If the US is in such trouble because of subprime housing lending, what does this suggest for Australia?
Like Australia, US employement is still strong (notwithstandng the small decrease in jobs announced last night).
And yes, people on adjustable rate mortgages (ARMs) might be having some trouble now that the adjustable (honeymoon) rates are now being adjusted up towards market rates.
But even with market rates, this should surely not put too much strain on households on average, or not?
US house prices are lower than Australian house prices on a 'multiples of income' basis. Interest rates are slightly lower than Australian ones. Tax rates are broadly comparable. Loan terms are probably longer in US, so less principle repaid each period compared with Australia. So, repayments as a percentage of income are probably lower than in Australia, even after the adjustment up to market rates.
So what is causing the defaults? And/or will we see a similar phenomon in Australia?
Notwithstanding that some of what I suggest above might not be quite correct, what are people's thoughts about why/if Australia is different?
Cheers
OG
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