Like some carnival mystic, before the last election I wrote some predictions in an envelope and sealed it, with instructions only to open it after the election was over. Lo and behold, when I opened the envelope afterwards my prediction proved right: ”That neither party will do anything about making housing more affordable.”

They say that neither of the major parties can agree about anything, but they have certainly continued their conspiracy of silence about the ruinous price of housing in this country. Large parts of New South Wales and the rest of the country are desperately crying out for action on both reducing the price of housing and freeing up more land for residential development, but the reply during the election has been a deafening silence.
We’ve been distracted by a wide variety of carnival tricks, with politicians from both sides busy dancing around marginal electorates in NSW, Victoria, Queensland and elsewhere, but yet no action on one of the most pressing issues of our times.

Neither party is willing to touch the negative gearing issue, perhaps in fear of offending their backers in the business community (although New Zealand seems to have the courage to). The NSW state government still remains addicted to stamp duty. Wage increases in the past 10 years have come nowhere near close to matching the stratospheric rise in house prices. Houses in NSW are at least 10 times the average wage (which is in itself a ridiculous way of measuring affordability — that assumes that the average person on $60,000 has no expenses as they pay off their house, perhaps existing on thin air and hope. A more accurate figure would be 20 times the average wage, taking into account minimum expenses of $30,000.)

Relaxed Foreign Investment Review Board rules of home availability means that Australians are competing with the rest of the world for their local resource. The Liberal Party says it will ”reduce the debt”, but it neglects to say that our public debt is tiny compared to other countries — instead, the nation is hocked to the gills on private debt, partly credit card debt but mostly housing debt.

We’ve reached the point where people are actively praying for that long-awaited major collapse in the housing bubble so they can possibly afford a home, something akin to planning one’s retirement strategy on a win at lotto or a punt on the dogs. Sydney and Melbourne’s western suburbs, traditionally the working-class heartland of Labor, might have gone aspirational but they still want affordable homes, something state Labor seems unable to provide.

Meanwhile, the housing affordability time bomb ticks away — a growing population and a shortage of land promises a price explosion in the future, locking out yet another generation from home ownership. Soon we will reach a point where only the richest of Australians — and cashed-up investors from overseas — will be able to own a house. And with our banks finding it harder and harder to compete for capital overseas, money for home lending may become harder to obtain.

There are many models we could follow around the world — the German model for long-term renters signing a contract with their landlords, reducing housing speculation; or the Denmark model where tax benefits are given mainly to purchasers of residential property who intend to live in their home – but we refuse to do so, because they aren’t enough votes in it, and because it’s the sweetest racket for the rich apart from mining.

Perhaps millions of us will just have to settle on being renters in our own country. That is, until a leader or a political party comes along with the guts to do something about it.

Charles Purcell is a Fairfax writer. Story from the Sydney Morning herald

The Australian real estate market is experiencing a period of sluggish growth and activity, but property values are performing strongly when compared to our overseas counterparts.

The Global Property Guide’s latest survey of house prices, which uses price changes after inflation to gain a more realistic picture, reveals an uneven recovery in global housing markets during the 12 months to June 2010.

Over that period, 18 countries had house price increases and 18 countries had price declines.

Europe presented mixed results, with Finland (up 9%) defying the downward trend of decline experienced throughout Ireland, Bulgaria, Lithuania, Iceland, Russia, Croatia, Spain and Slovakia.

In the US, house prices fell 3.31% over the year, while Canadian house prices were up 1.47%.

Singapore performed best overall, with a 34% house price increase recorded between June 2009 and June 2010. House prices in Hong Kong, Taiwan and China also surged 21.4%, 11.51% and 5.78% respectively.

Strong economic growth, low interest rates and increases in foreign demand fuelled house prices in these four countries, raising fears of a property bubble. In June the International Monetary Fund warned that the booming Asian real estate markets “may pose risks to financial stability.”

In response, Singapore, Hong Kong, Taiwan and China all swiftly tightened credit supply by lowering the loan-to-value ratio. Singapore and Hong Kong have also increased land supplies, and China has increased the down payment requirement for second-home mortgages to 50%.

Closer to home, the July RP Data-Rismark Hedonic Home Value Index confirms that Australian property values are holding their own.

“In the period between end 2008 and March 2010, Australian home values rose by 16.3%,” says RP Data’s research director, Tim Lawless.

