In Warren Buffet's latest letter to share holders, he had this to say about housing in America.
"If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes."
"But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender — often protected by a government guarantee — facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford."
When the Rudd government announced they were putting up the first homeowner's grant to $21k, I read of a couple in Perth (in their 30's) who were delighted. "Now, instead of going for a $200k loan, we can go for a $400k loan!" they enthused.
How much better if, instead of a one off grant, government offered a fixed interest loan (say 3%) capped at say $200k?

the whole housing issue is a destraction
there was massive fraud[still is ]..in this housing phurphy

what really happend was bundeling
and then insuring the bundles

irrecoverable debt was bundled with high intrest housing loan documents

[by bundeling all the mortgauge papers..with irrecoverable debt]
the bankers got back the money they overlent to anyone willing to sign a mortgauge]

the problem being..
the mortgauge holder alone can recover the house
in case of default...[some courts take it on trust..that the bank forclosing ACTUALLY HOLDS THE MORTGAUGE DOCUMENT]..

only the ORIGONAL holds any value
or right[to reposses]..but these are in bundles..held by who knows who
its not even known where[maybe in china..maybe never egsisted..no one knows

see the banks in selling them
got repayed..cant sue for the loan or the house back
it cant even produce where it 'lent' the money from..[in truth it created it out of thin air..by collusion and fraud]..

but as they were all in on the scam
[thus all earned jail time..its only a matter of time till they get what they earned

the finantial system is bankrupt
it will struggle on for some time
but essentially the bankers have gone too far this time

at least the poorest of the poor in africa
or china..own their hut
[till some banker decides to get them to mortgauge it]
to buy say a tv..and then they have a security they can sell

a contract to take to court
to take their hut...[when or if..the court issues an order]
and the sherrif sees it as a lawfull reason to act[and kick the bumms out of their hutts]

the bank then tears them down
puts them onto strata title
and sells the units
[those buying them will never own title too]
like whats going down in china at this moment

when that sceme goes bust
who knows

Grim:

...The facts don’t back up your reasoning behind the GFC; but I agree the solution to our housing crisis(a crisis all Governments refuse stubbornly to even acknowledge the existence of) rests in subsidised interest rates to a very low level; maybe zero for a time. But further….

…The sub-prime (mortgagor) crisis which became the precursor to the GFC was a cause of the Banks themselves, not the Mortgagor inclining themselves to overindulgence in a Mc Mansion at all.

...The collapse was a fracturing of the fault line at the point where the expectation that house prices would forever inflate. That mistaken belief led to the banks themselves lending to customers at low front end interest rates (adjustable rate mortgages), thus lower repayments in the short term, in expectation of a refinancing against the inflated property price at a later date if necessary.

...The whole burden of the loan scam fell on the shoulders of the small fry at the bottom of the heap, the borrower (mortgagor). House prices plummeted leaving the asset value of the property a worth below the borrowed capital: A situation which forced home owners to walk away from their homes, (The midnight flit) and abandon the loan obligations.

...Abandoned suburbs now lay in rotting vandalised decay awaiting economic recovery as homelessness reaches record levels in the USA.
Beware Australians, the horror awaits! How long can our country maintain the highest property prices on the globe? And why are banks rorting their unseemly profits right now?... To protect themselves from the inevitable melt down, somewhere in the not-to-distant future, alas.

diver dan
"The collapse was a fracturing of the fault line at the point where the expectation that house prices would forever inflate."

That's it in a nutshell.

So how can you conclude from that, that the solution "rests in subsidised interest rates to a very low level; maybe zero". It is precisely lowering interest rates - in other words, increasing the money supply - that causes the general phenomenon of inflation and the expectation that prices will rise.

There is no reason why government should be subsidising land-owners.

But even if there were, it's just a handout, so why not just give them cash? Inflating the money supply is just another way of taking the money from everyone that uses money, *and* causes dreadful economic chaos and social injustice at the same time.

There is no need to do this in order to make housing cheaper and more available. What government should do is *stop making it more expensive and scarce*. Instead of arguing for more governmental jiggery-pokery, we should be calling for government to:
- stop taxing the money people need to buy housing
- stop taxing all goods and services
- stop taxing housing
- stop restricting the supply of land
- stop increasing the costs of housing and land by a thousand regulations on everything to do with it.

While ever government is *causing* the problem on so many fronts, how can you possibly justify trying to solve it by measures which only make it worse, and cause economic chaos and social injustice as well?

How easy is it for land owners to sub-divide? Very difficult. There are vast amounts of suburban land, infrastructure in place, which are suitable for subdivision. Allowing sub-division of these areas would bring great amounts of new housing to the market, ending the affordability crisis. The current situation of heavy restriction and decisions made in secret is a case of the interests of a few being put ahead of the interests of the vast majority of Australians.

