It's the economy, stupid!

  MILW Junior Train Controller

Location: Earth
I have friends in Melbourne who treated a (paper) appreciation in the value of their home like it was a lotto win - borrowing money from their mortgage to finance a very expensive holiday and then later on buying a luxury 4WD. They were congratulating themselves on how clever they were at the time because they got these things at a much lower interest rate but the car is now worth a fraction of what they paid for it and the holiday a distant memory - meanwhile they'll be paying off those things for decades to come because it got lumped on their mortgage.
So, the only way people like that could come out on top would be to treat their house/investment property as a speculative asset and sell it for a massive capital gain that wiped out all their consolidated consumer debt. It seems many people probably did do that, but those days are fading into the past since the short term capital gains are cooling off. If you keep the house, you're paying all of it off, that's for sure, and the real cost of being in debt - the ongoing interest etc. - is almost always ignored.

They would have been better off with a short-term loan at a higher rate, they probably would have actually paid less in interest. I think there's actually a lot of ignorance out there about the real costs of mortgage re-draw; it's actually not a good idea unless you're using the money to improve the value of the property.
Redraw has now become the go-to method of managing faltering household finances. First they max it out on the credit card(s), then transfer it to the home loan via redraw - until they reach their redraw limit and are forced to make drastic cuts to household spending or liquidate their houses, hopefully getting enough capital gain to clear all the debt. Home loans are now bulging with what is really unsecured consumer debt. These are people whose mortgages were approved based on assumed capital growth in the houses they bought to begin with rather than the strengths of their own incomes. Everyone wants to borrow or cheat his way into wealth, or even just the image of wealth. How cute our flawed nature is.

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  MILW Junior Train Controller

Location: Earth
Talking of mortgages and honesty:

What could possibly go wrong?

We were repeatedly told that Australia was not like the US because we didn't have a big subprime mortgage problem.

There are now indications that our subprime mortgage market is much bigger than acknowledged, because it is mostly hidden by falsification of loan applications by applicants, brokers and bankers. The lackadaisical approach of financiers is probably attributable to an expectation of ever-increasing capital growth. They must have assumed that it wouldn't matter if the loans went bad because the houses could simply be sold for a profit. To an extent, they were right, but that approach doesn't work forever, hence the tightening of lending ocnditions (albeit too little, too late).

Anyone whose loan application was falsified by a broker or bank can challenge a future foreclosure in court and may get to keep their house. It's already happening on a small scale in Australia. But that only solves one small problem in the big picture of the mess that is our economy.
  HardWorkingMan Chief Commissioner

Location: Echuca
When in town today I took notice of a couple of things:
1) I drove past about 7 shops in the main shopping centre that were empty or for lease
2) 10 in the port area were for lease and one was having a closing down sale
3) the sewing hobby shop is closing down (backs onto the railway line)
4) about 1/3 of the factories/warehouses are empty.  Businesses are moving to different premises as the savings in rent pays for the move inside 6 months.

If the economy is so strong how come the town has the most empty business premises in over 20 years (in both real and percentage terms).

Also as there is no IT award people are being paid the minimum wage and only given casual work.  There is  a turnover of barista's and other hospitality/retail staff as it's all casual at minimum possible rates.  

housing prices in neighbouring towns are dropping as the factories, tourism and rural suppliers are closing.  As the population dwindles the shop keepers find it harder to make ends meet so put off staff who leave town to find work so there are fewer people to buy things at the shops....

these are not indications of a strong economy