In the month of July Australian home values remained virtually unchanged, recording an increase in value of 0.1% for the month. Annually, house prices jumped 9.7% in the 12 months to June – and Lawless believes the outlook for the rest of the year remains positive.

“There is the possibility of modest gains,” he says, “if mortgage rates remain in check and economic conditions continue to improve.”

Source:www.yourmortgage.com.au

Australia’s political deadlock is set to hurt financial markets with the uncertainty expected to send share prices and the local currency lower, analysts said Sunday.

In elections Saturday, neither the ruling Labor Party nor opposition Liberal/National alliance won enough seats to govern alone.

“Markets traditionally don’t like uncertainty and clearly markets would have been anticipating a (clear) result,” UBS economist Scott Haslem told AFP.

“So the market will have to deal with some uncertainty when it opens up on Monday.”

In advance of the election, Sydney’s main share index lost 1.07 percent, or 48.1 points, to 4,430.9 on Friday in line with regional falls.

Haslem said the Australian dollar would likely fall amid the stalemate, which has seen Labor Prime Minister Julia Gillard and her conservative opponent Tony Abbott battling to win the support of five minority MPs.

“What is more likely is that you end up with more volatility than you end up with a fundamental move in the currency, because fundamentally nothing has changed (to the economy),” he said.

The hung parliament leaves the future of the government’s plans for a tax on the nation’s profitable mining sector and a national high-speed broadband network hanging in the balance.

Commsec chief economist Craig James said any political uncertainty was “a major negative for financial markets”.

“In the short term the Aussie (dollar) has the potential to lose ground,” he told AFP, saying the currency could lose as much as one US cent after closing Friday at 89.05 cents.

MELBOURNE could overtake Sydney as the least affordable Australian city to buy a home in if trends showing housing affordability plummeting to near-record lows continue.

A combination of interest rate rises and property price growth has seen housing affordability worsen more in Melbourne than other capital cities over the past year.

The deteriorating situation for first home buyers and young Australians was revealed in the latest Housing Industry Association affordability survey for the June quarter.

The HIA-CBA Housing Affordability Index fell 9.1 per cent over the last three months to be 32 per cent lower compared to the same period last year, showing a worsening situation nationally.

Affordability in regional Victoria fell by 9 per cent. In Melbourne, it dropped by 6.7 per cent, down 39.8 per cent on a year ago.

The index combines interest rates, household incomes, home prices and other factors, such as the removal of the first home buyers’ impetus to determine housing affordability.

It doesn’t give a suburb-by-suburb breakdown of the most or least affordable places in capital cities or regions.

According to property analysts RP Data, the most expensive electorate to buy a home is Wentworth in NSW. It includes Sydney’s wealthiest suburbs: Point Piper, Bellevue Hill, Vaucluse, Double Bay and Dover Heights.

On a more simple measure of affordability, the median house price of the marginal Liberal seat held by Malcolm Turnbull – which needs a swing of 3.9 per cent to change hands – is a staggering $1.65 million.

By contrast, Julia Gillard’s safe Labor seat of Lalor – held by a margin of 15.5 per cent – has a median house price of $300,000 and is the most affordable metropolitan electorate in Australia, RP Data analyst Tim Lawless said.

It includes the suburbs of Laverton, Point Cook, Werribee, Rockbank and Melton.

Neither main political party has released significant policies addressing home affordability or high house prices, despite the federal election being two days away.

"There has been a dire lack of commitment in this federal election campaign to address the substantial hurdles aspiring home owners face," said HIA chief economist Harley Dale.

In Melbourne, affordability dropped year on year by 39.8 per cent. Affordability in Sydney, by contrast, dropped 33.5 per cent. ”If that trend were to persist then you would rapidly be approaching a situation where Melbourne is on a par with Sydney in terms of [least] affordability,” Mr Dale said.

Housing affordability reached a record low in March 2008 when bank interest rates were above 9 per cent. The latest score on the affordability index in Melbourne is one point above the low of 2008.

The largest falls for the June quarter were recorded in Sydney (-9.1 per cent), Regional Victoria (-9.0 per cent), Regional Tasmania (-8.8 per cent) and Adelaide (-8.7 per cent).

Story by Simon Johanson domain.com.au

EIGHT out of ten Australians are worried about a lack of infrastructure and affordable housing given the growing and ageing population, new research shows.

