Australia is still building the largest homes in the world, according to new data commissioned from the Australian Bureau of Statistics by CommSec.

The average floor area of new homes – both houses and apartments – stood at 214.1 square metres in the nine months to March 2011, while the average floor area of new freestanding houses stood at 243.6 square metres.

The United States has traditionally competed with Australia to claim the ‘biggest homes’ title, but the average home size in the US has been shrinking for the past three years, according to CommSec.

It said new homes in Australia are now around 10 per cent bigger than in the US and nine per cent bigger than in New Zealand.

While Australia is still building the largest homes in the world, it has constructed a larger number of smaller apartments over the past two years, which has resulted in a reduction in the average home size. In the nine months to March the average new apartment was 133.7 square metres, which is the smallest result in a decade.

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A national standard online conveyancing system will be implemented by late 2012 to provide greater efficiency to the banking sector and conveyancing industry, according to The Australian Bankers’ Association (ABA).

Previously listed on the Council of Australian Governments’ to-do list, the new system, known as PEXA (Property Exchange Australia), will see bank cheques eliminated for property transactions, easier coordination of settlements and greater certainty for all, said ABA chief executive Steven Munchenberg.

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As market uncertainty grows, more investors and borrowers are locking in fixed term interest rates.

RateCity says new data released by the Australian Bureau of Statistics (ABS) shows 3301 home loans were fixed in June.

“This compares to 3148 in May 2011 and was the highest month-on-month increase since December 2010, when borrowers were spooked by the large variable rate increases of November 2010,” RateCity says.

“Even more significantly, the proportion of fixed home loans was almost double that of June 2010.”

Western Australia had the biggest increase in fixed loans, followed by the Australian Capital Territory.

RateCity chief executive officer Damian Smith says lenders have already started competing aggressively in the fixed home loan market.

“Most lenders have been dropping their fixed home loan rates steadily this year, but we haven’t seen this level of fixed rate movement since the global financial crisis,” he says.

“We saw 17 lenders that have dropped some of their residential fixed home loan rates this week alone; the average three-year fixed rate has hit a new low of 7.2 per cent from 7.42 per cent in December 2010.

“The Commonwealth Bank’s new rates, especially their three-year fixed rate at 6.59 per cent, are market-leading and that’s a good thing for borrowers, especially when there’s so much uncertainty in the economy.”

RateCity’s statistics indicate fixed rate home loan applications made up 23 per cent of all loan applications in July, compared with 13 per cent in January.

“With the abolition of excessive early exit fees on variable rate loans, fixed loans have become more attractive for lenders,” Smith says.

“If variable rates move down, then obviously there’s always a risk that a fixed rate loan will leave you ‘above’ the market, so one option is to look at a split loan, where a proportion is variable and the remainder is fixed.”

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Australian houses cost $66,000 less than what they were two years ago, yet household wages have risen by almost $20,000 in five years. The changes mean it’s now very realistic for homebuyers to get into the market, according to RateCity.

Chief executive officer Damian Smith says saving for a home in 2011 is much easier than it was five years ago and especially two years ago.

“Buying a home and paying off a mortgage is something most Australians strive for. It got much harder towards the end of 2008, but since the global financial crisis affordability has improved, due to lower housing prices and continued income growth for most Australians,” he says.

“The average Australian home now costs $417,500, which is $66,000 less than the average house price from two years ago and pretty much the same as five years ago.”

Median household income continues to rise at an average annual rate of more than seven per cent, since 2006. Median household income in Australia also now sits at just under $77,000, compared to just over $54,000 in 2006.

“It’s certainly true that the rich have got a lot richer in Australia over the last few years –  but middle Australia is doing better on the income side than some of the doom and gloom stories might suggest.”

He adds that because of declining property prices and consistent income growth, a 10 per cent deposit in 2009 was just over $48,000, whereas in 2011, the equivalent figure is just under $42,000.

“If you’ve got money to invest towards a home loan deposit, it’s a better time to save now than in 2009, because savings interest rates are higher and there are now more attractive savings incentives for first homebuyers.

“That, combined with higher incomes on average, means borrowers today are in a better position to save larger deposits and ultimately shave thousands of dollars in interest off their future mortgages.”

