The dualistic nature of Australia’s housing market continued apace in the first two months of 2009, with RP Data-Rismark observing a one percent rise in overall housing prices in January and February. The gain was predominantly due to price increases in lower-end (affordable) housing. The Financial Review reported yesterday that the top ten percent of houses dropped by 12 percent in the past year (compared with only a three percent decrease overall).

Rismark boss and regular Business Spectator contributor, Christopher Joye, appeared elated at the news, telling the Financial Review that “the improvement highlights the absurdity of the sensationalist predictions by one or two economists in 2008 that prices would fall 30 to 40 percent.”

Joye’s exuberance may be short-lived however, with the RBA finally conceding yesterday that Australia will face recession in 2009 (a claim made by Crikey more than four months ago). Some economists forecast that unemployment may almost double from its current level of 5.2 percent.

Joye of course, very much has a vested interest in property prices continuing to rise. As Crikey pointed out in February, Joye’s company, Rismark, sells a product known as an “equity finance mortgage”, which relies on a steadily rising property market to remain desirable to investors. Not only does Joye have a clear vested interest rising property prices and the success of equity finance mortgages, but he has a tendency to fail to outline his conflict, as occurred in an article for Fairfax’s Business Day last week. While not disclosing that Rismark is effectively a partner of Bendigo and Adelaide Bank, Joye noted that:

More substantive policy opportunity for the banks to work with the community is through debt-for-equity swaps for families facing unemployment and the risk of being forced out of their homes. There is a growing coalition of support for this initiative among socially oriented institutions such as the Bendigo and Adelaide Bank.

The strength in the housing market has largely been caused by artificial factors, specifically, the increased first home owners grant and historically low interest rates. One can only pity the first home buying fool who isn’t able to save a $20,000 deposit, but feels it appropriate to purchase a $300,000 house and land package 35 kilometres outside Melbourne or Sydney.

Given that Australian interest rates and unemployment levels are sitting at historically low levels, it would reasonable to expect that currently, relatively few home owners would be having difficulties making their mortgage interest payments. However, as the Financial Review‘s Daily Reckoning reported yesterday, while only 1.75 percent of full-doc loans are delinquent (more than thirty days overdue):

Nearly twenty percent of low-doc non-conforming loans are more than thirty days past due according to ratings agency Fitch. Fitch says that lower rates haven’t helped folks with non-conforming low-doc loans because borrowers can’t refinance now that most of the non-traditional non-bank lenders who were making the loans a few years ago have vanished in the credit crunch or been swallowed up by the Big Four.

Even now, before the effects of a recession are biting, one in five low-doc borrowers aren’t able to afford the payments on their home. This figure will increase sharply as unemployment and interest rates inevitably rise. But courtesy of conflicted real estate agents, economists like Chris Joye and absurd Federal Government policy, droves of first home owners are being convinced to enter into life-long debt to purchase a property that they cannot afford.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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