The nationwide polling, carried out by Galaxy, found more than 90 per cent of Australians believed both federal and state governments needed to do more as the country’s population over 65 doubles and the number of taxpayers to support them halves.

Commissioned by The Benevolent Society, the research found the vast majority of people backed calls for a high allocation of low cost or subsidised housing.

"What struck us the most about the research results is the high level of concern across all age groups – from 18-year-olds to over 50-year-olds," said Richard Spencer, CEO of The Benevolent Society.

"It’s surprising that 90 per cent of respondents expressed concern about Australia meeting the costs associated with our ageing population, and even more in each age group agreed on the need to create more affordable housing."

The findings supported recent studies showing elderly renters on low incomes were one of the most vulnerable groups in the housing market, said Professor Peter Phibbs, from the University of Western Sydney.

"All tiers of government need to do more to provide better housing opportunities for older Australian renters," he said in a statement on Tuesday.

"State governments can use their land use planning systems to encourage the sorts of affordable housing outcomes that would be suitable for this group."

Mr Spencer said older Australians often resisted moving into nursing homes.

"They want more choices for late old age than the current options of staying in unsuitable houses where they risk accidents, institutionalised nursing home care, or distant retirement villages where they are cut-off from family, friends and established support networks," he said.

The poll showed Australians believed the main consequences of the growing population were a lack of infrastructure (81 per cent), a lack of affordable accommodation for low income earners (80 per cent) and overcrowding in cities (75 per cent).

It’s a question many parents are facing – do kids really need their own rooms? It seems to have become a community norm that even very young children will sleep in separate bedrooms unless parents are "forced" to put them together because their home isn’t big enough and they can’t afford something with more bedrooms.

In fact, families upgrading into bigger homes have underpinned much of the market activity in Australia’s capital cities this year. Having sold off their first or second property to an eager first home buyer during last year’s rush to cash in on the Federal Government’s boosted grant, upgraders hit the leafy suburban streets, looking for something bigger and better to house the kids.

The usual profile is of a family that has one child on the ground with another on the way, or recently landed, that wants to get something a bit bigger where each can have their own bedroom. But maybe someone forgot to ask the kids? It seems, given the choice, many young children would prefer to share a bedroom. I found this out recently when I was pondering how to shrink the extended going-to-bed hours of my three-year-old and one-year-old, who were in their own rooms with their own bedtime routines.

Having them in the one bedroom seemed a sensible answer. And when asked for his opinion, my son’s immediate response was "Yes". So how’s it going? No more extended patting to sleep of the one-year-old who is now happy to lay in her cot and listen as I read to her brother. And my three-year-old isn’t feeling so scared to be left alone in his room, either.

It’s a step that’s freed up a spare room, and really broadened our housing options. Granted, given they are a boy and a girl, there will come a time in a few years when it won’t be appropriate for them to share but for the mean time we think we can easily get away with a three bedroom or even two bedroom house for a few years.

It makes you think, do we really need all the space we think we do? We know Australians build the world’s biggest houses, pipping even the US. Along with media rooms, home gyms and offices, we’ve also been adding extra bedrooms. As previously pointed out by CommSec economist Craig James, about 20 years ago only one in every six homes had four or more bedrooms. By 2006 it was one in every 3.5 homes – which seems a little counterintuitive given family sizes have for a long time been shrinking.

Let’s not be too harsh on parents. Going by the many tortured discussions on internet forums about whether parents should put their children in a shared bedroom, parents are not just blindly assuming their ankle biters need privacy from the time they are a month old. And it might not be just about the number of bedrooms.

One of the factors that families who are fleeing two-bedroom homes or units to bigger properties often talk about is the lack of living space, because, like it or not, lounge rooms big enough to accommodate toys, books and kids’ other paraphernalia are generally found in big houses with three or four bedrooms. Not in the cramped conditions offered by two-bedroom semis or terraces. That could start a whole new discussion on housing design, and whether we need to shrink bedrooms and make room for more space that you actually spend time in when you are awake.

Carolyn Boyd is a property journalist and keen follower of Australia’s housing market.

I’ve been thinking lately of setting up the lounge in the toilet. The dining room table too, and maybe the kitchen, if I can squeeze it in. There’s the obvious matters of hygiene to overcome but at a pinch, you can always do at least some of the ho-hum toileting stuff in the old kitchen sink, as shown by New York Post editor Col Allan when he was on Aussie shores.

