SUBPRIME MELTDOWN IN AUSTRALIA – FHOG!

any comments?

Transcript

ALI MOORE, PRESENTER: As buyers raced to take advantage of the first home owners scheme, there are renewed fears it could create a sub-prime mortgage crisis here. The combination of rising unemployment and interest rate rises could see many young borrowers defaulting on their loans. Andrew Robertson reports.

ANDREW ROBERTSON, REPORTER: Australia might be flirting with recession, but the latest housing finance figures are at an 11-month high. It's good news on the surface, however underneath alarm bells are ringing for some.

STEPHEN WALTERS, CHIEF ECONOMIST, JP MORGAN: I think we're potentially building a disaster here that these first home buyers rushing into a market, the banks lending them money that perhaps they might want to think twice about. There's going to be consequences down the track.

ANDREW ROBERTSON: The seeds of those consequences can be seen in the detail of today's lending data. First home buyers accounted for a record 27 per cent of all loans. The average loan to first home buyers was $281,000, which is 23 per cent higher than a year ago. Those loans have been made against the background of an economy that's rapidly slowing.

STEPHEN WALTERS: Our forecast is that unemployment's going to at least nine per cent sometime during 2010. Now, unfortunately the demographic of the people losing their jobs pretty closely matches the demographic of first home buyers – lower experienced, lower skills. These are probably the people most inclined to lose their jobs over the next two years.

ANDREW ROBERTSON: The release of the housing finance figures for February coincided with the ninth annual survey of the mortgage industry conducted by JP Morgan and Fujitsu Consulting. Fujitsu general manager Morton North believes the first home owner's grants are creating a bubble that eventually will burst.

MARTIN NORTH, GM, FUJITSU CONSULTING: Well we did some modelling on the 125,000 first time buyers over the last year. Around 45,000 of them actually used the first time buyer grant. Our modelling would suggest that around 40,000 of them could actually be in severe stress within the next year or so because of unemployment and because of interest rates.

ANDREW ROBERTSON: Which will rise and be a huge problem for those stretching themselves to get into houses at the current low interest rates.

It all suggests the recovery of the Australian economy might take longer than many are hoping.

MARTIN NORTH: I think it distorts the downturn and I think it probably cushions the blow to the economy near-term, because we are artificially inflating part of the economy. But, it actually makes the upswing much more subdued.

ANDREW ROBERTSON: The big four banks who write the vast majority of Australian home loans are aware of the risks being created by the first home owners scheme and are already taking steps to protect themselves by refusing to accept government grants as a deposit.

SCOTT MANNING, BANKING ANALYST, JP MORGAN: Typically, all that you would need is a deposit in some way, shape or form to contribute. Now what they're saying is you need a relevant savings history over a sustained period, above and beyond any one-off gifts or first home owners grant contributions.

ANDREW ROBERTSON: Notwithstanding that caution, the big four are still lending at least 90 per cent of the value of first homes which Scott Manning believes pose as threat to their earnings from loans which may turn sour.

SCOTT MANNING: Everyone's focusing on the upcoming reporting season through the end of this month. I think the more interesting point will be to look at that underlying level of deterioration through to the end of this year and beyond.

ANDREW ROBERTSON: With so much uncertainty continuing around the housing industry, Fujitsu predicts house prices will keep falling for the next 12 to 18 months, despite the activity created by the first home owners scheme.

anyone!?

…and i would love to know what michael yardney has to say about this one, im quite positive myself, however this is really got my twiddling my thumbs?
the answer to this should be in expet answers or API haha.