How embarrassing. Here we thought there was no bad-loan problem here in Australia. But Moody’s, paragon of timely reporting on credit risk, says there is. AAP reports today that “Moody's found that during the second quarter of calendar 2007, average non-conforming residential mortgage backed security delinquencies greater than 90 days past due rose to about 6.5 per cent, from 5.97 per cent in the 2006 first half and 4.63 in 2005.”
Analyst Ilya Serov tells us that, “Delinquency rates have trended upwards for the past 18 months as a result of rising interest rates, riskier trends in mortgage origination, and high levels of household indebtedness.” AAP assure us that this is nothing like the subprime problem in the US. “While non-conforming loans are the nearest thing in Australia to subprime loans, it is evident that Australian borrowers are not experiencing the stress seen in the US.”
Maybe so. But the trouble with a borrower is that he’s a borrower. And as far as we can see, Australia and America have both embraced the “spend your way to wealth” philosophy. It encourages people to believe that rising asset values (houses and stocks) justify high levels of debt and low (or non-existent) levels of saving.
It’s the biggest swindle in the financial world. Yet millions appear to have fallen for it. Does anyone really need to own a home? Is it always a wise financial decision? Can you live off home equity during your retirement years? Can you even live a happy life without the security of owning your own home?
These are not idle questions. We see the real value of owning the roof of your head, free and clear, for the rest of your life. It beats paying the bank. But the whole idea of treating a home as a financial asset…a sure fire way to get rich quickly…Australia seems as infected by that idea now as America was five years ago. It’s the kind of infection that kills dreams.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by kayle on 28 August 2007:
"How embarrassing"...speak for yourself, mate. Anyone who passes a TV or radio on during the day can hear for oneself all the ads hawking cheap credit. Not just for homes, either. For cars, computers, and even bicycles.
I've lost count of the number of articles I've seen in the Australian media warning folks of the risks of subprime...AHEM, "low-doc" loans. (Because we're NOT AMERICAN, right? But I think they're both still called "liar loans" no matter what country you're in.)
According to this guy, for instance: "The low-doc market, which has doubled in the past four years, now makes up 16 per cent or $37.9 billion of total housing lending commitments."
Stephen Blaxhall, http://www.investordaily.com/archive/2620.xml
Anyway, thanks for breaking the chorus of "Australia won't be affected by AMERICA'S subprime problem" from Australia's big banks and other talking heads.
Of course we won't. We have our very own subprime - ahem, low-doc - problem, right here.
Or, did anyone here REALLY think that an average national household income of $53,000/yr can service a median national mortgage of $317,000?
But we'll all be so shocked and surprised in a few months, won't we? Wish Centrebet was placing on who'll be the first Australian to say the (upcoming) housing slump is "unprecedented" and "no-one could have seen it coming". Which is what the American wallets are all saying these days.
Well, maybe China will ride to the rescue with a second, bigger resources boom. That will of course save us all from our bloated (and bloating) private debt.
Here's the other one, lad, give us a pull.