Smaller mortgages are the trend with Australians nowadays as house prices soften in Australian capital cities.

Australians have been observed nowadays of borrowing less as homes for sale prices slide.

This trend has further cemented to the Australians the culture of reducing debt which was brought about by the global financial crisis.

According to the data from AFG, Australia’s biggest mortgage broker, people who were pulling out mortgages in June signed up for smaller loans proportional to the value of their property, which are loans representing a lower percentage of their property’s value than at any time during the previous six months.

With prices of design house sliding, Australians are borrowing lesser amounts which are in proportion to their property prices.

Statistics reveal that the average loan to valuation ratio (LVR) was 64.2 per cent nationally and the average LVRs is declining in NSW, Victoria, South Australia and the Northern Territory.

As house land package prices soften, Australians are signing up smaller mortgages. And in June, it was revealed that the average mortgage size across Australia was $384,042, which is about 1.1 per cent lower than the previous month.

All throughout the states, the average mortgage size waned except in NSW and Western Australia, where a growth of 0.5 per cent and 3.3 per cent, respectively, was being observed. However in WA, the average mortgage size increased from $399,000 to $412,000.

Meanwhile, as a positive sign of the gradual recovery of Queensland from last summer’s floods and natural disasters, mortgage sales reached the same level in June as they did in the corresponding month a year earlier for the first time in five months, which indicates confidence in the market is returning.

However, the residential property landscape still remains unresponsive, with the annual housing credit growth showing a slow down to almost 6 per cent, as compared with an average 14 per cent over the past 34 years.

Likewise, a slowdown in household credit and in most values of assets including housing was also noted.

However, the central bank gave borrowers another chance for respite, in which the overnight cash rate was left at 4.75 per cent.

Meanwhile, Jonathan Mott, a UBS analyst, told clients last week that the housing credit growth was expected to slow down with further thanks to the recent pressure on household budgets caused by higher interest rates and utility, food and petrol prices.

UBS predicts that the housing credit growth will slow down to 4 per cent by the years 2013, and the personal lending will fall to 2 per cent.

Good News

People who are intent on borrowing or refinancing are being offered many deals due to the fact that big banks are jostling in to grab another 1.7 per cent share of the mortgage market in June from smaller competitors.

AFG’s general manager of sales and operations, Mark Hewitt, says that big banks now have 82.1 per cent of the market as these major lenders are hungry for business.

Meanwhile, non-major banks took 21.3 per cent of the refinancing deals and 23.8 per cent of first home buyer mortgages in June.

The big four have gained more toeholds since March, due to the fact that 25 per cent of first display homes buyers and borrowers who are seeking to refinance have chosen to borrow from a smaller bank or non-bank lender.

Australia has been known to have the largest dwellings in the world and these houses are noted to be of high quality, with the average Australian house estimated at 214 square meters.

Now, the sizes of Australian houses have shrunk as potential home buyers are being offered new house and land packages that is a quarter the size than what was supposed to be before.

The shrinkage is blamed on the changing household preferences.

As Australian households are now apparently demanding lower maintenance homes, home builders, looking to meet the market, now offer more affordable house-and-land options, with lot sizes being squeezed into a less than 200sq m lot for the first time.

Likewise, backyards which have been reducing in size for decades and in recent times have been swallowed by a pool and deck may shortly disappear.

The downsizing trend in the homes for sale is said to have surged in the US since the global financial crisis and has sprung up in Western Australia, South Australia as well as in Victoria.

Australian house builders are now making certain that they are ready for the arrival of rear-loaded blocks or laneway, which are lots where a garage is built at the back, allowing car access via a laneway.

The era of the McMansions had ended as small lots are now in demand.

However, though changing household preferences could be one of the causes of this shrinkage, the main reason behind this shrinkage unfortunately is attributed to the government’s urban consolidation policies since the early-2000s which includes the implementation of urban growth boundaries around Australia’s cities as well as more restrictive zoning.

These policies have significantly driven up the prices of fringe land, which have both compelled the move to smaller block sizes in order to maintain some appearance of affordability as well as pushing-up the prices of new and pre-existing display homes.

Affordability as well as Livability

With this recent development, potential home buyers are likely to see house-and-land packages being offered at a price around $320,000, which is quite affordable.