Well Peter Hume;

...As you are well aware, Capitalism is a system that thrives on scarcity. Housing all who need to be housed is an anti-capitalist view. Obviously, assisting all who need to be housed by offering benefits such as subsidised interest, sits badly with markets.

...Governments do not create housing shortages, they simply fail the people most in need of housing by ignoring the problem and failing to fix it up. But by ignoring the problem they do assist housing markets to remain buoyant (overpriced); by so doing though, they expose a priority of market health over social need (ballot box).

...But as you would be acutely aware Peter Hume, the current property values are a fools paradise.(refer America)

Hi Diver Dan, with respect it was not my reasoning; I was quoting Warren Buffet. His second paragraph made me immediately think of the Perth couple I quoted.
The surge in housing prices began with women's lib, and the 2 breadwinner family, coupled with a relaxation of banking regulation. Earlier, bank mortgages were restricted to no more than 25% of one partner's income, as I recall; now of course a mortgage can be 100% of one partner's income; bargaining power which has of course sent housing (and land) prices to ridiculous heights.
Lower interest rates do not increase the (M3) money supply. Interest itself increases M3 money, so the more interest the more (future financed) money. I don't believe my solution would increase M1 (cash) either, as it is a replacement scheme for (government granted) loan deposits, which would force first homeowners to save more.
Unlike fractional reserve banks which simply roll over loan repayments into more loans, governments must ("should" "are supposed to") set a budget and allocate initial funding and show where loan repayments are going to be used. IOW, the loan repayments could actually extinguish the loan. Budgeted amounts of loans available means supply could be allocated to predicted demand, instead of simply creating demand and forcing unsustainable growth.
The reason my idea will never be adopted, is because speculators (which include all baby boomers such as myself with real estate to sell) would take -an initial- dump, with a stabilised housing market; although relative pricing would still be the same, at a lower level.
IOW, it would be harder to finance retirement with real estate.
Apart from these points, I am largely in agreement with the posters so far.

*House prices plummeted leaving the asset value of the property a worth below the borrowed capital: A situation which forced home owners to walk away from their homes, (The midnight flit) and abandon the loan obligations.*

Sheesh Diver Dan, there was silly old me thinking that people bought
houses above all to live in. If the value of the house decreases,
it still can be lived in.

Jingle mail did not force home owners, they simply grabbed their
chance when they saw it, to slither out of a debt which they had
previously agreed to.

In America, unlike in Australia, if sale value of the home does not
cover the mortgage, that its bad luck for the mortgage provider.
In Australia, borrowers can sensibly be persued for other assets.

Sounds to me like this could well be another political stuff up
by a well meaning US Congress. Having good intentions is seemingly
not enough to produce sensible laws. The law of unintended
consequences invariably strikes.

The lending on homes in the US together with the near fraudulent
selling of sliced up mortgages was a bomb waiting for the slightest
disturbance to set it off.

That came with the climbing oil prices in 2007.
Ethanol production increased significantly which diverted grain from
food to fuel. The price of food increased from that cause as well as
food production fuel costs and fertiliser costs.

The result was many Americans had a choice forced onto them.
Buy petrol to go to work or buy food or pay the mortgage.
We all know what they did.

Fuel reached $147 a barrel in July 2008 and the economy collapsed.
Then they discovered no one was sure who really held the mortgages.
So often houses sold under foreclosure have uncertain title.

One big mess and it holds the hand grenade of the next crash.

…Government timidity in the face of formidable market forces is the rule in direction as the housing crisis worsens, exacerbated by a string of national disasters. I try not to join the boring throng of wingers criticising the ineptitude of the Gillard Government, but it is hard to ignore its stupidity and lack of focus on the real issues facing day to day life in the electorates.

… Like the Pirates of Penzance, skipping inanely on the world stage while an additional fifty four thousand of her subjects beg for housing following the Queensland floods, and navy ships slowly sink at anchor from old age, unable to assist in time of national emergency.

…But thankfully Pauline Hanson has offered herself again as a target and will no doubt inadvertently inject some good policies through Abbots Liberals as before: Hopefully she may consider offering policy direction to the housing crisis, are you listening Pauline?

Yabby:

...BAZZ does a sensible job (below your post) at explaining the circumstances which were some of the direct causes of home defaults in the US.

...Not all defaulters did the moonlight flit either. Many defaulters stood their ground honourable against panic attempts by banks to evict them in order to resell their properties; but alas the market evaporated: Crashed… which is a prediction for our market here in Australia, from many in the know (of which I am not one of them)! I believe, from my reading on the subject, a significant decline in property values in some areas is already in evidence.

The Australian housing bubble keeps inflating. Why are so many people overpaying for run down homes in Australia when housing is so much cheaper everywhere else in the world. We have the most expensive house prices on the planet. Many people feel by the time they retire they still won't be able to afford a house! But it can't and won't keep rising at this rate. To read the comments on AustralianPropertyForum.com you'd think the bubble was about to burst, and maybe it is, but how long must we wait? I can't imagine the POP is far away, and when it comes there will be a lot of speculators screaming for more government intervention. My fear, is that the government WILL listen to them!

