MAKING NEWS

Mon, 28 April 2008
Challenges ahead, but economy can cope
I EXPECT to see continued fallout from the sub-prime crisis in the US, with the problems spreading from the realm of finance to affect most sectors of the global economy. Unfortunately, this crisis has caused the price of money to rise and consumers will eventually pay more to borrow. Interest rates are already creeping higher on business loans and it is inevitable this will flow through to home loans and other forms of finance. These developments may well negate the need for the Reserve Bank of Australia to lift official interest rates further in 2008. I believe we are near the top of the interest rate cycle, as we are seeing central banks in the US and other countries dropping official rates in an effort to avoid recession. Meanwhile, real estate prices have stabilised in most areas, while property prices close to the CBDs across Australia continue to rise. This growth, coupled with the prospect of higher interest rates, will make housing affordability one of the biggest challenges this year for young Australians. The supply of new rental properties continues to be at an all-time low, leading to an acceleration in rents, creating further pressure on those who are keen to get into the property market for the first time. Most young people are now effectively priced out of property ownership in many areas of Australia and face higher rental payments, while the housing construction sector continues to suffer from low demand. The problems surrounding home loan affordability recently led me to submit an innovative tax concession plan to the federal Government and Opposition to address the growing crisis, which is not only creating financial problems but also social and family pressures. The Rudd Government is aware of the problem and has promised tax concessions for first home buyers, but it will need to do more to address this issue, as it points to a wider gulf in the community between the haves and the have-nots. Meanwhile, for existing home and apartment owners, I believe there will be a growing trend in 2008 to refinance their loans to offset the higher costs of their mortgages. Borrowers are taking advantage of the red-hot competition among lenders, which is the most aggressive it has been over the past 30 years and will continue next year. However, borrowers should also be aware that there are many loans with interest rates well below those being advertised in the market and available to them through reputable mortgage brokers. More than 30 per cent of the loans being provided through Aussie are refinances of existing mortgages and I expect this proportion to grow in 2008. Near full employment and the tax cuts to come into effect this year will mean consumer debt will continue to spiral. It appears as though more people are becoming used to their debt, being seduced by deferred payment terms on luxury goods such as plasma television sets rather than building up their savings to purchase them. The value of Australia's personal and car loan market is rising steadily to $2.5billion a month, and latest figures from the Consumer Credit Index show personal loan applications have risen by up to 10 per cent over the previous year. Source: The Australian

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