Mortgage Shopper

Mortgage home buyers want home savings.

Home Savings has become the new want for home buyers and homeowners looking to refinance.

If you are buying a house, home savings is what your should be looking for, and if you are a mortgage broker, home savings 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

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.

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 secondary gain trap. People have been switched off spending so long that they are rusted on to 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. Who? The savers. They get more for their money when interest rates are high. And the savings epidemic is creating 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.

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 add of the magic of compound interest, let alone more people in the system, higher participation of the population and a proposed higher rate of superannuation contributions, you can see the snowball is becoming a mountain.

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. They want home savings

Just make sure you don't fall into the bank's trap and them start thinking its all about you. It not. It's about the customer, and what they want.

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

Interest rates: Up or down for RBA in mixed figures is a split decision

Australia's Inflation rate falls below 2%. And February's inflation was just 0.1%. Is that the trigger? Or will low unemployment cause RBA to pause?

In the twelve months to March 2012 inflation has fallen below 2%, and this is seen by many to be a good indicator that the RBA will reduce interest rates by .25% Australia has the luxury of the ability to reduce interest rates at least two percent if the need arose to kick-start the economy, and some are saying that the time to act is now.

The "Goldilocks inflation rate band" is 2.0% to 2.8%

The RBA would be reluctant to move on interest rates anytime inflation is in the Goldilocks band. That rate is between 2.0% and 2.8%. Now that the inflation rate has moved below that range band hopes are rising in property investment industries and the "mortgage belts" of Australia that the rate will be reduced, at least to compensate for the big bank rate hikes in recent weeks to fill the profit gap squeezed by Government Policies that banned many bank fees and charges.

The inflation rate was just .1% for February and that may be a trigger to get the RBA to take action.

Market view is a hold on Interest rates is the most likely outcome tomorrow.

On the other-hand the market view is that the RBA is more likely to stay put on interest rates, and leave the cash rate at 4.25 per cent when it meets tomorrow. With unemployment low at at steady 5.2%, and many believing that the RBA views house prices as needing to fall further to make housing more affordable, a hold on mortgage rates is the most likely income.

So the pinch on mortgage repayments looks likely to continue.

If you are feeling the pinch, maybe you should look at the great mortgage rates on offer at non bank lenders. That way you will get a reduction in home loan repayments regardless on what the Reserve Bank of Australia decides. Just a thought.

Are Australian Mortgage Loans turning Japanese? Yes I think so

Japanese banks prepare to launch a surprise attack on Australian Mortgage Profit margins

Australia's big four banks, CBA, NAB, Westpac and ANZ are the envy of the banking world.

Yet Japanese banks have been in operating successfully in a recession economy for twenty years.Then something happened. A big Japanese builder bought out Iconic Australian project home builder AV Jennings, and the secret profits got back to Japan.

The interest rates they operate on are puny compared to Australian Home loan 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.

At the February RBA 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 fundings 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 else to go.

Japanese lenders are brimming with low cost cash because of the recession, and the Japanese savings ethic.

Australia's trillion dollar mortgage pie

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

A Japanese Bank raid a cakewalk for four good reasons

1. Australians have no loyalty to their banks. They will change lenders, and do so often.
2. 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.
3. An open Mortgage Broker channel. Single unit and franchise mortgage brokers have established channels that the Japanese raiders can tap into instantly.
4. They could also operate an online 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 anyone where home affordability is important, including the real estate industry, the home building sector, land developers, mortgage brokers, as well as homeowners and home buyers looking for a better mortgage deal.

 So will Japanese banks succeed in turning Australian home loan Japanese? yes I think so!

Mortgage Lenders: Small U.S. home loan lenders have reform concerns

Mortgage lenders and community bankers across the US are lobbying lawmakers over proposed new federal home loan credit rules as the end on the discussion period looms.

The new mortgage rules seek to reduce risk-taking on mortgage lending, but mortgage lenders say the guidelines could hurt small banks and would be bad for credit markets. The Securitized Lenders rules are part of the recently passed Dodd-Frank "Wall Street overhaul bill".

Mortgage Securitization and home loan lending Rules under contention

Now US finance regulators need to establish guidelines for originators of securitized loans, to prevent the problems that lead to the US financial meltdown.

One of the key aims of the legislation is to reduce risk-taking.

The legislation proposes to do that by enforcing mortgage lenders/originators to hold a 5 percent stake in any debt instrument pooled in the secondary market.

Will small banks leave mortgage lending?

