14

May

8:33pm
Jerry Grey China
As interest rates and inflation rise, people suffer housing stress

As interest rates and inflation rise, people suffer housing stress

Jerry Grey China//8:33pm, May 14th '23

Affordable house pricing has been an issue for as long as most of us can remember. Our grandparents bought their first homes when their annual salaries were just a shade less than the purchase price. By the time the 80s rolled around, the difference was much more stark, it was likely a home could be twice the annual salary but when the 90s hit and interest rates, already at record levels of 12% surged forward to 17.5% it looked like nothing could ever be worse.

But worse it is, interest rates eased back but the prices of homes did not. People might argue that the current interest rates are nowhere near the levels encountered in the 90s and that’s true but we’ve seen one increase after another, 8 in 12 months, by USA’s Fed and 11 in a row by the Reserve Bank in Australia. Rates are now at a 16 year high in both countries and, despite being a lot lower than the 90s, other conditions make it a much worse for homeowners than it was 30 years ago.

What’s changed for the buyer are two things: one is the cost of houses; the other is average incomes didn’t keep pace with inflation. Even though interest rate levels are only about a third of those of the 1990s, the price of a home has risen from 2.5 times the average annual income at that time to 5.3 times the average income. In other words, those houses and apartments in 1990 were, even with rising 12% interest rates, still affordable to the average buyer, now they are not.

But there’s more, relaxed banking laws have allowed more people to borrow more money than they could 40 years ago and, according to some sources, more than 25% of all current loans are risky loans. Meaning investing in banks could be a risky business (particularly, as we’ve seen, in the USA).

Australia’s Parliament House Library tells us that “housing stress” kicks in when we’re paying 30% or more of our income to cover our accommodation. While there appears to be some light at the end of the tunnel in the USA, the opposite is true for Australia, according to SGS Economics, there are currently 640,000 low-income Australian families experiencing housing stress and this is scheduled to increase to at least a million homes.

In Australia, wages increased 3.8% during 2022 while inflation (CPI) rose through 2022 to a high of 9% but home prices in some cities for the same period increased by as much as 29% but with a national average of 22% growth during the same period.

If you read our blogs then why not our magazine!!!
Image
Click here to subscribe our monthly magazine
Image

This combination of declining real-level incomes, higher loan amounts as well as the now increasing costs to service those loans impact not just on the individual home buyer, but on the health of the economy.

Australia’s most popular retailer is the hardware store Bunnings, it reported record revenue and earnings in 2022 as people, confined to homes, completed those long awaited DIY projects. But Woolworth’s the number one performing supermarket chain recorded “below aspirations” slower growth, managing to post $1.5 billion dollars in profit despite Covid issues and product shortages due to floods in two states while, at the same time, pointing to a reduction in sales of beef and fresh vegetables due to customers buying less of these as prices increased and cash-strapped consumers switched to cheaper, tinned and frozen, foods.

While it’s clear there is justifiable concern for home owners, the Aussie battler, as media likes to call them, there is an even great concern for the global economy overall as a variety of factors impact. The US Fed has indicated it isn’t over yet but is likely to ease off interest rate increases with a pause in June, it’s likely Australia will follow suit but signs are ominous: Bitcoin is down for the first time in two months, Wall Street, London’s Stock Exchange and Australia’s Stock Exchange are all also down.

The US Fed targets getting inflation back to 2% but it currently, and stubbornly, remains higher at 4.9%. This means there could well be more rate increases, as Jerome Powell indicated during a recent Senate hearing.

Increasing interest rates should cool spending; cooling spending should decrease inflation but decreased spending also leads to less demand, which turns into higher unemployment. All of this bodes poorly for new and prospective homeowners.

The economic environment globally, is further complicated by recent US bank collapses, which some pundits predict will continue, and the possibility of a US debt default, which the world expects will be averted, either by a political compromise or by invoking the 14th amendment. Either way, both of these options increase the likelihood that interest rates will rise further.

Editor's Note:

The views and informations expressed in the article are solely those of the author and may or may not reflect the views of The International. We believe in providing a platform for a range of viewpoints from the left.

Unity, Solidarity and Comradely Criticism: A Marxist Approach to Current Contradictions
Owen Williamson USA and Jagadish Paudel USA//10:00pm, May 11th '22

Unity, Solidarity and Comradely Criticism: A Marxist Approach to Current Contradictions

In 2022 the world Communist and Marxist movement has been shaken by events in Ukraine. Far differently from in the cases of twentieth-century Soviet interventions in Hungary, Czechoslovakia and elsewhere....

Read More
The State of Labor Power and Class Consciousness in Today's America
Andrzej Ranek USA//12:53am, Jan 2nd '21

The State of Labor Power and Class Consciousness in Today's America

Through my life I have always understood that something was inherently wrong with how labor is instituted in America. My father had been laid off of his job when I was very young. Ever since, he's moved....

Read More
Communist led Left Democratic Front (LDF) surges ahead in Kerala local body elections: Indication towards continuation of communist regime in Kerala
Gourab Ghosh India//6:11pm, Dec 16th '20

Communist led Left Democratic Front (LDF) surges ahead in Kerala local body elections: Indication towards continuation of communist regime in Kerala

Kerala is the state in India, where Communist parties are ruling the government. Results of the local body elections are coming out today with a clear indication of left majority. Three tiers ‘Panchayet....

Read More
Roe v Wade and Sexual Violence in the US
Morgan Corvidelle USA//4:04am, Jul 24th '22

Roe v Wade and Sexual Violence in the US

The US Supreme Court overturning the landmark Roe v Wade decision has, predictably and justifiably, resulted in rage, protests, and fear, particularly among USians who can become pregnant. Simply being....

Read More
 Capitalism’s Failed Paradigm
Megan Sherman UK//7:48pm, Feb 2nd '22

Capitalism’s Failed Paradigm

The solution to global development has seemed to lie in the application of free markets. If seriousness social disorder arises, the reasoning goes, it must be centred on an absence of economic liberalism — and,....

Read More
China on the world stage: Neither feared nor isolated, but embraced
Jerry Grey China//11:46pm, Jul 6th '23

China on the world stage: Neither feared nor isolated, but embraced

Given the amount of anti-China rhetoric in global media, most consumers of English language media and many in the European Union can be forgiven for thinking that the “international community” fears....

Read More