Matt Cooper
Australian Property Forum
http://australianpropertyforum.com

Matt Cooper;
It is really quite simple.
In the 1970s the government was persuaded to force the lending banks
etc to lend on both incomes of the applicants.

Question; what happens in a market when the amount of money coming into
that market doubles for the same number of items being sold in that market ?

Surprise surprise, prices rise !
Now you know why housing became less affordable from the late 1970s
onward to today.

Yes, Mattcooper, and Bazz, precisely my points.
The problem has been created through cheap credit and lax banking regulation.
The first home buyers grant was (perhaps inadvertently) a ploy to deliver our children into the hands of the banks.
Rather like saying "there's a cage of wolves over there; here's a bucket of blood to carry in with you. That's sure to get you 'in' with them".
Rather than help first home buyers join a game where the opponents can (and do) change the most fundamental rule whenever they feel like it, why not give them a game where the rule (interest rate) is fixed, as rules are supposed to be?
As I understand it, the home owners grant is a gift; gone for good. A loan fund would be self funding, and cost tax payers nothing.

Grimm, I have not read the rest of the posts as I have no time left.

I have always maintained that governments (both) have got it wrong with the way they assist people into houses.

For a start. the grant should be an interest free loan and make it $50K, not $21K.

Now, there should be conditions set, such as, the home buyer must reduce their own loan annually, at a 'predetermined' level and can not re-draw on their own loan, or take a second mortgage unless they pay out the 'free loan' that has been provided by the tax payer.

Then, if they choose to sell their home, then the 'free loan' must be paid out fully as part of the settlement. Alternatively, they can stay put and enjoy the benefits of the interest free loan.

You see, there is a difference between a 'hand up' and a 'hand out'. At least this way the 'loan' remains an asset of the tax payer which can be re-used to assist further first time home buyers.

The trouble with the current system is that buyers in the past have taken this $21K 'hand out' and increased it '2,3,up to 5 fold and received this 'win fall' at the expense of the tax payer, many of whom were not eligible for the grant.

Way to solve the unemployment problem, rehctub.

>>Now, there should be conditions set, such as, the home buyer must reduce their own loan annually, at a 'predetermined' level and can not re-draw on their own loan, or take a second mortgage unless they pay out the 'free loan' that has been provided by the tax payer. Then, if they choose to sell their home, then the 'free loan' must be paid out fully as part of the settlement. Alternatively, they can stay put and enjoy the benefits of the interest free loan.<<

Can you imagine the number of public servants who would need to be recruited, trained, housed, salaried, superannuated and managed in order to research, create, publish, promote, administer and police a programme such as this?

Yum.

there was a sceme i mentioned a few months ago
it basiclly was a 'way' to house public servants
[one of them 'devine' scemes]

govt[from memory]..kicked in 50,000
and investers were required to sign exclusive leases
and hold loans of arround 220,000

anyhow it was a sceme[like all scemes]..to get devine investers funds as well as govt money]..litle wonder it was advertised on 'all music radio'..

other things that come to mind re this housing issue
are things like gst...was so govt would stop stamp duty on houses
and that shift of burden is great for investers[but not us mugs paying gst]

every govt sceme advantages some
and disadvantages the many

im of the old school [i bought my block off the govt
puttinmg up a 10 percent deposit..
then repaying 13 percent fixed intest rate by annual payment for 10 years

this is what govt should have done with the state forrests
[that they sold for 800 MILLION][for just under 40,000 hectares]

they could have preapproved many types of blocks
from small acreage to units and commercial
could easilly have built a small town

and cleared the FULL..65 billion debt govt has saddled us with as an excuse to over tax us for services and privatise our public assetsd..just with intelligent us with..*that land

[instead [you watch]..it will be gifted away to some shelf company..to be taken over in a few years by devine for pennies on the dollar][who will then do the same thing

and we will still be repaying intrest only on the 65 billion

Pericles, why not use your imagination here.

Your concerns are quite easy to address.

Firstly, the owners loan is a 'conditional loan' and the financial institution knows this which means it can not be redrawn on, nor can a second mortgage be placed on the home, unless of cause the restriction is lifted. Problem one solved.

Then, there are also things like 'caveats', if that's how it's spelt that restrict the sale (transfer) of the home unless this caveat is lifted. Problem two solved.

The third option is that we all go around with our heads buried in the sand and pretend it's all just to hard.

You choose!

You see giving people a 'gift' is not the answer as these ;gifts' can only be used once to benefit one person/persons.

It is typical of governments (note the plural) 'open cheque book' policies. I also think they to hold their heads in the sand and say it's all just a bit to hard.