Many people believe that making the lenders partly responsible, and tied to the home loan outcomes will see many banks leave mortgage lending, fearing the consequences of being saddled with "hurt money".

The fear is that many home buyers will be denied access to mortgage credit should mortgage lenders leave the housing market.

Is the 20% down & equity rule too harsh or a healthy safety lending margin?

The law gives an exemption for mortgages deemed to be safe enough and gave regulators the task to define such suitable loans.

Regulators have proposed an exemption for the so-called qualified home loans when borrowers make 20 percent or more down payments or equity in the home for refinance purposes.

Some believe that this should be reduced to 10 percent as 20% would kill home loan lending and home values would sink lower still.

 

Source: Mr Mortgage

Reverse Mortgages: Why Are Big US Banks Exiting The Reverse Mortgage Business

Bank of America and Wells Fargo are not only two of the biggest banks in the US, they are in the top 25 Enterprises in the World. So why have have left the reverse mortgage business within months of one another?

SImple Economics have driven Wells Fargo and Bank of America from the reverse mortgage business.

Both Wells fargo and Bank of America have ceased originating reverse mortgages because the economics of that loan product have come under pressure.

With the two biggest players originating nearly half of all reverse mortgages their departure will leave a big dent in seniors being able to take advantage of these loans in the US.

What are Reverse Mortgage?

It is where the bank buys back the equity of your home, and a method for senior home owners [62+], can supplement their retirement incomes in return for that equity.

Our homes are generally our biggest asset and if you are over 62 years old and require supplementary income to live on then a reverse mortgage may be an option you might wish to consider.

Reverse mortgages allow older homeowners to tap into their their home equity. Instead of the homeowner making repayments, the banks pay the borrowers.

As before, homeowners continue to pay rates taxes and insure and maintain the property. And that is the fly in the ointment. Because many homeowners cannot afford the home insurance and the rates and taxes and maintenance, so the banks risk holding an asset with a falling value and having to foreclose on seniors. Not a good look for a bank, though this is yet to happen currently.

And the other problem is the continued slide of home values in the US, and rising taxes for the homeowner to pay. As a result, banks have noticed a rise in "technical defaults", when homeowners fall behind on their taxes or homeowner’s insurance and maintenance, all of which need to be met to avoid foreclosure. About 5 % of reverse mortgages are apparently in default on at least one of those items.

Falling home prices mean less people can qualify for a reverse mortgage

Less borrowers can qualify right now in any event.  Because falling house prices mean that fewer properties will qualify for reverse mortgages. In many cases a loan modification would make more sense, to save the homeowners from foreclosure.

The final straw is that lenders cannot assess a borrower credit and ability to repay, so banks were flying blind in approving these loans. In fact a lender cannot decline the borrower, because the loan is deemed an asset loan, and as such based solely on the value of the property.

Why Reverse Mortgages used to be such a great idea for lenders and borrowers.

Before the Global Financial Crisis and mortgage meltdown in the US, the typical borrower would get the reverse mortgage, and equity in the home would continue to build as the asset value increased.

This would provide borrowers with more options — like refinancing — should they fall on hard times. Declining home values have changed that paradigm for both bankers and consumers. Borrowers have not been able to pull out as much money.

The final nail in the coffin for reverse mortgage loans

At the same time, the government has also tightened its withdrawal limits, and minimum equity levels. SO with house prices falling it means that the homeowners will get less if anything for a reverse mortgage. This looks like continuing as more home equity goes "under-water".

Both Wells Fargo and Bank of America will continue to service their existing reverse mortgages. Thye just will not originate more of these loans.

Where to go for a reverse mortgage now?

Finding a reverse mortgage lender will be more difficult, but not impossible. The exit of Bank of America and Well Fargo will be felt as they provided nearly half the loans. But the other players are expected to raise origination volumes to cover about half the shortfall. The other borrowers may miss out. For many of them the loan modification route may make more sense.

Housing Market : How to fix Australia's housing shortage & high house prices

Is increasing land supply the real key to bring down house prices?

Australia's housing market is a key driver of the domestic Australian economy. This article attempts to shed light on the true cause of our high home prices and that over priced land is the the real cause of our our over priced homes.

The case for massive land development for new home construction

New homes not only provide work for hundreds of thousands of construction workers and tradies, they are the main customers of hardware, timber, roofing, and concrete industries.

