A scary article in Saturday's Sydney Morning Herald reports on the possibility that Australian house prices could collapse, under the weight of mortgage defaults! The Economist magazine recently estimated that Australian house prices are over-valued by a terrifying 50%, artificially buoyed up by confidence in the influx of immigrants and a prospering economy. But is that confidence, or blind optimism? In November 2009 it is estimated some 200,000 households were having such difficulty servicing their mortgages that they might have to sell up or have the bank foreclose.
Apparently that number is rising rapidly. Fujitsu consultants estimate that by end of this year 637,000 Australian households will be under some form or mortgage stress. Even so Fujitsu estimates house prices will rise by 10% this year.
So where is this all leading? Steve Keen, associate professor of economics and finance in UWS, forecasts this possible path:
The volume of house sales falls as buyers hold off to save the larger deposits now being demanded by the banks.
Sellers, optimistic and accustomed to higher prices, won't take what they are offered.
Housing speculators start to take losses in order to invest their money more profitably elsewhere.
House prices fall!!!
Three years ago the American housing market was booming and nobody was forecasting anything other than prices increasing endlessly. People with no hope of paying mortgages took out loans on the assurance they could sell up at a profit in a year. And look what happened. To quote the SMH, half a million Americans have just learnt their lesson in the hardest possible way. Here in Australia, all those eager first home owners bought under the Government's (reckless?) encouragement and many are now struggling to cope as interest rates rise. Where will it end?
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