The Valor Blog.
Investment News and Views, Direct from Our Team.

Update on Housing Market

John Edwards from Residex always gives a good view on what is happening in the residential housing market in the short term.

He mentions that the markets are fragile and affected by news from Europe and around the world. In translation, does this mean that houses are still significantly overvalued and people are worried that if they borrow the enormous amount of money that they need to buy, then they may have issues paying it off in the future?

Surely if people were buying houses without excessive leverage, then they would be far less affected by external signals.

The fall in interest rates does not appear to have given the housing market a kick start, but rather dampened the losses. Perhaps a few more interest rate cuts will give the market the kick it wants, but may not need.

Anecdotally, I still see numerous people with what I consider ridiculous mortgages. I still believe that the old conservative maximum of two and a half times your income is the most you should borrow. This is very far from the minds of people who sometimes borrow up to seven times their incomes.

Those that are borrowing enormous amounts of money to buy a house at the present time, I caution you to be on the conservative side and ignore what the maximum amounts the banks will lend you.

I worry about Australia and our very pricy houses in the event that unemployment rises due to a significant slowdown in the mining sector.