Once a new home is built there is a flow on demand for cabinetry, curtains and blinds, kitchen equipment, stoves and appliances, furniture, tiles and carpets, landscaping and out door living, with patios, sheds, swimming pools and spas. Yes, its big business and it drives much of the big ticket retail spending in Australia.

This is the type of spending that has stopped in recent months, and the reasons are obvious, New home sales are down, especially in flood affected Queensland.

Is Housing Australia's biggest asset?

The housing market has a $4.2 trillion capitalised value

Housing construction is at a 12 month low, and that theretail sector is having the worst period in 20 twenty years, we can quickly see that the two powerhouses of Australia's domestic economy are connected, and that when new home sales fall, so does retailing.

In fact I would say that there is also a smaller connection with established home sales and retail sales of house hold items, simply because moving home creates new needs for home buyers that these retail sales satisfy.

The problem for Homeowners credit over supply is being reigned in.

In case you haven't noticed f you are a homeowner, expect to see your home values shrink. SInce the 1970's House prices have risen above inflation and income growth. The main driver was the baby boomers buying their first home, their second home and until recently, investment properties.

Many baby are now slowing down, and are cashing in to downsize, become grey nomads or retire. In the future these homeowners will move to retirement villages and nursing homes.

Average home prices in Australian capital cities fell 2.1 per cent in the March quarter, according to the Australian Bureau of Statistics.

This will continue as baby boomers leave the housing market, sell off their investment properties and hit the road as grey nomads. Their spending patterns will change dramatically once this occurs.

The impact of the GST on House Prices

The GST and first home owners grant was a major driver inflating house prices
The worst thing that the Howard Government did to house prices was the GST. Besides lifting house construction prices instantly, it also drove many older small builders out of building and into early retirement.

That was followed by the First Home Owners Grant, which added fuel to the home prices inflation fire.

Many people point to the First Home Owners Grant as the problem for raising house prices. They forget that this was brought in because of the GST to compensate the first home buyer for increases in the cost of building a home, brought on by the GST.

One or the other would have increased prices of all homes, The two together created a boom for real estate sales that rippled through the past decade. That caused the interest rate hikes we have to wear now.

When you consider that this was at the same time as the last wave of the baby boomer effect in 2002, a perfect storm for inflation was created. Now the new first home buyers have to pay for all of that, and many are not interested in homeownership. They have better things to do with half their take home pays.
After all, renting is cheaper, and you can invest the difference in a liquid investment, and with the recent figures of falling house prices and the Reserve Bank of Australia's  constant threats to raise interest rates, its easy to understand why new home buyers are being over cautious.

Land inflation the hidden cost of new homes, not construction costs

As I have been saying for some time, GST have increased new home costs, as have the increased requirements in building codes around Australia. But these have added little to the cost of a new home. The main cost increases have been due to land cost increases and Government charges on land development.The drivers for those increases ate the First Home Owners Grants at the same time of land development shortages and deliberate scarcity sales tactics by land developers.

In the year 2000 a block of land was around $70,000 [or less]. In 2010 the cheapest block on the Sunshine Coast was $294.000. Yet land was not supposed to have GST on it!If you leave things to the "free market" you will get ripped off.

Some say that Australian houses are ''overvalued'' and should be halved. I don't believe that homes in Australia are over value is nearly as high, or that house prices will fall much more than they have already. But they are too high right now.

But our house prices being the world's highest, does not make sense, given our abundance of land. Our home values are above that of Hong Kong. But we have abundant land and Hong Kong is a tiny island and has land scarcity. Can you see something wrong with this?

Housing demand is elastic. It depends on the home prices.

Can you remember when people were saying we were 200,000 home short of what we need?Well what happened to all those house buyers? They have evaporated

Some would argue that house affordability is driven by interest rates, others by supply and demand, others by incomes.

I believe that these are silly arguments. As we in Australia have abundant land on which to build, it does not make sense that land prices are too high and in short supply.

Government needs to step in and ensure Land is developed to exceed housing demand if it wants homes to be affordable.

We cannot expect private enterprise to fix this, because land developers benefit by high prices, and high prices are driven by scarcity, which they use to keep prices too high.
Also we can't expect builders to build homes before they have house buyers, with the purpose of lowering house prices. That would not make sense.
What is required is a Government plan to oversupply the residential housing land market, for sale at half the current prices and restrict the size of homes, rather than have covenants for ever larger homes.
This will boost home building, and mean that first home buyers will choose a new home over an established one, and this will reduce established home prices. So interest rates will have little effect and affordability will not be a limiter.
We are spending too much on homes and banks are getting the biggest benefit, because the proportion of our wages are been received by banks.

