10 percent mortgage rates in 12 months

Talk of close to 10% interest rates on home loans by end of next year on the ABC tonight, this would have to put Australia into a recession if it were to happen in my opinion.
With the average loan around 250k thats repayments of $500 per week for the average place, the average gross wage is just over 50k gross or roughly $700 in the hand week leaving $200 a week spending money to pay for bills food car loans etc etc...ouch..nice one Liberals...gonna leve the country with a big mess to clean up.

The recession we had to have arises again


"KERRY O'BRIEN: And in case you missed it, there was one projection there of a housing interest rate that might be edging dangerously close to double figures before the end of next year. "


Economists predict holiday hangover
Print
Australian Broadcasting Corporation

Broadcast: 05/12/2007

Reporter: Greg Hoy

Today’s Reserve Bank decision to keep interest rates on hold brought pre-Christmas relief for home-buyers and businesses but, with Australians expected to go on a record Christmas shopping spree, economists are warning that bad news is on the cards early in the New Year.

Transcript
KERRY O'BRIEN: Although it was expected, it was still a relief to see the Reserve Bank announce today that it had decided not to put interest rates up for the second month in a row, despite the fact that inflation is likely to remain above the upper limit of 3 per cent through the first half of next year.

The potential bad news is that another rise early in the new year remains a strong prospect, even though economic growth in America and Europe appears to be weakening.

But the major commercial banks in Australia are moving to put up interest rates anyway to offset the rising cost and shrinking availability of global credit as the US subprime mortgage crisis continues to bite.

It's a particular complexity of the Australian economy that while household spending remains a substantial driver of the nation's strong growth, there are still many homeowners staggering under the accumulated pressure from 10 straight interest rate increases. Inevitably for some, the next rise will be one too many.

Greg Hoy reports.

GREG HOY: 'Tis the season to be shopping and not just window shopping. While retail consumption may have slowed in recent months, retailers are still predicting a $34 billion spree this Christmas. If current trends persist, that will be on credit. That means many Australian consumers are headed for a post-Christmas credit hangover.

ROGER MENDELSON, PRUSHKA DEBT RECOVERY: People overspend over the Christmas period and throw caution to the wind. And the repercussions don't get felt until about February. This year, I feel that things will be worse because of the fact that interest rates are progressively higher.

GREG HOY: Over the past seven years, Prushka debt recovery has grown at an annual rate of 20 per cent to 200 staff in 13 offices across the country.

PRUSHKA EMPLOYEE: Your comments on that? Are you aware that that debt is owed?

ROGER MENDELSON: The level of consumer debt in Australia is way off the scale. It's just been far too easy to get consumer debt and by and large that comes down to credit cards. And it's still far too easy to play off one card against the other.

GREG HOY: And while consumer debt rises, the great burden of housing affordability in Australia is not about to diminish.

Australians are now paying an average 6.6 times household income for a home. In the US, it is 3.4 times. While here the official interest rate is now 6.75 per cent and rising, there it's 4.5 per cent and falling. It's a big difference further exacerbated by the global credit crisis, triggered of course by the collapse of the US sub-prime housing market.

With an increase in their borrowing costs, Australia's major banks are considering lifting interest rates independently of the Reserve Bank, though no one wants to be the first.

ALAN OSTER, CHIEF ECONOMIST, NAB: I think there is a lot of tactical issues being played out. Banks have got a perception they are looking at it strategically as to whether they sit back and watch to see what happens.

MICHAEL KNOX, CHIEF ECONOMIST, ABN AMRO MORGANS: The market is already forcing up interest rates and that's the reason that home loan interest rates may go up even before the RBA meets again.

GREG HOY: And the worst of the US mortgage meltdown may be yet to come. Little wonder debt collectors are nervous. More so after the Reserve Bank of Australia, following the US Federal Reserve's lead, began purchasing Australian bank securities backed by mortgages.

ROGER MENDELSON: I'm surprised that the Reserve Bank hasn't released more information about this. And I'm surprised also that it hasn't received greater discussion in the media because I see this as a danger sign.

ALAN OSTER: What the Reserve Bank is actually doing is it's trying to keep confidence. It's trying to keep liquidity. So which instrument it actually uses is not all that relevant. What it needs is an instrument that they can basically consider as essentially risk free.

GREG HOY: In a break with tradition for the first time today as it announced its decision to keep rates on hold, the Reserve Bank Board issued a statement by chairman Glenn Stevens explaining the thinking at yesterday's board meeting where the decision was made: "The Board remains concerned about the outlook for inflation. But given the heightened uncertainty... and... wholesale borrowing costs... it judged that the current stance of monetary policy should be maintained for the time being."

So while official rates remain at 6.75 per cent, the Reserve finds itself in a conundrum. Inflation is testing its nerve at home while the mortgage mess in the US is threatening a recession in the world's largest economy which accounts for 20 per cent of global output.

MICHAEL KNOX: Domestic demand is declining in the US. It is already in recession. The Australian economy is in a very different position. Right now we are having a non-residential construction boom. And that non-residential construction boom is driven by the resources boom - the need to build more mines, more railways, more rolling stock, more ports to ship more coal on the eastern side of Australia and iron ore in the western side of Australia.

And that is driving an enormous investment boom. So we think that the Australian economy, whereas the US economy next year might grow at between 1.5 to two per cent, the Australian economy is growing 4.3, 4.5 per cent. So we are growing at least twice as fast as the US economy.

So this economy is not going to slow down. The major problem for this economy is that we might grow too rapidly.

GREG HOY: So US interest rates are set to fall as pressure builds for ours to rise in February, as the Australian dollar is likely to rise as well. All eyes are on the new Federal Government to keep a firm hold on the handbrake of government spending, or fiscal policy, now the election spend-a-thon is over.

MICHAEL KNOX: The Budget surplus needs to be held at the current high level or increased. If the Budget surplus isn't big enough to reduce demand or if there is a wages blow out, then we could have an Australian cash rate by next year which is at least one full per cent higher than where we currently are. That is to say, instead of sitting at 6.75 per cent and it could be sitting at 7.75 per cent.

ALAN OSTER: Come February you'll have had three rate rises, you'll have a currency up around 90 cents. That is normally enough to slow the economy. I think it probably will. I also think the Government will introduce a tight monetary policy, sorry, budget, which will also mean that by the middle of the year we'll be slowing. If not, I think you'll find the Reserve Bank will have to go again.

GREG HOY: If there is a Christmas message in all of this for government, there's a stern warning for consumers and mortgagees not to get carried away by the festive spirit and end up in the grip of the debt collectors.

ROGER MENDELSON: The indicators are I believe, call for caution. And I believe the Government and the Reserve Bank have not really been heeding the danger signs. The number of home loans in default in Australia is low, but there's an increase in the numbers. So the danger signs are there in the high streets of the cities.

KERRY O'BRIEN: And in case you missed it, there was one projection there of a housing interest rate that might be edging dangerously close to double figures before the end of next year. Greg Hoy with that report