Thousands Give Up On Home Ownership Dream
The Age
Thursday July 10, 2008
AUSTRALIANS are abandoning the dream of home ownership in record numbers, with new figures showing a collapse in new housing loans issued since the start of February.
Finance for owner-occupied housing fell by a seasonally adjusted 7.9% in May, says the Australian Bureau of Statistics, and by an unprecedented 25% in the four months to May 31.The figures, blamed on rising interest rates, soaring petrol prices and the rout across global markets, have sounded alarm bells for Australia's home building industry and for the broader economy.The slowing in residential construction predicted to flow from reduced lending could not come at a worse time, as Australia already struggles to house a growing population fuelled by a higher birth rate and the biggest migration boom on record.More than half of Victoria's $20 billion construction industry is residential, so any slowdown will quickly spread to manufacturing, tertiary sector employment and services, experts warn. People locked out of home ownership due to the supply shortage and downturn in lending will be forced to rent, putting more pressure on an already tight rental market and forcing rents even higher. "Australia has never experienced anything like it," said Craig James, chief equities economist at CommSec, referring to the collapse in home lending. "Something has to give unless you are going to have people in their 30s and 40s still living at home with mum and dad.""The situation is unsustainable," Mr James said. "More homes will need to be built to house our growing population." Economists blamed the bigger-than-expected decline in the number and value of new loans on higher interest rates, and the extra strain on family budgets caused by higher fuel and food prices.Melbourne fuel prices hit a record high of 173.9 cents a litre yesterday, and industry experts believe that record could topple within the next week. Across the city at 5.30pm, 64 petrol stations were selling unleaded at the record price. RACV spokesman David Cumming said 173.9 cents was too high a price, given recent wholesale prices, but he expected the cost to continue to climb as world prices filter through to local bowsers. The Westpac-Melbourne Institute consumer sentiment index fell a further 6.7% this month to its lowest since January 1992. Home buyers were effectively "on strike" until they were sure that official interest rates would not rise again later this year, economists said. There are similar problems in the US. Federal Reserve chairman Ben Bernanke hinted at a willingness to give more credit to cash-starved financial institutions, and recommended Congress grant the central bank broader powers to improve stability in the mortgage market.Master Builders Australia chief economist Peter Jones said yesterday that loans for construction or purchase of new housing fell by more than 20% in the past year. He said residential activity looked likely to remain in the doldrums well into the second-half of next year."With housing now suffering serious collateral damage in the fight against inflation, the Reserve Bank needs to rule out further interest rate rises, and the case appears to be building for a rate cut later this year."Reserve Bank governor Glenn Stevens will speak to business leaders next week, and his speech will be analysed for clues to the direction of rates. "The way things are going we are at clear risk of talking ourselves into recession," said Mr James.'If the Reserve Bank policymakers wanted further evidence that rate hikes were working, then they have it in spades." -- With DANIELLA MILETICBORROWING COLLAPSES? In May, new loans fell by 7.9%, the biggest drop in eight years. A 2% decline was expected. ? Over the past four months, new home loans fell by more than 25%, a decline not equalled in almost 30 years of records.? Loans for established dwellings fell by 8%.? Loans for construction fell 5%.? Loans for newly erected dwellings fell 13.5%.SOURCE: ABS, CommSec
© 2008 The Age
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