The solution to Housing Affordability and reviving the building industry is halving land prices.

The solution is to bring home prices down over the next 5 years, and the way to do that is to massively oversupply the amount of land available to build on at half the price currently offered. This policy would ensure that mortgage stress is a thing of the past and that housing affordability is never an issue for new home buyers.

Author: Mr Mortgage

Reserve Bank of Australia: Rate rise likely due to inflation

RBA ask home buyers & homeowners to carry the "interest rate" can for the economy again.

Australian home buyers and mortgagor homeowners might get punished By the Reserve Bank of Australia with higher mortgage repayments for the mining boom, the Queensland floods and Cyclone Yasi.

Real economy is going backwards

This grim analysis is based on the wider economy going backwards, with house prices falling in all areas except mining boom towns, fruit and vegetables are growing in price rather than in the fields, and the devastation of the Queensland floods will divert construction to remedial and refurbishment damaged buildings and away from building new homes.

These events have given Australia an inflation rate of 3.3% per annum, and that is over the 3% ceiling the Reserve Bank has set as the top line within its framework of control.

Whilst tightening of credit is an important consideration to keep a lid on the housing inflation , I have always thought that in times like these the RBA would do better to make finance and home loans harder to get, by controlling the lending practices of the banks to require higher deposits. The mining industry is relatively small when you look at the employment side of things. But small business and retailing are huge employers collectively and any rate rise will hit them hardest and not do anything to control the investments made by the mining industry.

Is the Consumer Price Index is a "crock".

How do they work out the CPI in the first place? Food, water and utilities is becoming a diminishing part of the CPI basket and food prices, water and electricity have gone through the roof in recent years. So inflation for families is possibly 10% per annum, not 3.3% that the RBA claim it is for the economy. These fake inflation figures more about controlling demands for higher wages than about reporting the rising cost of living in my view. Where are the unions when you need them? Making credit card repayments and mortgage payments higher on top of the highre food and electricity bills burden burden, and at the same time as family payments and welfare payments are targeted for reduction and savings, could fracture the economy down the middle.

Is the RBA toolbox is too skinny.

My biggest beef with the RBA is it likes to keep it simple, too simple in my view. Interest rate control has been its blunt hammer for decades. Haven't we evolved a more complex economy since then that has better more refined solutions. Interest rate rises hurt too many people these days for the result that they give. Controlling banks lending policies seems a much fairer way to control lending and money circulation. Another method might be to offer a rate reduction for people that set a shorter term to repay their home loan. This would force mortgagors into "saving" and take money out of the economy without the need to make homeowners carry a bigger burden without saving money. So whilst economists say that the RBA rate rise is going to happen sooner rather than later, I ask the question why?

Author: Mr Mortgage

New Home Construction: Has the HIA lost its way with short term fixes for home builders?

As the HIA advocates more Government handouts to stimulate the home building industry I wonder "has Australia's peak housing body has lost its way?"

The IMF are now saying that Government incentives, Stimulus packages and low interest rates hurt home builders and home owners because they disrupt housing sustainability. That is, they are the cause of our housing problems, not the solution: The International Monetary Fund [IMF] gets it, so why doesn't the HIA get it?

Short term housing solutions [incentives] create long term housing problems

The HIA still does not get what now even the IMF understands. That Government home building incentives cause house inflation that has unintended consequences. Those consequences include collapsing home sales and home values, foreclosures and falling home ownership in Australia. We have avoided what has happened in the US so far, but not because of the efforts of the HIA, but in spite of them. Now we need to make the hard tough decisions, that we might have been wanting to avoid facing.

Are home builders to blame to blame for the housing sales slump?

A recent HIA article has put the fall in home buyers at the feet of House builders themselves, saying that they are not innovating home designs.

I don't buy this argument. Yes, innovation is a necessary part of the home building process, but a home builder's job is to build, not innovate designs. That's an architects job.

The fact is that home builders have had to deal with GST, and added government requirements and standards to build homes over the last ten years, and that the fact is that homes would still be affordable, were it not for the price of the land component. And home builders are not responsible for that. So I feel that the HIA needs to look at why homes are no longer affordable, not blame its own members for falling home sales, because they are clearly not to blame.

What's Wrong with the HIA

An undeniable truth.  Any industry that requires constant Government assistance over 10 years, and still fails to deliver on its true core purpose of housing Australians, needs to have a good hard look at itself.