Three-bedroom homes with an ensuite, double garage at the back, walk-in robes and a drying court are also likely to be offered.

Plans on introducing a range of affordable housing and smaller block sizes into its communities are also on the works.

Australian developers are aiming for affordability as well as livability in building these new houses. A more efficient block size situated near parks, public transport, places of employment and other amenities will more likely make people less reliant on their cars.

Though home builders admitted that yards would likely disappear and “terrace” block sizes would be as small as 7.5m by 25m (187sq m total), the loss of the yard  have only followed a trend where people are contented to have low-fuss outdoor areas and are happy to pursue social and sporting interests away from home.

The rise of the small block houses is said to be inevitable as smaller house and land packages would open up the market and would be a better use of resources.

Australia’s Gen-Y, otherwise called the young Aussies, has broken the mold.

Once typecast as being fixated with carefree spending and sponging off their parents, these Gen-Yers have flown out of its pigeonhole as the currently ongoing high property prices have changed them from being Generation Egocentric into Generation Prudent.

According to a recent survey conducted on mortgage-holders with the age under 30, it reveals that of the thousand respondents surveyed, 71 percent claimed that they never have rented a property.

Young Aussies were found out that they won’t leave home for they want to save for their own property.

Of the 1000 Gen-Yers surveyed, 76 percent of respondents have admitted that they have stayed at home longer than they would have liked in order to circumvent paying rent, for the purpose of saving for a home loan deposit as they hang on to the great Aussie home ownership dream that is buying their own dream house.

More Australian Gen-Yers are opting to stay home longer with parents or some are even staying with their grandparents, in a phenomenon hailed as the “Famwich”, in order to save for a deposit.

With the soaring prices on house and land packages, Australia’s Generation Y has adopted the strategy of extended living in parental homes which is said to have become a common financial strategy among younger people nowadays.

A long-standing trend towards extended living in the parental home before leaving to rent have been increasingly observed as Australia’s Gen Yers are utilizing this to save for their own home instead of renting.

According to the survey findings, the long-standing trend is strongly being observed in Sydney, Perth and Melbourne, of which concerns about housing affordability are most prominent.

Australia’s Gen-Yers Shun Luxury Purchases

On another note, according to a recent survey conducted by McCrindle Research for realestate.com.au, young Aussies are also becoming sensible in their spending as the survey data reveals that 91 percent of respondents are prepared to spend less on discretionary purchases such as brands and luxuries, 76 percent on entertainment and recreation and another 76 percent on car upgrades in order to reach their goal of owning a house.

Furthermore, the survey also said that most of the respondents are willing to give up a swimming pool, extra space or multiple bathrooms. However, three-fourths of the respondents are not willing to forgo modern ‘necessities’ such as health care and private education.

The survey further revealed that overall national confidence about housing affordability was relatively subdued, and ambiguity about the future had resulted to financial conservatism among the youths.

However, despite the disheartening vista of decades of paying mortgage, Australia’s Gen Ys are found out to have the most positive outlook of any age group about being able to buy a home design in the future.

Even David Chalke, a social commentator, said that Gen-Yers are better educated, more connected and informed, are active savers, and smarter than the previous generations.

Likewise, Mr. Chalke also added that young Aussies aged 18 to 31 are now more determined and more focused on their future and are better prepared to work hard and budget.

RAMS has responded to this trend by designing a new home loan product, “Fast Track”, that enables first home buyers to get into the housing market sooner with parental help, while avoiding mortgage insurance.

RAMS chief operating officer Susan Bannigan says it’s hard enough getting children to leave the family nest.

“But when they say they want to stay at home to achieve a serious financial goal, it’s incredibly difficult to say no,” she said.

“For them it’s a win-win situation.”

And of course, money to pay the utility bills and groceries grows on trees.

It has been in the news recently that the banks in Australia are refusing to finance loans to people who are interested to buy flooded homes. Banks are snubbing and refusing to finance loans of shrewd would be buyers who are desperate to snap up a bargain in the post-flood Ipswich property market.

According to Brett McGrath, the Herron Todd White senior valuer, in spite of the recorded 3300 homes being written off and the 1700 house plans designs needing repair which were all affected by January’s disaster, there are still plenty of shrewd and desperate buyers who want to purchase these damaged and flooded houses.

