2010 May 31 Monday
ING Bank To Feed Australia Housing Bubble
Having seen how well housing bubbles worked out in the US and Ireland the time has come to innovate in Australia.
ING Direct, Australia's fifth largest lender, is preparing to sell loans that have no fixed term and no requirement to repay any capital along the way.
At current rates, the interest-only loans would cut repayments on a $300,000 mortgage by $5000 a year.
Repayments would be kept to a minimum, allowing borrowers to benefit from capital growth in their property.
This insanity is needed because prices are too high. Of course this will keep prices going up by making it easier for more to buy. That'll make housing too expensive even with no principal paid on the mortgages. So then it'll be time for another innovation.
"People are needlessly being denied the chance to buy a property while prices spiral rapidly out of their reach" ING Direct CEO Don Koch said.
Have they tried teaser rates yet? Are they going to this no principal payment idea because they've already copied all the innovations that helped make the US housing bubble such a smashing success?
ING Direct is bringing out this type of mortgage at a time when Australia is still in a housing price bubble.
THE average Sydney house is more expensive than its equivalents in London and New York, a comparison of real estate in the world's biggest cities has found.
Residex figures show the median cost of a Sydney house is $651,500 - almost $190,000 ahead of London, where the median price for a two- to three-bedroom house is $462,000.
A two-bedroom, free-standing house in the New York City metropolitan area (not including Manhattan) is about $180,000 less.
But isn't Sydney a nicer place to live than London or NYC? I've always wanted to visit Australia or even live there for a while.
Here's the key sentence:
"It just requires a change in mindset about how you live with debt."
Mr. Koch's assumption is that the equity is built up by value appreciation. If values decline, which Mr. Koch obviously has not considered, then you have a major train wreck, just like what we have now in the U.S.
You know, Australia has lots of open land, meaning that housing should be cheap. Presumably housing is expensive because there are restrictions on building new housing.
Or maybe housing is expensive because other resources, like the water systems and roads, are costly. And don't forget protection from wildfires.
Yes, but these resources should not be any more expensive in Australia than the U.S. There is no reason for a standard Sydney home to cost anymore than one in Portland, Oregon - around $200k or so. The risk of wildfires in Australia should be comparable to the American west, particularly the Southwest and SoCal. Again, a median price of $650k for a house in Sydney is ridiculous.
Why shouldn't land and water be more expensive in Sidney than Portland? There is no reason that the necessities for a home should cost the same between the two; Oregon is in a fairly wet (currently) region of the world, and Australia as a whole is experiencing drought. Mountains and water constrain the growth of many cities. All of these factors affect costs.
It is just rent by another name.
"You know, Australia has lots of open land, meaning that housing should be cheap. Presumably housing is expensive because there are restrictions on building new housing."
True, one of the reasons housing is expensive in Australia and New Zealand is because of zoning restrictions and costly resource consent regulations and fees,in New Zealand for example you can no longer change the dry wall/plasterboard in your house without a local government consent. The other main reasons are high immigration, easy credit and a popular dislike of investing in shares. The cost of infrastructure isn't that big a factor - housing is also comparitively very expensive in New Zealand but we don't have Australia's infrastructure issues with water, fire issues etc.
Interestingly Australia's fire issues have a lot to do with political correctness. Controlled burn offs are needed to reduce the fire risk in Australia's forest but nimby SWPLs don't believe in them, and in so are pushing up insurance premiums and putting people's lives at risk.
Like the U.S., both countries were founded on a cheap land, high wage relationship, which one way or another today's elites are doing there best to undermine.
Some have recently suggested that Australian houses should cost more because they are bigger and better than houses in other countries. I'm not sure this is true. I think zoning restrictions and high immigration are the main reasons for the current high prices. BTW one reason we can afford to have bigger houses is that most of us don't need to pay for central heating. It is winter here, 10pm at night, and the temperature inside is a steady 70F without any heating.