The Anatomy of the Australian Housing Bubble
With major rating agencies predicting of a slowing of growth in the Australian housing sector within the next 5 years, all major banks are now vehemently denying the existence of a real-estate bubble, encouraging investors to buy houses beyond their budget.
What people do not understand is the complex anatomy of the Australian Housing bubble.
This dreamy state of real-estate market actually began in the 1980s when the financial deregulation and the 1987 stock market crash drove major banks to turn to the housing sector.
As the economy recovered from the crash, the banks found a huge market in wholesale debt for home buyers, and they went all out for it. The more they lent, the higher the prices rose and it drove buyers to borrow even more.
The real problem began when most investors focused on buying established houses rather than going for new housing stocks, raising the prices for existing houses, leaving rental costs in imbalance.
So far the negative gearing seems to be a viable solution to take some heat out of the housing market, especially for new property investments, but since the release of the final report of Murray Financial System Inquiry in December, economists are now more in favour of reducing these concessions to investors.
According to Fitch ratings, even if the growth rate of the housing sector is slumping to 4 per cent from the 7 per cent of 2014, Australian homes are still the third most expensive of the 22 countries they have surveyed. Also, the mortgage lending market is at its highest level of growth since 2007. Where Australian housing is falling short is the home-ownership rate which is currently at 67.5 per cent, signalling a fall in affordability.
If ever this property bubble was to burst, many real estate investors will be hit and rental returns may drop, but there would not be any relief in mortgage repayments. If you feel that mortgage repayments are straining your monthly budget, then it is time to consider precautionary steps to avoid being blacklisted on credit reports during turbulent times.
Keep in touch with your lenders and let them know whenever you are finding it difficult to make a couple of repayments, because when you keep them in the loop about your financial situations, they can help you with new repayment arrangements whenever required, and as a result keep your credit report clean.
If you are already feeling that your mortgage repayments are beyond your budget, it is time to rethink your budget itself.
Track every purchase you make and avoid items that you can survive without, so that you can save up a considerable amount every month. When you reset your budget, you will be able to find out how much you can actually afford to repay and make changes in your lifestyle and repayment arrangements.
With the slumping growth rate, now is the right time for you to think about consolidating your debts and consider options of refinancing.
Having a single repayment for all your debts is a good idea, as it helps you manage your mortgages efficiently and avoid late payments.
Seeking the right help at the right time can help solve any problem, but it all boils down to taking immediate action when it is most crucial.