A warning for first home buyers!

[IFocus]

I could never see the point of the grant, surely putting money into the hands of first home buyers had the effect of artificially pumping up prices in first home buyer areas ie. outer suburb-new developments, so in the end the only group that have benefited were the developers.

Another waste of taxpayers money that will probably end in tears.

The point of the FHBG is to put some sort of floor under house prices.

Why because it puts a floor under the capitalization of the banks, the Gov (read treasury) statements and actions have all been about this very thing. The rest can go to hell in a basket but keeping the banks solid is the key......good examples world wide when you don't.

 

[IFocus]

Me and the Mrs are saving to buy a house, but this is the main reason we are going to put it off for at least a year. Both our jobs are fairly safe, but you never know what is around the corner.

People might be able to afford the house at current lower interest rates, but need to be prepared for higher interest rates in the future and be able to pay it off on one wage if kids are on the cards.

Risk management

Ideally you get some sort of buffer between market price (what punters pay) and what you pay. Learn strategies on how to do this there are lots of.

You buy in a market sector of high liquidity just in case you have to sell.

Fix a portion of the loan you can afford

Gov give $14K

Sounds more like opportunity to me but you must do the research and be hard nose when buying take no prisoners and walk away if the market doesn't come to you.

 

[Temjin]

Okay. Just got a call from my real estate agent. We are selling a 3brm home in Adelaide. Just a little villa, 400m2 block, average condition.
council value $240000, bank valuations:
$285000 Feb 08
$275000 Aug 08
$265000 Feb 09.

We advertised at $285000 - $295000. We have just received an offer for $295000.
Not complaining.

Buyers?

First home owners. They are putting in $8000 cash. $14000 FHOG. With costs etc etc, their loan will be $282000.
Thats an LVR of 95%
If they NEEDED to sell the house, cost = $10000.
So, they have a house worth $285000, a debt of $282000.

If house price has dropped 1%, breakeven.

If house price drops 10%, $25000 loss.

All you first home buyers out there - please be careful. If one of you loses your job, you are stuffed. If you both lose your job....

Yep, that's exactly why many of the FHB with low deposit and rely on the bulk of the grant to secure a loan have, by definition, created a subprime loan for the banks.

Check below,

The federal bank and and thrift supervisory agencies, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Super vision created this guideline for banks to characterize mortgage loan definition.

Anything over 90% LVR is SUBPRIME regardless of the borrower's credit worthiness.

Of course, I expect people would argue against this. But this is the definition the US Federal Reserve has used BEFORE the subprime market crashed. Note the word, "BEFORE".

So can anyone now say we should NOT want the FHB about they are regarded, at least by the banking industry in US, as "high risk" borrowers?

And no, I do not think the First Home Buyer Grant should be taken in as part of the calculation. If the borrower could come up with at least 10% of the deposit without the grant, then his loan should not be categorized as subprime.

 

[weird]

Personally I would prefer an exemption of stamp duty only. Why do we have to pay stamp duty anyhow ... another BS tax ?

I am personally considering a first PPOR, but following the wise advice of not over-extending oneself , and that the bracket I am considering is overheated right now, I am waiting my time (also I happen to be going overseas for abit too right during the June period).

I just finished Jan Somers book quite recently, and definitely can see the benefits of property, this is an excellent book, but also am worried about these Government concessions, on the affect of an artificial increase on demand.

A guy at work, had his accountant over, that apparently agreed that selling his 2 bedroom house in Ryde, with his 3rd expected kid ... that renting was a sounder use of his money ... not sure of the logic behind this, and quite a few of us are scratching our heads on how the conclusion was drawn ...

 

[robots]

hello,

crazy stuff speaking with accountants, crazy

thankyou
robots

 

[gfresh]

There was an article on this in today's paper..

http://www.theage.com.au/opinion/great-australian-scream-20090421-ae0e.html

 

[moXJO]

Does price rise or fall dictate the amount you pay on rates to council?
Is it more profitable for govt to have higher prices through various taxes?

