We are going to follow the US model down, Resource Boom or not. The boom is a temporary phenomina that began with China's massive expansion and will end in due course.
Here was the Reserve bank governor's opinion on the future, no doubt self-censored for general consumption. It was a real warning that most ignored, as they were busy having carnal knowledge with the equity fairy under the capital gains tree. But the equity fairy has now tired with their attentions, and they are going to wake up alone, and naked.
RBA head warns home gearing borrowers
By Glenda Korporaal
August 17, 2006 12:00am
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THE nation's heavily geared homebuyers could be hit hard by any shock to the economy, Reserve Bank governor Ian Macfarlane has warned.
Mr Macfarlane said the big change in Australian household borrowing had been among the over-40s, who were going into debt again rather than paying off their home loans. "The biggest single contribution to the increase in debt is actually people in the 40-50 and 50-60 age groups," he told
The Australian last week.
"In earlier generations, they would run down their debt to zero. Now they are not.
"They are going back and having a second and third helping to get a better house or additional properties."
Mr Macfarlane said it was not his role as Reserve Bank governor to tell people not to go into debt.
"They are free agents. They can make a decision to have a bigger balance sheet."
But he warned that the high household debt levels meant Australians might react differently to a major economic shock than they had in the past.
"The household sector will go into its shell much more than it has done in the past."
Mr Macfarlane has in the past warned about excessive borrowing for investment properties. But he said it was "hard to take a really moralistic view of people in the older age group who want to upgrade their home".
It was also "hard to complain about young people taking on a lot of debt if they feel it is the only way they can get home ownership".
Figures released this week show housing affordability at record lows, with an average of 27.9 per cent of household income now being used to meet mortgage repayments.
Mr Macfarlane said the higher levels of household debt did not mean that mortgage lending was riskier for the banking system.
In fact, the outgoing governor said, the banking system was less risky today than it had been in the past because banks had been able to use securitised mortgages and credit derivatives to transfer their risks.
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The last paragraph states plainly that we have followed the US model. But here we call them low-doc loans, not subprime.