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Australia Headed For Sub-Prime Housing Collapse?

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    July 10, 2012

    Record Number of Homes for Sale in Melbourne

    Given the alleged housing shortage in Australia, it is interesting to note a record number of houses for sale in Melbourne

     In June, Melbourne’s residential listings grew at a monthly rate of 6.1 per cent – almost four times the national average – and recorded a yearly jump of 27.7 per cent, more than 27 times Sydney’s annual growth of 1 per cent.

    Melbourne now has 55,293 unsold homes and apartments, according to today’s report, published by independent property researcher, SQM Research.

    The city had a rental vacancy rate of 3.1 per cent in May, the highest among capital cities and an increase from 2.4 per cent a year earlier, SQM said in a release last month.

    Permits granted to build or renovate homes soared 27.3 per cent in May from the prior month after the central bank cut interest rates, a report this week showed.

    The number of homes approved in Victoria climbed 31.8 per cent from April, the biggest increase among all states, Australian Bureau of Statistics figures showed.

    Nothing like building more houses to add to record supply.

    Sub-Prime Collapse 

    The Australian reports Provident implosion exposes low-doc risks

     THE $130 million collapse of subprime lender Provident Capital has highlighted the emerging problems in the nation’s low-doc and no-doc lending markets, which flourished during the years of the last property boom.

    Provident Capital provided home-loan products but specialised in writing subprime “low-doc” and “no-doc”loans to people with impaired credit histories.

    Provident Capital’s Fixed Term Investments offering, which holds about $130 million on behalf of 3500 investors, was frozen after the group wrote down its loans receivable by $13.8m.

    Provident Capital’s trustee, concerned that writedown should have been higher and that Provident Capital was not in a position to fully repay its noteholders, took the group to the Federal Court.

    Judge Steven Rares agreed with the trustee, leading to the debenture holder funds being frozen and more writedowns booked.

    PPB Advisory partner Marcus Ayres said the receiver planned to hold a meeting for investors in about a month.

    He said the receiver would seek to recover funds by repossessing houses of defaulting borrowers and slowly releasing them into the market or by selling the defaulting loans if an investor could be found.

    “This won’t be a fire sale and we won’t be putting all these properties out on to the market at the same time,” Mr Ayres said.

    According to ratings agency Standard & Poor’s, 6.62 per cent of “prime” low-doc loans are more than 30 days in arrears.

    That figure is double the level of two years ago and more than four times higher than prime loans.

    Fitch Ratings has said it expects there is “no end in sight” for arrears rates on low-doc loans.

    What “Can’t” Happen, Is Happening

    We have been told countless times that such scenarios could not happen in Australia. Well, clearly they could, because they are happening right now.

    Moreover, this is just the tip of the debtberg. Expect conditions to get much worse.

    Mike “Mish” Shedlock
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    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.