In an Adelaide Advertiser article yesterday, Assured Homes Loans sales and marketing director Fred Rasheed was quoted saying “first-home buyers would experience “catastrophe” in the next 18 months.”
“A lot of people have got into the market and not even considered what will happen when rates go up 1 or 2 per cent,” he said.
“We’re about to say `sorry, you have to pay an extra $100 per week’. I think we’re on a path to disaster – you have new people in the market and these people don’t know what it’s like, all they know is 5.5 per cent interest rates and all they’re used to is rent going up $10.”
Young couples are “taking on loans they can’t afford” said Julian Disney, University of NSW’s Social Justice Project Director. “The economy and community are increasingly held hostage by inflated house prices, Until we stop, we’re heading for disaster.”
ยป First home buyers heading towards mortgage ‘disaster’ – The Adelaide Advertiser, December 18th 2009.
Well what do you know? A mortgage broker says things have gone to far…..
How long before the lemmings realize they have over paid? How can the largest single purchase most will ever make continue to outpace wages/inflation? It was and is never, ever, ever sustainable.
Any economist that doesn’t make a living out of mortgage lending will admit this….Oh, well.
Human behaviour! Aren’t we so smart!
The reality is that income cannot be spent twice: Money spent on “renting” money (after all that’s what a mortgage is – in effect “renting” money) is money not available to spend on other things, and the first things to be hit will be the “luxury discretionary spendings” – so as the interest rates escalate to a more normal level (and perhaps they might overshoot somewuat, as has usually been the case in the past), so businesses reliant on discretionary spending will feel the pinch – so they will cut costs (= cut staff hours at least, possibly positions too), then the displaced staff will feel the pinch, so they will in turn be unable to meet their existing level of expenditure, so businesses dependent on their expenditure will also feel the pinch – and so the cycle, once started, tends to propagate.
It will be interesting to see what the effect of the “buy now, pay in 10 month’s time” or similar promotions will be, especially for the FHBs who have further raided the kitty to equip their “Dream Homes” with the best and biggest of everything.
I suspect that these “economic chickens” will be coming home to roost soon enough, and only then will the general Australian public realise just what a mess their elected elite have led them in to!