The HIA did not create the problem. But in my view it has failed to see the problem. They are at the wheel of the train when it crashed.  Not seeing the problem has meant it has not used it resources it has to avert the disaster.

Are interest rates the problem?

If the interest rates are the problem, what is the question? If the question is why are homes unaffordable, too high interest rates are still not the answer. The answer the house prices are too high. If house prices were half what they are, then interest rates at 12% would be affordable.

We have allowed ourselves to overlook the obvious. If land prices were half what they are, then established home prices would be lower, because of competition with new homes, and home builders would be busy.

In my view, house prices have got ahead of themselves because interest rates have been too low for too long. This has allowed land prices to get too high.

By the RBA setting interest rates too low for too long, home buyers have lost their sense of value and affordability.

If the monthly repayments were affordable when the mortgage interest rates were 5.5%, how could they be affordable at 10%? The HIA should have seen this ahead, but has said nothing on the subject. The Government should have seen this ahead. But it failed to.

The HIA just moan every time the rates have been increased from the lowest rates in history. This is hardly a realistic approach to the problem.

Even Governments and Opposition members have a go about interest rates, and blamed the banks. Whilst the banks did claw back some of their rate margins, why has this been seen as such a crime?

The greater crime is to allow lax lending and over lending that drove the prices up in the first place.

They may also have a hand in house inflation in lax lending practices, and over lending, but they are not doing that now, and the result is sliding house prices. Tighter credit rules would have stopped at lot of the inflation by not allowing money to be thrown at home sellers.

So interest rates are still too low in my view. Ironically, if interest rates were higher over the last ten years, then home would be more affordable now.

The fruits of low interest rates

The consequences of high interest rates are:

1. Higher House inflation. That means we are all paying too much for our homes than we should be.
2. Higher Land costs. Land costs seem to be set at the cost of  an established home, less the cost of building a home on that land. The problem is that this has gotten ahead of itself, and now land is over $100,000 more than it should be based on that assumption.
3. This means that people that own raw land want a piece of this profit, and that;s created a new problem.
4. The Government has joined in the fun. They have stamp duties and taxes that have helped make new homes unaffordable.
5. Bigger mortgages. Bigger  home prices mean mortgages, and that means more profits for the banks.

So how is this the home builders fault? It clearly isn't. So why have the HIA chosen the blame its members? I suspect that they have been talking to land developers, the ones that have allowed the problem to be created in land being too expensive.

What the HIA needs to do.

The HIA did not create the problem either. John Howard gave us the GST, and the housing inflation that that created. The First Home Owners Grant was the spur that doubled that housing inflation pressure. Successive stimulus packages have allowed us to mask the real problem, until now, when we are all groaning under the weight of mortgages too big for us to maintain at  have normal interest rates. What the HIA needs to do is:

1. Stop asking for lower interest rates, and Government handouts.
2. Start lobbying for lower land prices and the Government to treat development land as infrastructure, and invest in it.
3. Start leaning on land developers to reduce the cost of their land. The sooner the land developers get the message that builders want land prices to fall by 40%, the sooner they will stop buying land at silly prices, and allow governments to put taxes and duties on the land they shouldn't.

The way forward for Australian Housing

If we are to create a sustainable housing market we need to ensure the low cost of housing land, and tighter lending practices. The banks are doing this, the Government needs to act on land, and the HIA needs to get behind housing land price reform, and treating the delivery of cheap land for housing as a basic necessity of life, and an essential infrastructure.

Queensland Home building at crisis point

Home builders are having it tough as home buyers shun high land prices.

The Housing Industry of Australia [HIA] wants more tax payer stimulus, instead of fixing the problem.

What is the problem you might ask?

Land prices are ahead of where they should be.

So what part of the above does the Housing Industry of Australia [HIA] not get?

When you take away the sweet deals for first home buyers, everything falls in the construction industry falls into a heap.

The HIA blame game avoids the Elephant in the room. The Cost of Land.

A brief history of the HIA blame game for anyone that might be interested

1. The RBA for increasing interest rates [houses were easier to sell when interest rates were 12%, if you check your records]
2. Then the Government needs to restate the first home owners grant boost.
3. Westpac and CBA banks for double dipping on interest rates goodness  thathappened because the HIA and the Government chose not to support the non bank lenders when they needed it]
4. Then the HIA turned on its own and blamed the builders for not innovating in home design. This needed to happen 10 years ago, but where was the HIA then?
5. Then they have a talk to the culprits of this mess, the land developers, and are told that its the builders fault because they don't chase up lookers using crm software programs.

