savings in fees and charges on their home loans. Savings on switching fees between mortgage lenders. Savings on home loan interest rates. Savings on mortgage broker commissions.

Whatever it takes to demonstrate you are offering exactly what the customer wants. Home buyers want home savings!

Mortgage brokers, like retailers should not be holding onto false hope that the cautious consumers will thaw out and will return to spending again anytime soon. Better to assume that this is new normal and prosper from that assumption. The assumption that home savings is what customers are looking to buy.
Hope this helps.

Rick Adlam Mr Mortgage

Mortgage Interest Rates to Fall

Australia's mortgage interest rates are set to fall in February, with many experts predicting that further rate cuts may be expected later in the year.

Mortgage Rates are too high and have to come down.

I have been saying that Mortgage rates are too high ever since the RBA raised its official cash rate in November 2010. 

But then again I have also been saying that land prices are way too high, and have been for ten years, and this is the main reason why established homes are higher than they should be. So to lower housing prices, I guess that the RBA's intention may have been to quell demand for new home construction loans.
Whatever their reasoning high mortgage rates have lowered home building starts dramatically through 2011.

Why has housing demand disappeared?
So what happened to the pent up housing demand? Its seems to have evaporated.
I recall experts saying that there was a housing shortfall of 200,000 dwellings. Well nobody is saying that anymore.
And as we build less homes, house prices are falling, and home sales taking longer?
2012 is shaping up to be a time when home buyers can get real value for money, and home sellers are going to have to lower their house price expectations, yet again.
The bottom line is that the best time to buy a home is when everybody else is try to sell a home.

Home buyers Tip
So if you are considering buying a home in 2012, then take your time, and wait for a bargain in house price, location and quality.
Also, only consider buying a home with a long term view of home ownership. Longer than 5 years.
Whilst history tells us that the long term trend in house prices is up, in this housing market there may be a protracted period of prices flat-lining or trending lower. Protect your investment by shopping hard and negotiating on price.

Author: Rick Adlam, Mr Mortgage

Japanese Banks Target Australian Home Loan markets

Mega Japanese Banks are preparing to launch a surprise attack on the mortgage profit margins of Australia's big four banks. Why this sneaky raid will succeed

The big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world. Meanwhile Japanese banks have been in operating successfully in a recession economy for twenty years. In fact the interest rates they operate on are puny compared to Australian Home loan interest rates and bank margins. So its natural that they want a piece of the action.

Some say that Japanese banks could get a $100 billion of the Australian home loan market in double quick time. I agree.
At the coming February RBA board meeting most financial analysts are punting on a further rate cut to the official cash rate. That normally translates to a similar reduction in mortgage interest rates. However some of the big four banks are hinting at not passing on all of the rate difference, citing rising funding costs as the reason.
A cynic might suggest that the real reason is maintaining profit levels in a shrinking home loan & credit card finance by Australians.

Japanese banks are all cashed up with nowhere to lend

Japanese lenders are brimming with low cost cash because of the recession, and the Japanese savings ethic.
Australian banks on the other hand also pay puny interest rates, but lend that money out at fat profit margins.

Australia's trillion dollar mortgage pie. How big a slice can the Japanese hope to get?

Australia's trillion dollar home loan market looks ripe for the picking.
Snaring just a 10% slice of Australia's Mortgage pie would give the Japanese Banks a $100 billion dollar windfall.

A Japanese Bank raid a cakewalk for four good reasons.

1. Australians have no loyalty to their banks. Aussies love to hate banks. But they don't love them that much.
2. Australian home owners and home buyers will change lenders, and they do so often.
3. Money talks. Australian home buyers and homeowners are hurting financially, mainly because they paid too much for property on the basis of low interest rates, high loan to value ratios on loans and other lax lending practices.
4. Ready-made sales channels. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
5. Japanese banks could also operate an online Australian mortgage channel, as this is how a lot of Australians looking to refinance do their research these days.

2012 may prove to be a tough year for mortgage lenders in Australia, and that means a better deal for Aussie home loan borrowers.

That has to be good news for the real estate industry and the home building sector, who have both had a rough 2011.

Summary

The impending Japanese Bank home loan invasion may be the tonic Australia needs to reinvigorate real competition in home loans, the mortgage broker sector, the new home building industry and the housing market, and put a creator in Australia's big four profits at the same time. So are Australian home loans turning Japanese? Yes I think so.