Mr. McGrath said in his statement during a luncheon for more than 120 people at The Ipswich Club that there are still many buyers who are eager to purchase flooded homes. However the banks are refusing to finance these loans.

House land packages sold by home builders and purchased via cash by people who have a spare $150,000 in the bank are the only properties moving off the market.

However, those people who want to borrow in order to buy these flooded properties are not having any success at all in their loans approval for banks are refusing to them.

According to The Queensland Times May 5th edition, major banks in the country have been choking the region’s property market for they have refused loans to people who want to purchase Australia houses for sale across huge swathes of Ipswich and other flood-hit communities.

Lenders were accused by real estate agents of blacklisting entire suburbs that were affected by flood in January.

With these worsening development, would be house buyers of these flooded properties are facing difficulties with banks and lenders alike refusing to finance loans.

Peter Mendoza, the Ipswich chairman for the Real Estate Institute of Queensland, said that would be home buyers could only purchase home for sale by using cash which had led prospective home buyers to be furious.

According to Mr. McGrath, the property market has already reached its worst in almost 20 years before the floods hit.

Mr. McGrath expounded that the property market has been affected by more than just floods. In addition to the worsening market due to the floods, the brutal infrastructure costs and the end of the first home owner’s grant have also added to the property market crisis.

These three causes have lead to the worsening condition of the property market.

Mayor Paul Pisasale commented that during this worsening crisis banks and insurance companies are needed to show compassion.

Banks and insurance companies should show compassion instead of refusing to finance such loans applied by these would be buyers of flooded homes. The people need these banks and lenders to be more agreeable for a loan in order for the property market to thrive.

Mayor Paul Pisasale stated during the luncheon held this week that there would not be any more hidden clauses.

Mayor Pisasale further added that the floods have made them stronger with Ipswich challenging the problems of the GFC, with more than 240 new businesses starting up during that time, now they will do the same with the flood recovery, there will be no fence around their global city.

With the increasing number of first-home buyers snatching up apartments and townhouses that may otherwise have been bought by investors, first-home buyers are now acquiring the benefits brought about by the sluggish Perth housing market.

According to the Real Estate Institute of WA, investors had lost interest in buying house & land packages due to the city’s over-priced properties; thus, decreasing competition and forcing down prices of house plans designs, particularly for multi-residential properties which usually attract investors.

March quarter figures released by REIWA’s this week has showed that the median price for a grouped dwelling that includes apartment, unit, townhouse or villa in Perth has dropped by about $7000 to $402,000, while outside the capital it fell about $2000 to $325,000.

REIWA president Alan Bourke said in his statement that investors often preferred multi-residential properties but they are thin on the ground.

Recent property market conditions appear to be in favor of first-home buyers who have been reasonably active and represented about 23 per cent of buyers during the quarter.

According to the latest state government data, the median purchase price in Perth for first-time buyers was $415,000 and $325,000 for those in regional areas.

The statistics follow Premier Colin Barnett’s controversial comments this week which persuades first-home buyers of home designs to lower their expectations to enter the market.

During the March quarter, healthy first-home buyer activity was in disparity to existing home owners looking to trade-up.
According to Mr. Bourke, many of them were “caught in a bind”, unable to commit to selling before buying, causing the property market to stall.

This week, WAtoday.com.au revealed that the state’s property market had fallen into the worst fall in nearly two decades.
According to the government’s official land information authority, Landgate, in just 12 months, activity in the housing market has declined by 15 per cent while more than one-third since the height of the boom in 2005-06.

Even though during the March quarter sales activity had improved, according to REIWA, the overall turnover continued to remain 25 per cent below average in Perth and 35 per cent below in the country.

It had turned out to be a buyers’ market, with 50 per cent more homes for sale than required to meet demand, Mr. Bourke said.

To get the deal done most home builders are reducing their asking price by around 7.5 per cent while sellers who need a quick sale just simply adjust their expectations and asking price before going to market.

On the other hand, according to Mr. Bourke, the fall in median price from December 1 was expected to be only 1 per cent.

Mr. Bourke additionally stated that preliminary data suggests that for the March quarter, the median house price will be about $485,000 for Perth and $375,000 elsewhere.

