Housing Becomes Even More Unaffordable

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“Families are finding it as tough to pay back their home loans now as it was in the late 1980s, when interest rates were at record highs under Labor,” reports today’s Australian. Simon Tennent, executive director of the Housing Industry Association, put it this way, “We might have lower interest rates than the late 80s, but the fact that people have had to borrow more money to get into housing because of lack of land means affordability is indeed worse than when rates were at 17 per cent.”

How is it possible for houses to be more unaffordable now than they were when rates were nearly three times higher? The answer is that credit has fuelled housing prices, forcing borrowers to dig—or borrow-even deeper. The Reserve Bank of Australia noted this today when describing the overall condition of the economy.

“The overall strength in domestic spending,” the RBA notes, has been broadly reflected in the demand for finance, which has seen total credit growing rapidly over the past year at a rate of 14 per cent.” It then noted that housing credit seems to have declined recently but that, “Growth in credit outstanding to the household sector eased a little in the September quarter, though it remains quite strong at an average rate of around 1 per cent per month, which is about the same pace as in the March quarter. Demand for credit in the business sector also remains high, despite some recent moderation, with the amount outstanding increasing by 16 per cent over the past year.”

As a study in economics, the interest rate rise is intriguing. But it’s a practical matter for your editor, too. He is deciding whether to pay exorbitant rents, or take the plunge and buy a castle. Everyone has to live somewhere, right? We’ll keep you posted on developments.

“Mining services provider Orica Limited (ASX: ORI) said it expected profit to rise in the current year helped by its purchase of Dyno Nobel and improved earnings from its existing businesses, “comes the news from wire services. It sure pays to be a pick and shovel company in a mining boom. A 159% increase in profit is a sure sign that the boom is roaring. And hopefully, it’s not over yet.

The G20 meets in Melbourne this weekend. The city will be awash with central bankers and finance ministers. Watch your wallet. And keep a supply of oxygen on hand. With this many gasbags on hand, finding a breath of fresh air could be hard.

“Hey Dan,” a DR readers writes, “As an old “Digger” who has St. Kilda on his birth certificate, I enjoy reading your news from Balaclava, Elwood and other local memorable recalls. But I take issue with your remarks about the Aus requirement that everybody vote, or be fined if one neglects the responsibility.

“Firstly, I think your tenure in Aus is way too short to jump to the conclusion that the Aus regulation is unreasonable…take a little longer to investigate the subject. Talk to Australians from many walks of life and determine what they think about it!

“Secondly, what do you find wrong with the electorate taking a little ‘responsibility’ as part of their freedom and right to vote for their government representatives?”

We reply that we will take better care to listen more and opine less. We are fond of saying we have opinions and aren’t afraid to use them. But you know what they say about opinions…

The reader is right, though. You can’t really understand something just by reading about it, unless it’s geometry. Most other kinds of useful knowledge require some practical experience. You listen to the people that have learned something through experience. That gives you an idea of what is really going on.

Not that experience automatically makes a man a sage. But it certainly counts for something. And while we are still green behind the ears with respect to Australian culture, we will take care to listen more and opine less, or at least keep our unconfirmed opinions to ourselves. For the record, though, we think the world would be generally better off if more people took responsibility for their own lives and less interest in the lives of others.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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