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’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.

Following the recent release of Australia’s State Budget last week, the next month and a half would be a crucial decision time for people who are planning to buy a house as first home designs buyers are being offered by the federal government with a $10,000 Building Boost for newly constructed properties valued up to $600,000.

The $10,000 Queensland building boost grant is intended for any person or corporation who is intending to buy or build a new home for the purpose of living in, or for renting it out for investment purposes, for homes valued less than $600,000.

The Building Boost Grant was aimed to rekindle Queensland’s struggling housing construction sector which was caused by a combination of declining property transfers and the economic impact brought about by the summer’s natural disasters.

The government wants to encourage people to buy or build new house plans in order to jumpstart the declining property market.

However, as the building boost grant is not intended to pay for a building contract, as well as to any owner home builders who is on the business of building homes and the home was built for sale in the course of that business, this would persuade home buyers to holdup signing an off-the-plan sale or building contract until August 1, as grant is only going to be available this coming August 1.

Meanwhile, existing home owners who want to upgrade or downsize to another property faces a stamp duty (transfer duty rate) increase of up to $7175.

Buying or Building?

With the recent development in the property market, many people would now be encouraged to buy or build new homes. With this, it is now necessary to learn the pros and cons of buying and building a house.

Buying Pros

Potential home buyers can:

• have a wide range of options or choices of ready-made houses to choose from
• have the opportunity to compare different features until they find exactly the right combination at the right price
• have seen the actual house design so they will instantly know what their house really looks like
• have a bargaining advantage as competitive is the property market nowadays, house hunters can now have the chance to drive a tough bargain and get the best deal possible, as there are many other options out in the market now

Buying Cons

Potential home buyers:

• may have to make concessions with regards to the house features you want
• may not find the perfect or the dream house that you want since you didn’t design it yourself.
• may need to spend money in order to make updates or repairs
• may need to make an offer that is more than the listing price if you get involved in a bidding war

Building Pros

Potential owner home builders:

• have control over all the features and options that they want in a dream house
• can customize their dream house according to their wants and needs
• can monitor the construction process so you will know if the house is built to your liking
• can have the opportunity to equip your house with the latest technologies and design
• house, fittings and appliances are all new

Building Cons

• Building a house is generally more expensive and may cost more than buying a house.
• Building a house often takes longer time and construction project gets delayed
• Building a house is more complicated for it will take considerable time and effort as well as it can be stressful for you have to deal will all the people who are part of the construction team.

Recently, a new report was released from Fitch Ratings, a global ratings agency which details mortgage performance by postcode, showed that mortgage delinquency rate in Western Australia has increased while Queensland has made history as Australia’s worst state for mortgage defaults.

The Fitch Ratings report showed that a rise of 1.99 percent, from 1.94 per cent, was being observed from the mortgage delinquency rate in the six months to March in WA while Queensland was recorded with the highest number of mortgage holders that are in debts at 2 percent.

This means that there is an increase in the number of Aussies all across the country who are struggling to pay their mortgages.

The report further revealed that 2315 including Nelson Bay is reported to be the worst-performing postcode in the country showing one in 18 mortgages or 5.6 percent are at least a month overdue.

Likewise, New South Wales (NSW) is home to five of the 10 worst-performing regions in the nation, with Fairfield-Liverpool as the worst-performing region in Australia, having one in 35 mortgages at least a month overdue and Victoria is home to five of the 10 best, with Mill Park and Brighton East as home to Victoria’s hardest-suffering home loan customers.

In the top 20 worst-performing postcodes in the country are Rockingham, Mandurah, Casuarina and West Swan.

Queensland’s Logan city is recorded to be the worst district in Australia for mortgage delinquency with 2.1 per cent of mortgage holders in default beyond 30 days.

At Fault

With borrowers experiencing significant financial distress resulting in mortgage stress seen spreading all across the country, the blame is attributed to the summer flooding as well as the interest rates increases, including one in November.

The statewide rising trend of mortgage stress is expected to further negatively influence the prices of home designs by pushing down declining house prices as “mortgage stress” sales increase.

Prices in house plan will again be forced to be lowered, softening the property market as many “mortgage stress” house owners will be forced to sell their houses.

Though the impact of interest rate increases takes time to be seen, “mortgage stress” home plan owners still are affected for they are worried for another interest rate increase.

With Australian homeowners impacted with the recent summer floods and interest rate hike and an expected interest increase in June, they are now more than ever under stress with their mortgage payments as some borrowers are in arrears by one or more payments.

All Time Low

With the recent development, Australia’s economy is now mixed and struggling.

With NAB’s Index of Business revealing further grim news for the domestic economy, it has reached its lowest ebb since early 2009 when the economy was still spinning from the shock of the global financial crisis.

Used to measure business conditions based on measures of trading conditions, profitability and employment, the NAB’s index has recorded near-record low levels across all three sectors.

Conditions in retail, manufacturing, wholesale and construction are still very poor.

However, the mining sector continues to save Australia’s economy as mining conditions outperformed all other industries.

With the spiraling energy prices, new regulations and a coming price on carbon, Australia’s property owners, managers and listed property trusts are now forced to look seriously at their energy usage and levels of investment into energy efficiency solutions.

The increasing prices in energy and water have also forced potential home designs buyers to look into the benefits of buying green houses.

As defined by Wikipedia, “a Green home is a type of house that is designed to be environmentally friendly and sustainable, focusing on the efficient use of “energy, water, and building materials.””

Designed to conserve energy or water and improve indoor air quality, target recycled or used materials in order to produce less waste in the process, a green house or home might be the answer to the spiraling energy crisis.

According to Archicentre, the building inspection service of the Australian Institute of Architects, the ever increasing prices in energy and water will cause a heightened value of existing green homes and commercial premises.