The rental vacancy rate has tightened regardless of a flooded market and has led to the first increase in rental prices in 12 months.

During the March quarter, rents rose by $10 to $380 per week in Perth, while the vacancy rate remains just above 3 per cent.

Mr. Bourke explained that typically, when the market is flooded with properties, many investor-sellers decide to withdraw their listings until conditions improve and shift their properties into the rental market which relaxes the vacancy rate. However, this doesn’t seem to be happening at the moment.

Australia’s display home vendors are facing a weakening winter demand if they are not prepared to meet the market with the stock levels slowly increasing over the next few weeks.

With the recorded rise in Australian residential building approvals seen in the last month of the first quarter of 2011, home builders have been quite busy constructing units in support of these increased building approvals.

However, if Australian vendors of house and land package are not prepared to meet the market, they would surely encounter a softening of the house for sale market with the flagging winter demand.

Of the weekend’s 577 reported auctions, the clearance rate was 60 per cent, where it has been hovering since February.

According to Adrian Jones of the Noel Jones Agency, his agency had only sold six of its eight auctions, which includes the current church site at 14-16 St George Crescent, Ashburton.

Jones recalled that seven bidders fought to bid for the block, which is the church site at St George Crescent, Ashburton, that covers 2400 square meters. The church site was on the market around its quoted price of $2.5 million, before it was sold for $3.21 million.

Mr. Jones further commented that ”It sold for well over the expected price and just goes to show that if you have the right property at the right price, the public will come out and bid for it.”

Another property sold by Mr. Jones is at 34 Acacia Street in Box Hill which was sold under the hammer for $1,084,000 but was sold for $900,000 about two years ago.

These comes to show that Australians have become more concerned with the prices of design house and are more vigilant on buying expensively priced house for sale.

”The marketplace is much more price sensitive and people are more cautious about paying record prices, but when you put the right property on the market, people will compete.” Mr. Jones said.

Ruth Roberts of Woodard Carnegie said that her agency had multiple bidders and had sold their two Sunday auctions in Glen Huntly.

Roberts explained that nowadays bidders are being cautious; however, buyers are also focusing their attention to better properties.

Leading Agents of Australia has released its annual sales figures and stated that “buyers are now in a better position to enter the higher end of the market”.

Jock Gilbert, LAA chairman, said that ”After years of consistent growth there has been recent speculation of a housing bubble.”

Gilbert explained that though there is evidence of a slowdown; however, the figures indicate that Australia is now experiencing a more even playing field for vendors and buyers, rather than a slump.

In the meantime, Peter Rogozik, a buyers’ advocate said that the overall auction figures did not essentially mirror accurately what was a segmented property market.

According to Rogozik, the secondary location properties were undergoing price corrections, or reductions, of about 5 per cent.

Rogozik further clarified that ”However, the quality segment, which represents a very small portion of the market, is still holding up well.”

Frank Valentic, Advantage Property Consulting’s, said that for his client at 59 East Boundary Road, Bentleigh East, a realistic reserve contributed to a strong result.

The last month of the first quarter of 2011 has seen a rise in Australian residential building approvals of a seasonally adjusted 9.1 per cent to 13,627 units in March. This positive development is a sure step towards a positive improvement from an upwardly revised 12,492 units in February.

This means that house builders or home builders are now quite busy building display homes and have increased the number of house and land package available in the market.

Australian home builders are busy constructing units for sale in support with the increase in building approvals.

However, according to the Australian Bureau of Statistics (ABS) statement, despite the negative result over the previous year that is in March 2010, building approvals were still down by 18.1 per cent.

A significant or major indicator of where the economy in general is likely to go, the increase of number of building approvals is likely, but not certain, an indicator that the economy is heading towards a period of growth.

Building approvals is said to be a major indicator of where a country’s economy is likely to go but it is not a sure fire sign that a country’s economy is quite stable.

In February, the positive growth in activity came most particularly in non-housing, such as apartment blocks, with 5473 units started in March as compared to the 4233 units built in the month of February.

Though there is an increase in building approval, home starts remain sluggish. This slump in home starts from the previous month and over the year is said to be an indication of the continuing negative impact of last November’s increase of interest rate on potential home owners and the building industry.

