Slide in Australian Property Values to continue
Following recent warnings by the OECD that Australian house prices are grossly overpriced, it is worth noting the comments of finance managers in Australia.
Standard and Poors credit rating agency recently reported that 10% of mortgages in Australia are in arrears, including nearly 5% that are more than 90 days in arrears. It is only to be expected that as unemployment rises and interest rates start to increase this figure will worsen.
John Symond of Aussie Home Loans was reported as saying that even a 1% rise in home loan rates could have a devastating impact on borrowers and he advised borrowers to be cautious and not over commit. He predicted that South Australian property values would fall in the next 12 months by 10% and that values would continue to fall for a further 3 years.
Home owners under stress because of unemployment and rising interest rates could flood the market and force house prices to drop drastically if (when) rates rise in the next 18 months.
Australian household debt stands at $605 billion so Australians would do well to heed the warning from the OECD. While industry leaders are starting to speak out in Australia, our Reserve Bank has not issued any strong warnings. Borrowers may have become complacent due to the temporary drop and plateau in rates but many experts are predicting rates to rise again in 2010.
Borrowers who are going to be under pressure when interest rates rise 1 to 2% would be well advised to take preventative action now, rather than waiting and being forced to sell in a declining market.