In this chilly weather it’s been easy to sort out where the warmest, sunniest part of the house is. Yes, the smallest room in the house is also the brightest, while the places you actually want to spend time in (for longer than it takes to read the morning news or a trashy mag) are darker and cooler than a cave.

In an old house it’s easy to think ‘well that’s how they did things 100 years ago’. But the loo in question is actually in a newish rear extension that also houses the south-facing kitchen and dining area. Someone needed to give that draughtsperson a compass and show them which way was north.

It’s little wonder that we have one of the highest environmental footprints in the world (per capita) if this is how we continue to design houses. Short of hanging out in the toilet all day, or the bedrooms (which also face north), enticing though it is to sleep until lunch, the only way to get warm in the "dark zones" that are the living areas is to really crank up the heater. Last power bill? $600. And that’s not even including the gas for the main heater, so you can probably factor in another few hundred dollars there. If the house design is hurting my hip pocket, it’s also sucking up a more natural resources than it has to.

The place I’m talking about is a rental. If it was mine I’d be tempted to call in a builder to sort the mess out. But realistically, it’s much harder and way more expensive to fix something once it’s built rather than just plan it well in the first place.

Admittedly it doesn’t help  that it’s a home with gorgeous old high ceilings, up near which there’s probably a metre-thick blanket of warm air floating, hovering enticingly above our heads. But I can live with them, they look great and help keep the house cool in summer, even though they’re not recommended in modern green homes.

But a home that takes advantage of the lower-in-the-sky winter sun and baths the living areas in warmth is high on my wish list at the moment. Building codes such as BASIX in NSW have done a lot to raise awareness amongst home builders that the direction you face your main living areas is important. But it seems there’s still a fair way to go.

It makes sense that as energy prices rise over time, home buyers will also be prepared to fork out more for energy-efficient properties that keep them comfortable and cut their utility bills. We’re not there yet … but we can only hope the day comes soon. Then many more homes would be designed with such basic but vital things as the path of the sun in mind.

Carolyn Boyd is a property journalist and keen follower of Australia’s housing market.

She writes for domain.com.au

When yours truly was on Seven’s Sunrise back in May it was acknowledged by both David Koch and myself that the Reserve Bank of Australia (RBA) would be unlikely to lift rates that day, with the knowledge that things were looking worse in Europe and there were already signs of a slowdown on housing here. We were wrong.

The RBA lifted rates that day by yet another quarter point to 4.5 per cent. At the time it was largely expected by economists.

However, I believe it was a serious mistake to lift cash rates; similar to the mistake made in 2008 when the RBA thought lifting rates was a prudent idea in the first half of that year.

Now, sure, the RBA board members do not have a crystal ball and can only go on present information at hand. So it was not to know of the events on Wall Street and in Europe later in the week (the so-called "flash crash").

However, Europe had been simmering for some time before May and as each week had gone by in March, and then in April, the situation was becoming worse and worse.

Yet the RBA moved rates higher in May largely on the belief the housing market was still surging ahead. This belief was due to, among other factors, auction clearance rates.

But, as I have stated before, there has been an increasing number of passed-in auctions failing to make it into the official results and clearance rates.

The problem with this is that the RBA has been relying on auction clearance rates to get an indicator of the market. Naturally, to think that it may have lifted interest rates in May partly based on incorrect data is a disturbing thought.

Now, not much more than a month later, the banks are starting to cut their fixed rates. And banks only tend to do that when they are sure cash rates have peaked.

Even the real estate spruikers have been stating the housing market is slowing. You know the market is seriously slowing when they do that.

The positive news in all this is that the probability of further interest rate rises this year has all but been eliminated. And I believe the next move is actually going to be down.

That is because the RBA was lifting rates to stop a potential housing bubble. Now that risk has gone and, indeed, the risk has increased for house price falls, the RBA can accommodate a cut and will likely make a cut if Europe drags us down and/or house prices retreat.

The RBA will never admit it, but it made a mistake in May. And that’s why I believe the probabilities have risen that the next move will be down.

Louis Christopher is the managing director of SQM Research and the head of property at Adviser Edge.

The Reserve Bank has opted to keep interest rates steady at its board meeting today.
It was a widely expected move and will give mortgage holders another welcome breather from the six rate hikes they have endured since September last year.