In the month of March, home building saw a 8154 home starts which is a fall of 0.8 per cent as compared to 8258 home starts in the month of February and which is still said to be well below the 10,188 home starts in the month of March last year.

Though home builders are busy constructing and increasing the number of display houses for sale showcases; however, house prices are still up indicating the housing market has become soft.

Bed Deda, St George Bank chief economist, said in a statement that though for the month of March, the building approval numbers were strong; however, the housing sector is still experiencing some soft conditions more generally.

Bed deda explained that there is clearly an underlying demand for the construction side of the property market which should support building approvals; however, in general, house prices are coming off as well as in some areas of house finance.

With the increase in building approvals, house builders are now quite busy building house units in support of these increased building approvals.

Potential Australian home plans buyers should expect to see a wide range of house and land package and display homes units in their area for home builders are quite busy in building these units in support of the increased building approvals.

The increased building approvals are really a positive development for house builders and potential home owners alike.

Lately, it has been in the wire that the sales of new houses for sale in Australia have increased by 4.3 percent in March. This recent development is good news for the home builders who are offering house and land package.

Boosted up by the solid gains in detached house sales due to the increase demand for detached houses in March, the number of new homes sold all over Australia has increased for the third consecutive month.

The number of new homes sold rose by a seasonally adjusted 4.3 per cent in March, subsequent to a 0.6 per cent rise in February as shown in the latest Housing Industry Association New Home Sales Report.

HIA said that detached house sales propelled the positive results which show a rise of 5.8 per cent in the month; however, the multi-unit sales dropped considerably by a “concerning” 10 per cent.

Harley Dale, HIA chief economist, welcomed the results; however, he said that there was still a long way to go for new home sales to arrive at healthy levels.

Dr. Dale stated that the result for new home sales in March mirrors an ongoing break in the interest rate hiking cycle as well as some abatement of the severe weather conditions witnessed in early 2011.

According to Dr. Dale, before we can look ahead to healthy levels of residential building activity, a sustained period of improvement is still required for new home sales as well as a raft of other leading indicators.

With the increased sales volumes by 5 per cent for the March quarter, the three-month profile for detached house sales was said to be encouraging, HIA reported.

However, HIA additionally said in the report that due to the weak starting point in the final quarter of 2010 and the volumes remaining below the long-term average, the increase in home for sale sales volumes is said to be exaggerated.

Meanwhile, the sales volumes for multi-units homes plans for the three months to March were down by 5.9 per cent.

In the March quarter, the total new home sales were down by 9 per cent as compared with the same period a year ago.

HIA also reported that they found out that NSW new home sales had increased by a “very encouraging” 13.5 per cent in the month, for a 20.7 per cent increase in the first quarter of the year.

According to the HIA report, sales are on somewhat of a barnstorming run in NSW, from an awfully low base; however, the real feather in the cap of the state’s new home building industry is the strength displayed by the labor market.

Queensland’s new home sales, just recovering from a lull in February, is up by 11.1 per cent for the month of March; however sales were still down by 8.1 per cent in the March quarter.

According to the HIA report, Queensland’s housing market has still remained in a position of serious weakness and the government’s plans for a revival appear inadequate.

According to the Australian Bureau of Statistics (ABS), the house price index of  eight capital cities have fallen 2.1 per cent in the first quarter of 2011 compared with an upwardly revised 0.8 per cent increase in the house price index for the December quarter.

Brisbane, Perth, and Darwin have suffered the biggest declines.

The fall was said to be the biggest since the financial crisis of September quarter of 2008.

Property analyst RP Data-Rismark’s report has discovered that the March capital city houses for sale prices were relatively flat as compared with the month of February, which has fallen with just 0.2 per cent, though house prices were down 0.6 per cent from a year earlier. The report pointed to a cooling in the housing market.

These grim developments in the property market would surely affect the prices of house and land packages and houses for sale in Australia and the homes builders of display homes in Australia.

The market analysts have also predicted a drop of 0.5 per cent in the March quarter, for a year-on-year climb of 1.6 per cent, according to Bloomberg data.

The quarterly prices as well as the annual price moves were both worse than expected.

As compared to last year, the Australian housing market has cooled significantly in 2011. This may due to the higher interest rates, worries about the economy, banks tightening credit, and affordability problems which had put off would-be buyers.

