Bubble Not Bubbly

The Federal Government is ignoring the first home buyer debt burden bubble it is creating, as it concentrates on boosting employment in the housing sector.

Highlighting the problem is the largely overlooked fact average first home loan values ballooned 24 per cent, or $56,000 to $286,000, in the year to March 2009.

In the latest quarterly CoreData Australian Mortgage Report, the average first home buyer loan continues to increase at speed – up $4,300 in March after a $13,700 jump in February.

Considering this it is burningpant’s assessment that the First Home Owners Boost (FHOB) should not have been extended by the Rudd Government in this month’s Federal Budget.

First home buyers are generally financially inexperienced, and yet the government perhaps mutely conscious of the small bubble it’s created has decided to continue to promote this offer until the end of 2009, with a phasing out in the final quarter.

The problem is the debt damage has already been done through the inflation of house prices at the lower end of the market, as the inexperienced rushed to take advantage of the offer pre-June.

New South Wales has the majority of first home buyers, at over 6,000 in March 2009. The state’s average first home loan was $299,000, an increase of $51,600 from the corresponding month a year before.

With an additional $7000 stimulus grant, first time borrowers in NSW are extending their loan by $44,700, yet in a financial environment of diminished job security, increasing bank loan arrears and global economic uncertainty.

Continuing a state analysis, Queenslanders borrowed an average of $300,000 in March 2009, $65,100 more than a year ago, while deep pocketed South Australians borrowed an average $268,400 – a whopping $81,200 increase over the same period.

Victoria now averages $258,300, up $39,500 for the year.

Extending and increasing the FHOB to get people on to the property ladder, is in effect greasing the rungs of financial indebtedness from which, unfortunately, some will fall.