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The Federal Government needs to do more to reduce the tax burden on new housing, according to the Housing Industry Association (HIA).

HIA says today’s release of the Tax Forum discussion paper by the government represents an opportunity for Australia to take steps towards reducing the large tax burden levied on new housing.

Managing director Shane Goodwin says the paper should be used to tackle Australia’s housing shortage.

“Independent economic modelling by the Centre for International Economics has found that the total taxation burden on a new home can be well over 40 per cent of its purchase price,” he says.

“Worryingly, most of the taxation burden is borne by the homebuyer. The Tax Forum could be used to reduce this large impost on homes and hence increase housing supply and improve affordability.”

HIA says there are some pleasant elements in the paper, including that the government has:

• committed to not changing the treatment of the family home in income support means test;
• reiterated the importance of improving the efficiency of housing supply;
• noted that stamp duties are a highly inefficient tax while also leaving room for substantial reform to this taxation element.

The Institute of Chartered Accountants in Australia’s tax counsel, Yasser El-Ansary, adds it’s critical that the tax forum is used as a catalyst for a broad-based discussion across the community.

“For some time we’ve been calling for a blueprint for tax reform and now it looks like Australia might have the opportunity,” he says.

“Ken Henry’s review of our tax system last year highlighted that key parts of our complex tax system are broken and require major rebuilding work over the short to medium-term. What we need to do now is prioritise how we tackle those issues over the coming five years.”

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Mortgage holders shouldn’t assume that fortnightly repayments will save big bucks, because it actually depends on the lender and how it calculates interest, according to RateCity.

Of the big four banks, the Commonwealth Bank’s interest calculation methods return the best savings for fortnightly payments as opposed to monthly repayments.

RateCity chief executive officer Damian Smith said unless your lender credits you with 26 payments per year as opposed to 24, then fortnightly payments are pointless.

“It’s the difference between genuine fortnightly payments and twice-per-month payments,” said Smith.

Each lender calculates interest differently, so knowing who does what is important when determining a repayment frequency, he said.

ANZ, National Australia Bank (NAB) and Commonwealth Bank calculate fortnightly repayments by dividing a monthly repayment by two; ANZ and NAB only debit 24 fortnightly payments per year, or two payments per month while Commonwealth Bank credits payments every two weeks so borrowers make 26 repayments in one year and are credited for two extra fortnightly repayments each year, said Smith.

Westpac customers pay 26 times in one year, however it just equals the total amount if paid monthly, Smith said.

He said what it does do, however, is save on interest by reducing down the principal debt sooner each month, he said.

Smith compared the home loan repayments across the ‘big four’ lenders to discover some surprising differences.

“Using a scenario of $300,000 with an interest rate of 7.3 per cent over 25 years, Commonwealth Bank customers could save almost $77,000 in interest and reduce the length of their loan by four-and-a-half years by making fortnightly repayments as opposed to monthly,” said Smith.

“Using the same scenario, Westpac borrowers could save almost $7000, but ANZ and NAB customers would save less than $400 over 25 years.”

Borrowers should be careful when comparing home loans and ask for all the calculations and repayment details before deciding, said Smith.

“Lenders that only credit fortnightly payments as ‘twice per month’ rather than 26 times per year are essentially accepting money earlier from borrowers without rewarding them for the early repayments and pocketing the interest,” he said.

“That’s why it’s important for borrowers to check how their lender charges interest and credits repayments, and switch to a better deal if it doesn’t suit your needs.”

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Speculation on what the Reserve Bank of Australia (RBA) would do with the cash rate at its monthly meeting ended today with the central bank’s board announcing it would remain unchanged at 4.75 per cent.

RBA Governor Glenn Stevens cited one of the reasons for leaving the cash rate as is as the acute sense of uncertainty in global financial markets over recent weeks, particularly in Europe and the United States.

He said, however, the RBA would “continue to assess carefully the evolving outlook for growth and inflation” to determine whether further policy tightening is needed.
Stevens said year-ended consumer price index (CPI) inflation has been high, affected by the extreme weather events earlier in the year, but as these effects reverse over the next couple of quarters, CPI inflation should decline.