The latest HIA statement.

A battling construction industry means a battling employment market. Unemployment goes up. The retail market suffers badly. It's already suffering.

This is just not the case. 

Why I feel like the one eye man in the land of the blind on the home building industry.

I have worked in the home building area since 1985.

I have worked with nine different builders, the good, the bad and ugly, as well in home mortgages.

Each time I went back the home construction industry the customer and the offers had changed.The one thing that matters was the price of land compared to the home.

In that period land prices had risen three times faster per square, than house building prices per square metre.

Now you have to spend more on the land than the house! In a nation as big as Australia? Get real!

This is the core reason that people don't buy new homes anymore. it does not make sense, and that because land owners and developers have constantly gotten more and more greedy.

You can buy homes in cities for less than virgin smaller land lots in the sticks.

Land costs are too high, so holding costs are out of reach. So people don't buy new homes.

Most people building today are second home buyers who have equity in their homes, or who have sold in better markets. People trying to sell now will be as deflated as their home prices are. 

Author: Mr Mortgage

Housing : US proposes 20% minimum deposit to buy a home

Will a 20% down payment plan help or hinder the US housing recovery?

The Future of the American housing market is still unclear 4 years after the subprime bubble burst.

From that we know that things that were tried so far have:

1. Not worked,
2. Had limited success, or
3. Are not sustainable. 

What would a 20% deposit minimum mean to home buyers?

One thing we all know is that getting a home loan will no longer be a walk in the park for borrowers or for mortgage brokers.

First home buyers will be the first to suffer. They will have to be motivated to save a deposit, before they qualify for a home loan.

That will have several implications.

1. Less home buyers will mean lower demand and house prices.
2. First home buyers will build smaller homes.
3. Low income earners maybe precluded from homeownership.
4. Mortgage brokers will leave the industry, looking for an easier way to make a living. 
5. Home buyers will be more reluctant to pursue a home loan, and save the deposit, and that means that homes will be a lot cheaper. 

U.S. bank regulators decided to propose a high standard for home buyers to get the best mortgage rates:

• Only those who can make a 20 percent down payment and have not had problems paying mortgages in the recent past would be eligible for the lowest rates. 

What about mortgage insurance?

Well what about mortgage insurance? Think about it.

The lender was saying "I don't want this loan unless you the borrower stumps up insurance to protect me, the bank from you defaulting."

Is that in the lenders or borrowers interest? Some would argue both, because it meant that you did not have to save much by way of deposit. But it had the effect of allowing more buyers to enter the market and that meant more demand and higher prices. These meant that new home buyers had to pay more and that's what a higher deposit will prevent.

It also meant that easy finance, meant more home buyers, and more buyers meant higher demand and higher prices.

So to see how this would play out.

let's suppose that only people with clear credit and big deposits get cheap loans.

One of the key new regulations would require mortgage lenders to invest in the loans they make, so that if the loans went bad, the lender would suffer.

In the years leading up to the financial crisis, lenders could hand off loans, many of which were known to be high-risk or never to be repaid, to other companies at a discount.

By selling the risk to others, they could then continue to make even more risky loans risky loans till the deal went toxic.

The twenty percent rule and a rate for risk scenario

But these rules would exempt banks from having to retain risk in loans made to borrowers who can offer a 20 percent deposit.

They also would exempt Government guaranteed loans, such as by federal-backed mortgage companies Fannie Mae and Freddie Mac.

What's wrong with the 20% deposit rule?

Home buyers’ advocates have criticized the 20 percent down payment rule.

Regulators had considered mandating a 10 percent down payment and this seems to have had broader support.

1. Many feel that a 20% deposit, and clear credit rule combination maybe too steep an ask for people to save, especially first home buyers.
2. Second home buyers can do this on the equity in the home, if there is any in the US housing market right now. 
3. The 20 percent requirement might preclude banks from making any loans that are not Government Guaranteed. 

Summary

There up to eight different proposals in bills that are trying to resolve the US mortgage industry and revive the housing market.

One thing is for sure. It was a lot easier thing to trash the US finance markets than it is to find a solution.

But all solutions point to making credit harder to lend or borrow. That will have to mean that house prices will be lower for some time to come. In the end home buyers and eventually first home buyers will be better off. But homeownership will become harder to initiate in the years ahead, but an easier thing to continue. In the end, it will be worth it.