"It looks as though the earlier interest rate hikes are already biting," says Domain.com.au blogger Carolyn Boyd. "Auction clearance rates are down and house price growth is cooling. Real estate agents are also reporting there are less people looking to buy."

Each 0.25 per cent interest rate rise adds another $50 to the monthly cost of an average mortgage. Australian mortgage holders are already paying about $300 more per month in repayments than they were in September last year.
Mortgage holders on variable interest rates are currently being charged about 7.4 per cent by their lenders.

When June-quarter property prices are released in the next two months, it’s likely we’ll see house price growth down markedly from the rates we saw in March and December.

The figures probably won’t show falling prices but growth will be a lot closer to zero than it has been for more than a year.

That in itself would be an unusual result. The fall in housing finance figures compiled by the ABS has been steep and would normally suggest falling prices, not just a fall in the rate of growth.

Overall, the number of housing loans for owner occupation, excluding those for refinancing, is down more than 30 per cent year on year for NSW.

One reason the downward effect on house prices hasn’t been as pronounced as we’ve seen historically is that it was accompanied by a rise in the proportion of housing purchases not involving mortgages.

Or another way to think about it, the lack of a significant fall is partly due to a fall in the proportion of first home buyers, who recently have had a much greater propensity to use mortgages for their purchases.

The other reason is the increased level of investor activity, reported separately to the owner-occupied numbers that are usually considered to have the biggest link to prices.

Nationally, the value of loans taken out by investors is up nearly 30 per cent year on year, according to the ABS, and brokers and financing groups are reporting strong upswings in investor activity as the competition from first home buyers and upgraders continues to dissipate.

This has helped cushion the effect of the withdrawal of first home buyers and upgraders from the market as interest rate concerns dominate.

Matthew Bell is the economist for the Fairfax-owned Australian Property Monitors.

Australia must do better in the supply of housing – a supply gap that could grow to 600,000 by 2028/29, Treasurer Wayne Swan has warned.

Mr Swan told a Property Council conference in Canberra that the National Housing Supply Council estimates the country’s housing stock is currently short of 178,400 dwellings.

"It seems that the supply of housing in Australia is not as responsive as it could be, and this has been the case for some time now," Mr Swan said in a prepared speech on Monday.

He said reasons for this supply shortage were impediments created by various regulations, slow planning and zoning processes, and complex, uncertain and time-consuming systems for charging developers for infrastructure.

"In the worst-case scenario, it can take as long as 15 years to proceed from the identification of suitable land to a completed house," Mr Swan said.

"We can do better than this."

He said commonwealth and state treasuries and premiers’ departments were now fully engaged in the process of designing reforms to improve the operation of the housing market.

"I’m determined to see the Australian government play a role in reforming the housing market for the long term, embedding better practices in planning and zoning and developer charging," he said.

Mr Swan reeled off a number of initiatives undertaken by the federal government in its efforts to improve the functioning of the housing market.

These included a $6.2 billion national affordable housing agreement with the states, $5.2 million of stimulus money to build more than 19,300 in public housing stock, and a $512 million housing affordability fund.

This is on top of a national rental affordability scheme that encourages institutional investors to deliver low-cost rental housing, the first-home saver account and a more generous first-home owners grant during the global financial crisis.

The government is also committed to $27.7 billion in urban and regional road infrastructure that will help support housing.

"These are all important steps and they will all contribute to improving the functioning of the Australian housing market and, in particular, the supply of low-cost housing," he said.

Believe it or not, whilst housing affordability remains a huge issue in Australia, there are still options for the price sensitive purchaser. It’s no surprise they just need to target areas further away from the CBD.

Housing finance data released last week showed that across the country non first time buyers in New South Wales had the greatest average loan size at $315,400 and Tasmanian’s were taking out the smallest average loans at $194,000.  It is extremely rare that anyone would be receiving a 100% loan so for the purposes of the following analysis we have assumed that borrowers have a 10% deposit, therefore they are borrowing 90% of the total value of the loan.  Based on this assumption we can determine their borrowing power which indicates how much the purchaser could have potentially purchased a property for.

On average, purchasers in New South Wales demonstrated the greatest buying power, spending on average $350,444 and Tasmania purchasers had the least amount of buying power at $216,556.  This outcome is to be expected and reflects the characteristics of these markets with New South Wales having the most expensive property market and Tasmania the most affordable.

