Bubble Trouble

Bubbles build, bubbles burst, and there is always a collective group screaming they knew nothing about it, and should have been warned.

Glenn Stevens, RBA governor, skirted around the edges of admitting a housing bubble has been created in Australia, saying this week in a speech, ‘this ought to be the time when we can add to the dwelling stock without a major run-up in prices’.

But the major run up in prices is already clearly evidenced.

Take for example the first home buyer segment of the market, currently accounting for 30 per cent of all loans financed, now borrowing $38,200 or 16 per cent more on average than a year ago, with the average first home buyer loan now $281,300, according to CoreData research.

This year alone, a five per cent or $13,300 jump has been recorded by first home buyers, as they rush to get onto a property ladder with increasingly slippery rungs.

A state by state analysis highlights some major concerns, with South Australian first home buyers borrowing on average 27 per cent or $54,000 more than their equivalent a year before, with West Australian’s paying 18 per cent or $46,000 more over the same period.

Queensland first home buyers are paying 14 per cent or $36,000 more, with Victorians stumping up an extra 14 per cent or $32,000, and New South Wales first home buyer residents 13 per cent or $34,000 more.

Northern Territory first home buyers paid on average 42 per cent, or $92,000, more than a year before.

Demand to cash in on the state and federal first home buyer stimulus is the catalyst for skyrocketing first home buyer loans averages, with the 16,700 monthly average first home buyers in 2009, compared with 10,200 in 2008 and 11,300 in 2007.

Stevens and the government collectively should be providing more warnings for first home buyers, about over extending lending and bidding over the odds for properties that will inevitability fall in price once the federal and state grants are reduced.