Here's a very sobering negative:
The mortgage monster
Author: David Koch
Date: April 27, 2008
Publication: Sydney Morning Herald
The combination of the highest relative property values in the world with the highest official interest rates naturally produce high home loan repayments. Just how high and how painful is now becoming more than obvious. Anecdotal reports of rising repossessions and a huge increase in forced sales are now spreading from so-called blue collar suburbs to properties in the $1 million to $5 million valuation range.
Mortgage stress is spreading across all cities, suburbs and demographics. Overgeared families are obviously the most vulnerable but wealthier Australians are now being caught as they liquidate assets to meet margin calls on highly leveraged share portfolios caught in the equities downturn.
The latest research from Fujitsu Consulting claims more than 900,000 Australians will suffer mortgage stress by September, 400,000 of those will be in severe stress and 80,000 could lose their homes because they can't meet the loan repayments. Severe stress is defined as being unable to meet repayments without refinancing, with many having to put repayments on their credit card.
While inflation reached a 17-year high during the week, these mortgage stress levels should send shockwaves through next month's Reserve Bank board meeting. Yes, the CPI figure is outside of the Reserve Bank's target range but the price increases are not the result of a wild spending spree by heartland Australia.
Retail sales are down, housing finance has slumped, consumer sentiment has crashed and the property market is down. It's not as if everyone is out partying. A case can be made that much of the CPI increase is imported through the impact of higher oil, food and health prices.
For an indication of just how savage our interest rate levels are, official rates in the US are 2.25 per cent, Canada 3 per cent and Britain 5 per cent. Compare that to Australia's official rate with 7.25 per cent.
Australian home loan borrowers are paying triple the repayments of American property owners. So it's not surprising that more and more consumers and businesses are sinking into debt. Too many people are sinking further into debt as each week passes.