 

[tech/a]

Does price rise or fall dictate the amount you pay on rates to council?
Is it more profitable for govt to have higher prices through various taxes?

When prices rise far enough then the government will re value all properties.
When this is done Councils rub their hands together.
When prices doubled councils recieved a 100% cash flow injection and what extra do we get. Bugger all.

Valuations are "Generally" 20% lower than market.

So when they fall in areas 40% youd expect your council rates to be cheaper wouldnt you?
But that of course is a Dream.

Stamp duty is also affected.
Thats 2 I can think of off the top of my head.

 

[Julia]

Don't forget there are plenty of costs associated with home ownership as well. Rates, body corp, maintenance etc - they easily add $5-10K to any dwelling.

I'm not sure where you get $5 - $10K from?

Stand alone home rates around $2K on about 900sq block. Building insurance about $500.
Maintenance about $1K tops.

Obviously a unit in block would add body corporate.

 

[Trevor_S]

that selling his 2 bedroom house in Ryde, with his 3rd expected kid ... that renting was a sounder use of his money ... not sure of the logic behind this,

He expects house prices to decrease in the short/medium term, buying back in to either a similar price for much less money or trading up to a bigger place.

Whether you think that strategy makes sense or not is a different kettle of fish, time will tell I guess. It will be quite amazing when we get out the other side of the recession (2 to 3, 5 years ?) if Aus. is the only equivalent country where there has been little contraction in housing prices and no reversion to the mean. Look to any long term (say 100 year) tracking of house prices to see the huge "bubble" in prices, every other bubble has been pricked, housing is the last balloon floating. Even commercial property is undergoing a severe downward revaluation.

Temper you reading of Somers stuff with a little on the other side as well

http://forum.globalhousepricecrash.com/index.php?showforum=9

and then make a more informed decision. I am not advocating either way, you make you own decision.

 

[Beej]

Look to any long term (say 100 year) tracking of house prices to see the huge "bubble" in prices, every other bubble has been pricked, housing is the last balloon floating.

Actually a HIGHLY debatable assertion - especially given that the bears are now taken to using 50-100 year data (which is and in itself highly suspect and misleading) to try and "inflate" this great bubble argument up...

Temper you reading of Somers stuff with a little on the other side as well

http://forum.globalhousepricecrash.com/index.php?showforum=9

and then make a more informed decision. I am not advocating either way, you make you own decision.

And for some informed, well researched analysis/comment from the other side read through Cristopher Joyes numerous articles at Business Spectator (http://www.businessspectator.com.au/bs.nsf/fmISHome?OpenForm&is=Property) (you may have to register but it's free and worthwhile). Christopher has been involved in consulting to the government etc on property, and is a respected and well qualified commentator on this particular issue.

Cheers,

Beej

 

[Temjin]

Actually a HIGHLY debatable assertion - especially given that the bears are now taken to using 50-100 year data (which is and in itself highly suspect and misleading) to try and "inflate" this great bubble argument up...

Likewise, the bulls are only keen on using past RECENT data (which itself is misleading because of the massive run up in the past decade or two and distorted by the massive expansion of cheap credit) to try and "maintain" that there is no bubble and Australia's residential property market is the ONLY ASSET in the world to not be affected by the global credit crisis.

We only like to hear what we want to hear. That's the truth for both sides.

 

[cutz]

The point of the FHBG is to put some sort of floor under house prices.

Why because it puts a floor under the capitalization of the banks, the Gov (read treasury) statements and actions have all been about this very thing. The rest can go to hell in a basket but keeping the banks solid is the key......good examples world wide when you don't.

Sorry IFocus I don’t follow you here,

I agree, the economy hinges on the fact that house prices need to stabilize and not continue on a downward spiral whether that’s right or wrong I’m not sure but personally I think that prices should find their own levels, not propped up artificially by government intervention.

But I am certain that most of the cash is ending up in the wrong hands, and if pulling the grant causes a drop in prices (or crash) in first home buyers areas, surely that would be a better outcome for young couples looking at buying their first homes.

 

[enigmatic]

Tech I think your forgetting though 10% unemployment is not really 1 out of 10 not employed.

