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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: biometricgngboy who wrote (14023)	9/28/2003 11:19:45 AM
From: biometricgngboy	Read Replies (1) \| Respond to of 306849

Debt could crash home boom warns regulators September 25, 2003 - 5:51PM Rising household debt could crash the property market if homebuyers started defaulting on loans, regulators said today. The Council of Financial Regulators - made up of the Reserve Bank, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission - said home lending was a key concern during 2002. In its annual report, tabled in parliament today, the council said financial deregulation, specialist mortgage managers and the spread of loans aimed at investors had helped fuel the lending boom. The Reserve Bank believed the build-up in household debt would not trigger a repeat of the financial crisis of the early 1990s, sparked by a rise in corporate debt. "The concern would be for a sharp jump in mortgage default rates that triggered a more substantial market correction - a scenario more likely to be associated with a deterioration in employment conditions and/or a sharp rise in interest rates," the report said. Interest rates are tipped to start rising early next year, and could test the thousands of borrowers who have taken out loans at historic low rates since the middle of last year. The council warned lenders should not rely on mortgage insurance to cover their exposure to bad loans if default rates began to rise. Lenders impose mortgage insurance on homebuyers borrowing more than 80 per cent of the value of the property, to protect the lender in case of default. The combination of low default rates and rising house prices had led to a low rate of claims against mortgage insurance, and APRA said insurers seemed to have paid many claims as a gesture of goodwill. "However, in an environment in which default rates were increasing sharply, the more lenient attitude of mortgage insurers could change quite quickly, and this could undermine the effectiveness of the insurance cover," the report said. APRA is currently stress-testing banks and other lenders against the possibility of a collapse in the property lending market, and is due to release its findings in two weeks. Official figures indicate bad loans are at cyclical lows, although default rates for building society mortgages appear to have risen in the last year. The caution follows comments on the dangers of the housing bubble by the International Monetary Fund and Treasury Secretary Ken Henry. Labor treasury spokesman Mark Latham said the government was ignoring the warnings. "What goes up must come down," he said. "By ignoring the warnings of housing boom and bust, the Howard government is placing Australia's economic wellbeing and the household balance sheet at risk." New figures today showed a dip in job vacancies in the three months to August, the second quarterly fall in a row. Australian Bureau of Statistics job vacancies were 0.8 per cent weaker than the same time last year. The drop came despite market expectations vacancies would rise after a fall the previous quarter, and positive indications from surveys of newspaper advertisements. theage.com.au