Bloomberg notes that Australian Mortgage Stress Climbs, Rental Vacancies Decline

A quarter of Australian homeowners are experiencing mortgage stress and rental vacancies remain “tight,” driven by higher interest rates, rising costs and a shortage of rental properties in some cities.

The number of homeowners facing mortgage stress has jumped from 21 percent in March, mortgage insurance provider Genworth Financial Inc. said in its September Homebuyer Confidence Index, based on surveys conducted from July 30 to Aug. 5, and released today. Rental vacancies slipped to 1.8 percent from 1.9 percent in the previous month and below the equilibrium 3 percent rate, according to data from SQM Research Pty.

Australian homes cost 6.1 times gross annual household income, the highest among English-speaking nations, compared with 3 times in the U.S., Belleville, Illinois-based consulting company Demographia said in January.

Here is the link for the 7th Annual Demographia International Housing Affordability Survey cited by Bloomberg.

Additional information specific to Australia and New Zealand can be found at Performance Urban Planning

I list links for completeness. I do not agree with all positions stated by either organization.

What’s Obama Up To?

Inquiring minds are reading an article on Ml-Implode by Patrick Pulatie. Please consider Analysis of Obama’s Proposed Fannie/Freddie “Streamline Refi” Program.

The Real Objectives and Outcomes

As with any new government program, we must look beyond the obvious to determine what the real objectives and outcomes of a program are. With this program, we don’t have to look far, because some objectives are readily admitted.

  • The report estimates that mortgage payments will fall by about $70 – $80 billion.. What this really means is that it is being undertaken as a “new stimulus” for the economy, under the disguise of mortgage refinancing.
  • Attempt to stabilize home values by refinancing to lower rates to keep people in homes. Finance underwater loans to avoid default. This will fail.
  • Make the GSE’s more profitable through increased fees. GSE’s receive upfront cash flow from $54b – $72b. Allow the GSE’s to control more of the housing market.
  • Bondholders to pay bulk of the costs of the program. Nearly all gains to homeowners come at the expense of the bondholders. (Total bondholder costs not given.)

In the end, this program will have little or no effect upon solving the housing crisis. It does not address the core issues of the crisis, which is a lack of real income growth in the US, excessively inflated home values, people who cannot afford the homes that they have now, those who cannot afford to buy a home at today’s prices, or the lack of private investors in the housing market.

Looking Beyond the Obvious

Pulatie wants to look beyond the obvious.

However, it’s obvious is this is an election ploy, and a case can be made there is little reason to look beyond the obvious other than to determine exact winners and losers.

Given there is no agreed specifics as to exactly how the program would work, it is difficult to ascertain who the winners are. However, losers are easy enough to ascertain (US Taxpayers).

Will bondholders lose? What bondholders?

If banks get to dump crappy mortgages on Fannie and Freddie for a lousy fee of .4%, banks will jump at the opportunity, as will bank bondholders.

Will Fannie and Freddie bondholders take a hit? That all depends on government guarantees. Regardless, taxpayers are 100% guaranteed to get screwed by the plan. The question is to what degree.

Until we have more specifics, it is tough to say whether any bondholders take a hit or not. I suspect they would not. If I am correct, then the losses borne by taxpayers will be all the greater.

Mike “Mish” Shedlock
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