Looking at capital cities we are all aware that affordability is an issue however it is interesting to note that across all house sales within capital cities, Sydney, the nation’s most expensive housing market, actually had the greatest proportion of total sales priced below the determined level of borrowing power.  21.8% of all Sydney house sales were priced below $350,444.  Obviously most of these are situated in the outer more affordable areas of the city however, it shows that affordable property is still available.  The next best performer was Canberra where 15.3% of house sales were priced below $301,556.

Affordable property is much harder to come by in Perth.  Only 11.8% of all Perth house sales during the last 12 months were at prices below $324,444.  As is the case in most instances the areas where these properties are available are generally the outer more affordable regions of the city.

The Campbelltown Local Government Area (LGA) on the southern outskirt of Sydney has a current median house price of $317,500 which is well below the average borrowing power for the city.  As a result, Campbelltown has had the greatest proportion of affordable sales of any capital city council area in the country over the last year.  71.1% of Campbelltown’s house sales were priced below $350,444 during the last year.

Across the list of LGA’s / Districts detailed, Sydney LGA’s led the way providing nine of the 20 capital city LGA’s with the greatest proportion of sales being affordable for non first time buyers.  All of the Sydney LGA’s detailed are situated some way from the CBD area and all have a median price below $400,000.

Darwin LGA’s were the only regions which had no representation on the list however, Brisbane, Adelaide and Canberra each had only one LGA.

The result of the analysis shows just how important it is to dig a little deeper with data.  The housing finance numbers show us how much people are borrowing and with a few assumptions we can determine where these buyers can afford to live.

Clearly if you are an average income earner and want to own a house it’s pretty unlikely you are going to be able to live in the blue chip inner city suburbs (although there are some examples, very few, within these areas).  If you are an average income earner looking to buy property, more than ever location is becoming the most important attribute.  The best prospects for growth in property value and the most desirable locations in which to live are those suburbs which enjoy proximity to: public transport, retail and social amenity, schools, working nodes, health care, public open spaces and major roads.

Whilst the locations where the affordable properties tend to be located may not have all of these attributes certainly many of them have a number of the desirable features and purchasing in those areas will likely make for a more enjoyable place to live as well as greater potential for future price growth.

Story by JoeyJ realestate.com.au

South Australians and Victorians tend to keep their options basic, whilst Queenslanders prefer to spice it up the most. What state you live in can determine just how you choose to do it. Borrow money that is.

South Australia

It’s often said that South Australians like to saviour the good things in life – food and wine.

Sex too, if you are to believe South Australian men, of whom 64 per cent told La Trobe University researchers that they had an extremely physically pleasurable relationship, much higher than the 45 per cent of Melbourne fellas and 44 per cent of Sydney blokes in the same survey.

(Interestingly, the percentage of women in all cities who agreed that they also had such a relationship was 31 per cent, 38 per cent and 36 per cent, respectively, but I digress…).

When it comes to housing loans, though, South Australians prefer plain vanilla. An astounding 69 per cent of all new loans through broker Mortgage Choice in South Australia are for a basic package.

Mortgage Choice spokeswoman Kristy Sheppard says basic variable loans can appear more affordable but have fewer features at the borrower’s disposal. They tend to be more popular with people on lower incomes and less experienced borrowers who are still finding their feet in mortgage land.

“This state’s demand for ‘no frills’ loans, which tend to have a lower interest rate and fees, says a lot about the conservative nature of South Australians,” says Sheppard. “SA residents tend to be good savers and are careful with their money.”

The broker recently surveyed South Australians who were planning to buy their first home before next February and found more than one-third (35 per cent) will have a deposit of 20 per cent or more to contribute towards their purchase.

This was the highest of any state and well above the national average of 29 per cent. Admittedly they have a lower bar to reach – Adelaide has the lowest median house price of the mainland capital cities.

Victoria

Victoria also shows a strong preference for basic variable loans though this has occurred only over the past 18 months. Before that, demand for basic and standard variable loans from new borrowers was pretty much neck-and-neck.

“Victorians are more cautious with their money, are strong savers and tend to be better informed about budgeting, managing their money and the mortgage process,” says Sheppard. “With Victoria predicted to experience exceptionally strong population growth in the coming years, it will be interesting to see where the demand for different loan types heads – will the state’s residents become less conservative?”