During its board monthly meeting this week, the Reserve Bank is broadly expected to leave interest rates on hold, keeping its rates at 4.75 per cent.

Except for Perth and Hobart, every capital city has recorded a decline in the March quarter, with the drop in Melbourne’s house prices of 2.5 per cent in the quarter matching flood-hit Brisbane, which has also experienced the same pull back, according to the ABS data.

According to RP Data research director Tim Lawless, the flooding that happened across southeast Queensland has probably increased Brisbane’s weak market conditions that lead to the 4.6 per cent drop in Brisbane house prices.

Meanwhile, ABS said that Sydney prices index has dropped to 1.8 per cent, Adelaide has 1 per cent decline. However, in Perth, prices climbed to 0.5 per cent and in Hobart, it rose to 0.4 per cent in the quarter.

The national median dwelling price in the first quarter was $455,000.

Mr. Lawless said that the drop in house values following the sharp rise in interest rates in 2010 are probably going to revive first-home buyer demand, which is fraught with low affordability.

Furthermore, Mr. Lawless stated that the market would favor buyers with the income growth across the economy at 6 per cent per year and the interest rates close to their cyclical peak.

Currently, property prices are under close scrutiny for some market analysts says that the property prices have been over-inflated for some years and are ready for a correction while others disagreed that a strong income growth will sustain the market.

A rise in rents is also shown in the RP Data figures which is said to offset the effect of property value drop for landlords.

Reserve Bank figures this week showing Australians taking out 6.6 per cent more in loans than a year earlier shows that the growth in home lending has not entirely flat lined.

In has been in the news lately that Australian residential land sales is down 40 per cent. It has reached their lowest level in a decade after almost halving from a year earlier.

A deteriorating house for sale affordability is being experienced in Australia recently. It has been a weak year for house plan building.

According to the HIA-RP Data Residential Land Report, they found out that in the December 2010 quarter, the volume of house land package sales dropped sharply, with sales down by 40.4 per cent compared to the same quarter in 2009.

The report also found that the plunge in sales comes as the weighted median land value for Australia grew by 4.1 per cent in the quarter to $194,161.

HIA economist Matthew King said that the sharp drop in the volume of land sales indicates a very weak 2011 for new home for sale building. He also added that forced by constraints on supply, the rise in land values highlights an on-going deterioration in new home affordability.

With a median value of $269,000, Sydney continues to be the most expensive place to buy residential land.

Sunshine Coast, with a median value of $240,000 and Melbourne coming in at $220,000 are also expensive areas to purchase land.

Melbourne also recorded in the December quarter a 50.1 per cent drop in land sales compared with the same quarter in 2009.

In Melbourne and Sydney, auction clearance rates have gone down to about 60 per cent since the start of 2011, well down from the highs of 80 per cent as seen last year. This is due to the effect of higher interest rates, crumbling affordability, and economic uncertainty which took their toll.

In capital cities, the residential land values had increased by 5.9 per cent in the December quarter and 8.2 per cent higher in annual terms.

According to Enzo Raimondo, Real Estate Institute of Victoria chief, the recent residential market in Melbourne and Victoria has entered into a different phase of lower transaction numbers and reduced price growth.

According to RP Data-Rismark figures released last month, nationally, home prices were flat in February, subsequent to a revised 1.5 per cent drop, seasonally adjusted in January, with January’s fall the biggest decline since 2005 when the index began.

All throughout the capital cities, Melbourne has the highest growth in land values, increasing by 13.5 per cent in the quarter, while Sydney was up by 3.6 per cent.

Hobart also saw a 14.5 per cent slump in land values in the month.

Southern Tasmania, Murray Lands in South Australia, and northern South Australia, all of which had median lot prices of $80,000 or less, are the three most affordable land markets in the country the report said.

According to HIA’s Mr King, quite apart from the substantial damage produced by the interest rate hikes of last November, new housing remains to slump under the weight of the excessive cost of serviceable land.

The high regulatory costs, planning and zoning delays, disproportionately high taxation, deficient land release strategies, user pays infrastructure charges, and an on-going credit squeeze may cripple land values, Mr. King say.

Last November, the Reserve Bank increased its key cash rate to 4.75 per cent, a move that was followed by even larger rate increase for borrowers in the days afterwards.