As the running costs of the rising energy prices eating into every family budget and the bottom-line of every business, Australians have nowadays looked in the affordability of green houses.

The pressure of housing affordability as well as the initial building or purchase costs and the required services such as power, water and gas needed to run a home have become a massive concern for every Australians nowadays.

Prospective buyers of home plans are now concerned with the running costs of building a green house and the cost of maintaining them and are automatically factoring these costs into their balancing of their mortgages and other costs.

With these spiraling concerns, prices of green houses have been set to soar due to its demand.

Green houses are now in great demand. Though normal houses are not as pricey as green houses as well as these are not so difficult to maintain, green houses are still more environment-friendly and cost efficient with regards to energy.

However, the payback period for solar panels and other energy saving technology has shortened considerably with power costs in the past two years skyrocketing.

One of the biggest trends in new homes and renovations is the likelihood of the introduction of quality-based building inspections. The said inspection is said to be aimed to ensure that homes with a six or more green star design are actually built by home builders to the standard.

The government will also focus on the quality of construction of renovations and new homes in the future in relation to sustainability of green houses.

A survey data showed recently that Australian capital city dwellings’ values dropped by more than 1 per cent for the three months till April. This said to be due to the losses that occurred in the luxury property market.

With home values all across capital cities dropping by 1.2 per cent from the first quarter to April, Brisbane, Perth and luxury suburbs have continually pulled down the Australian housing market.

Latest survey data from RP Data-Rismark Hedonic Home Value Index shows that home designs in Brisbane fell by 3.1 percent while house designs in Perth fell by 3 percent for the quarter on a seasonally adjusted basis.

The combined capital city dwelling markets showed a drop by a seasonally adjusted 0.3 per cent in April, while values dived by 1.2 per cent in the three months to April.

Tim Lawless, RP Data’s research director, expounded that from the start of the year to April, a 5.4 percent loss was recorded over the homes is the most expensive capital city suburbs which helped drag down the overall property market.

Mr. Lawless explained that the luxury end of the housing market is showing its volatility, though all throughout the growth phase of the cycle, the highest capital gains were realized by the most expensive homes. However, as the market cools down, premium home values appear to be losing steam the fastest.

The slumping of the property market, specifically Brisbane and Perth’s housing market, is caused by the floods that occurred in January in the Brisbane area while the cooling down following Perth’s strong run between 2005 and 2007, respectively.

Since January, this is the first quarter that a string of natural disasters hit the country.

Likewise, the cheap suburb’s solid performance in the property market has competed against the popular claims that default rates are soaring up amid first time buyers, which the RBA recently rejected.

This development worried home builders as Australia houses for sale values for regional areas decreased by 0.6 percent for April on a seasonally adjusted basis and by 1.5 percent of the quarter.

Just this January, home values dropped by 1.4 per cent that caused capital city home values to also dropped 2.1 per cent for the three months to March.

The capital cities’ plummeting luxury property market values has caused a domino effect among the rest of the capital cities resulting to the continued pull down of the Australian housing market.

Losses in the luxury property market of the combined capital city dwelling markets of Brisbane, Perth and Melbourne caused by natural disasters, the cooling effect of the strong run of the property market between 2005 and 2007, and the faulty claims about default rates soaring up have overall caused great damage to the Australian housing market.

Losses in the luxury property market is said to be caused by premium home values rapidly losing steam as the luxury property market cooled down.

In the middle 60 per cent of suburbs, home values were down by 0.9 percent.

The slumping of luxury suburbs’ property market values has stunted the Australian housing market.

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.

Australian couples have now put their house plans ahead of their plan of having children. They want a house plan first before having kids.

As the cost of entering the property market rises, around one in three Australians are now planning to delay their plans to start or grow a family.

According to a PRD nationwide survey, out of the 2000 Australians that were surveyed, it was found out that 34 per cent of the respondents of the survey were considering delaying their plan of having children as house prices increase or entry cost rises.

The increasing house prices has catapulted the Australian couples to change their plans of having a family to having a house first.

Aaron Maskrey, the PRD nationwide research director, said that because couples want to buy their own homes first, a significant number of them are postponing their plan of starting their own families.

Maskrey commented that though the long-term trend has seen prices for houses rising; however, the current softening of values in many areas are possible to attract many potential buyers into home ownership as these conditions will not hold in the long term.

He added that this condition has changed important life decisions, such as when to start a family.

Australian couple’s plan of starting a family, i.e. of having children, has now taken a backseat to the plan of buying a house. Because Australian couples perceive that the softening values of home designs would not last long, they are now changing their plan to having first their own house instead of having children first.

This trend has opened the market for Australian house plans; thus, the result is increasing the price of home plan.

Australian couples are now considering buying first their own house instead of starting making a family particularly having children.

As shown by the latest REIA Housing Affordability Report, it now costs an average Australian family about 35.3 per cent of their income to service the home loan.

This report shows that though this is still down from the previous year’s REIA Housing Affordability Report by 4.6 per cent, this still is up from 34.8 per cent in September 2010.

However, the survey also shows that more than half of the respondents or 55 per cent of them would not allow the state of the property market prevent them from starting a family.

This result shows that though some of the Australian couples are considering delaying having a family first to buying a house, most of them are still intending to start a family particularly having children. The condition of the property market has not discouraged them from intending to have children. Though having children has taken a backseat to buying a house.

Maskrey added that the remaining 10 per cent of respondents that were surveyed said that the research was not applicable to their situation.

As expected, last week, the Reserve Bank of Australia has left the cash rate unchanged at 4.75 per cent and the post-meeting statement released was almost identical to last month’s statement.