Standard variable loans are often priced slightly higher than basic variable loans, they tend to offer greater flexibility and features such as access to “professional packages” that, for a fee, provide a discounted rate and other benefits.

Western Australia and Queensland

Residents within the resource states tend to be the biggest consumers of loans with all the options.

“WA and Qld residents are happy to make slightly higher repayments in return for ‘bells and whistles’, which indicates they are less risk-averse and perhaps more capable of dealing with interest rate rises,” says Sheppard.

WA and Qld also have younger aspiring first home buyers, and more young people buying solo than in other parts of Australia. Many plan to buy their first home before they turn 30. In the other mainland states, the highest proportion of buyers-to-be are 30 years and over.

NSW

NSW tracks closer to the commodity boomers than it’s western and southern neighbours. A flood of first home buyers after the Federal Government’s first home owners boost was introduced in October 2008 has driven demand for basic variable home loans.

Before that, the preference was for more flexibility. Now it’s pretty much even-stevens with basic variable more in demand, but only by five percentage points.

Perhaps it’s got something to do with mortgage size. Almost one in three potential first home buyers in NSW intending to take out a mortgage of $400,001 or more, according to Mortgage Choice’s 2010 First Homebuyers Survey. This was the highest percentage for any state and noticeably higher than the national average of 24 per cent.

Story by Carolyn Boyd Fairfax Digital

The housing industry has lashed out at the Reserve Bank’s rate rise today, claiming it will discourage the construction needed to relieve the nation’s housing affordability crisis.
One developer went further, claiming future rate hikes threatened to trigger a collapse of Melbourne’s housing market.
The RBA lifted interest rates to 4.5 per cent from 4.25 per cent today, pushing up the monthly cost on an average $300,000 mortgage over 25 years by $46. It’s the sixth increase since October, which together have added an estimated $300 in monthly repayments to borrowers.
Housing Industry Association senior economist Ben Phillips predicted housing affordability will sink to new lows in the coming year as interest rates rise and the nationwide shortage swells to 200,000 homes.
”Negative signs are already appearing in the new homes market with both building approvals and home lending figures down over 2010,” he said.
Rising costs for loans shrinks the number of would-be purchasers of homes. That in turn saps the demand for the new construction of homes, although substantial numbers of would-be buyers are estimated to be avoiding the supercharged market in which prices jumped 20 per cent in the year to March.
Mr Phillips said higher interest rates wouldn’t help the increase the supply of housing stock called for in the Henry Tax Review released this week. The government either shelved or rejected recommendations including the introduction of a land tax and reductions to negative gearing deductions.

RBA ‘out of its depth’

Leanne Pilkington, general manager of Sydney real estate agency network Laing+Simmons, said the rising interest rates confirmed that ”the RBA is out of its depth when it comes to devising measures to control an overheated housing market.”
Blaming the imbalance between housing supply and demand, Ms Pilkington said, ”Interest rate increases are clearly having no impact on dampening inflated residential property prices, particularly in New South Wales.”
Victorian property developer Villawood Properties labelled the RBA’s rate move ”impetuous” saying the demand in the Melbourne market is already slowing and further rate rises could trigger a housing collapse.
”With much of the demand in the current market fuelled by foreign investment, the Federal Government’s recent proposed restrictions will assist to ease demand on its own – without the need for today’s rate increase,” said Villawood Properties executive director, Rory Costelloe.
”Should the RBA continue to push rates skyward Melbourne’s strong property market is likely to experience a housing collapse.”
Melbourne led home price rises in the past year among capital cities, rising almost 28 per cent in the year to March, the Australian Bureau of Statistics reported yesterday.
The government has tightened requirements on foreign buyers last month in response to anecdotal reports of a flood of overseas money coming into the local real estate market.

Impact felt

Australasia’s largest real estate and property group, Ray White, said the central bank’s interest rate strategy was finally having an effect on residential sales.
The Ray White Group’s Australian business grew by 8 per cent in April, compared with a year earlier.
”This was the slowest increase on (the) previous year’s results since the economic downturn of late 2008,” said Ray White Joint Chairman Brian White.
”Judging by our April results, it looks as if the interest rate increases are having an impact on activity in the Australian residential market,” the company said in a statement.

czappone@fairfax.com.au