It is 1 out of 10 looking for work not working which most likely pushes it up further over 15% I'm sure someone will have the official figures.

And the other thing to note which I have found even at my work and others I know people that use to work 40hours+ a week now working anywere down to 15hours a week now and some of them been forced to take unpaid leave.. so they are technically still employed just not getting paid or are getting paid much less then they use to.

I think you will find a large majority of people have had there hours reduced or are being forced to take annual leave.. That annual leave will only last so long and the work is drying up so hours too will be reducing..

 

[Taltan]

So the FHB has replaced their 8k liquid cash asset for a 3k illiquid net property asset whilst foregoing their right to any future govt grants for first home buyers. I don't think it needs a long debate to concur they are foolish.

I also agree with IFocus. The FHOG was a way of capitalising the banks. After the events of Lehman Bros last October there was always going to be a shortage of sophisticated investors willing to plough their money into falling asset values to keep banks viable (be those property or shares). Hence Rudd turned to First home-owners and general property spruikers.

If things stabilise globally this will have been a genius stroke saving our banks (and our economy) from the fate befalling most other OECD economies. If not he will have simply dragged thousands of FHB into a Ponzi scheme and will probably go down as the worst PM in living memory

Time will tell

 

[Calliope]

The government's intention to remove the boost to the first home owner's grant at the end of June is a wise decision. It will however create an ungodly rush to get the $7000 or $14,000 boost by the deadline.

These people will be mainly those who cannot really afford to buy, and will soon be in financial trouble.

 

[UBIQUITOUS]

A lot of sence in this post.

If your not locking your interest rate down NOW then you'll miss the boat.

Many mortgages are for 30 years. How long and at what rate can a loan be locked at? Buyers should be taking an average 10% rate as a worst case scenario.

You will get inflation and it will hit hard in around 3 yrs time. Interest rates rise as will house prices.

Yes, and job losses will also compound as interest rates rise. Can a borrower today be guaranteed employment when the inflation genie is let out of the bottle? I wouldn't be betting on it unless you are in a core job eg. doctor or debt colletor

Sure its a balance and a tough choice but there is a real chance that the opportunity for those to buy a home will go further away again.

Simply financial survival and not home ownership should be the goal. Time for the masses to get their priorities correct.

Over 90 % of people will keep their job.

I wouldn't bet on it.

 

[Glen48]

The First Home owners bribe is another way of stimulating the economy because once the victim/s moves in have to go to Harvey N. for a plasma leather Lounge etc etc nothing to pay for 50 Mths and then they need another car because they have 2 car ports and on it goes until she get pregnant they have a divorce and have to sell the house or rent it out or stay in separate rooms and he pays child support thinking the child is his.
All the time spending money and helping Australia grow ....and they don't know it cost 40% more to own a house.

 

[MR.]

Okay. Just got a call from my real estate agent. We are selling a 3brm home in Adelaide. Just a little villa, 400m2 block, average condition.
council value $240000, bank valuations:
$285000 Feb 08
$275000 Aug 08
$265000 Feb 09.

We advertised at $285000 - $295000. We have just received an offer for $295000.
Not complaining.

Buyers?

First home owners. They are putting in $8000 cash. $14000 FHOG. With costs etc etc, their loan will be $282000.
Thats an LVR of 95%
If they NEEDED to sell the house, cost = $10000.
So, they have a house worth $285000, a debt of $282000.

If house price has dropped 1%, breakeven.

If house price drops 10%, $25000 loss.

All you first home buyers out there - please be careful. If one of you loses your job, you are stuffed. If you both lose your job....

Your thread, as unproductive as it is for the economy and house vendor sales, is a good warning.

Too many think, including myself, that the FHB are getting stitched up big time........

 

[amy997]

A friend of a friend is a mortgage broker in Sydney, he says he has been rushed off his feet with business from first home buyers for the last 6 months, but he also says 90% of them cannot really afford the repayments they are taking on but the money is still lent and it is justified by assuming that their incomes will increase over time.