Published in every major newspaper the last 24 hours are serious comments by the OECD that mirror what I’ve been squawking about since I started this Blog.
OECD officials say the Sydney and to only a slightly lesser extent, the Melbourne markets, are overheated and if the Reserve Bank gets it wrong and lowers rates again, it will be like throwing a bucket of jet fuel on a hot engine!
Others are pointing to where I live, the Gold Coast in Queensland, to be THE place to buy lest you miss out. Here we have the affordability multiple (that is, primary wage earner gross annual income multiplied to give average house price for a small family home) that used to be 3.0 to 3.5 at ridiculous levels of 8, 9 and even 10.0 in some places.
At the same time we have tens of thousands of first home buyers who have used the equity in their parent’s homes to “get into” their first home at any cost. These poor people are repaying “interest only” for a few years at a “Honeymoon rate” of interest. When their loans reset to Principal and Interest at rates well above market (something they signed up for but by then have completely forgotten) their repayments will double to unaffordable levels and they will be forced to sell. Just imagine tens of thousands of distressed properties coming on to the market at once? Mayhem! And major price falls as supply outstrips demand. Not only are the First Home Buyers at risk of getting less for their home than they owe Mr Bank, but their parents, who never really understood what handing over equity in their home really meant, may suddenly find themselves homeless too.
Keep leasing folks, and find safer places for your money!