“But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years,” he said.

“While they have, to date, remained consistent with the two to three per cent target on a year-ended basis, the board remains concerned about the medium-term outlook for inflation.”

The cash rate has now remained unchanged since November last year, which is reportedly the longest it has remained steady in four years.

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As the United States Senate last night voted in favour of legislation to raise the debt ceiling by a further $2.4 trillion in exchange for $2.1 trillion of Federal spending cuts over 10 years, on the Australian front equity investors are shifting attention back to property, according to Queensland University of Technology professor of property economics Chris Eves.

After last night’s decision to raise the ceiling debt further the Australian stockmarket today saw around a $30 billion drop following the falls in the US indicating that investor confidence had not risen as expected but had instead plunged.

“There’s still a lot of concern about the equities market and what traditionally happens after a big fall like that is the interest shifts back to the property market,” Eves said.

Australia is increasingly being seen as a desirable nation to invest in as nations like the US plunge further into “doom and gloom”, said Eves.
He said this factor alone could help prop up the Australian housing market.

Back in the US, while the ink is still drying on new legislation to raise the debt ceiling further, in the background banks are increasingly bulldozing foreclosed homes and donating the land to local governments in an effort to reduce supply and increase property values again, according to Time magazine.

Nearly 1.7 million homes in the United States (US) are either already foreclosed or are in the process of being foreclosed with more on the way, said Time magazine.

With many US bank economists concerned about US house prices remaining low for a long stretch ahead due to the glut in these foreclosed homes, banks are opting to demolish rather than sell the unsellable dwellings and, to avoid paying taxes on the remaining land and claim a write off, are donating the lots to government authorities to use for future development or green space.

Eves said the act of bulldozing houses and handing over the land to local government authorities is an extreme measure to deal with the falling house prices in the US, “but it’s an extreme measure for extreme times”.

He said the other option would be to hand out the houses at nil price to individuals but it would distort the market because it would reduce values of other property assets and would mean a lot of mortgagees jumping ship to give up their high debt houses for the free ones.

Time magazine said while President Obama is looking at ways to assist victims of imminent foreclosure stay in their homes, others are considering how to speed up the foreclosure process in a nonsensical effort to speed up the housing recovery.

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The banks have definitely tightened up their lending criteria this year and for many investors, that means you need a 20 per cent deposit.

However, some banks still allow investors to borrow up to 85, 90 and even 95 per cent of the loan. But that poses another problem – the dreaded mortgage insurance costs which investors usually become liable for when they borrow more than 80 per cent of the property’s value.

Jane Slack-Smith of Investors Choice says mortgage insurance can cost thousands of dollars and even tens of thousands of dollars in some cases. The thought might be enough to force any investor to ditch weekend restaurants for cheap home meals on the weekend, as they decide to save, save and save for that 20 per cent deposit.

However, Slack-Smith warns waiting for a larger deposit might actually cost you money.

“I see mortgage insurance as an opportunity cost,” Slack-Smith says.

“I bought my first house for $425,000 with a five per cent deposit. If I’d waited until I had a 20 per cent deposit, it would have taken me five years to save and the property would have been worth $600,000. I would therefore be buying a property of a lesser standard by the time I’d saved the 20 per cent.”

Paul Sparta of Hegney Property Group agrees. He says investors need to ask ‘why wait’ if they can afford to buy now and pay a little mortgage insurance.

“I don’t understand the logic of why sit here and wait. If you’re ready, you should buy. But you have to be ready in yourself, otherwise what’s the point?”

He believes having job security right now should be the most important factor when it comes to deciding whether or not to buy an investment property.

On the other hand, Mortgage Choice spokesperson Kristy Sheppard says paying mortgage insurance should be an individual choice.

“You need to consider how urgently you want to buy and whether or not you need to wait until you have the 20 per cent deposit,” Sheppard says.

“A lot of people want to get into the market and a few thousand dollars isn’t a big issue for them. Other people are very careful about every single cent. They’re the sort of people who think long and hard about waiting.”

Sheppard adds investors should weigh up whether or not waiting for the 20 per cent deposit will make them better or worse off. In other words, could property prices rise faster than your savings? She says around 15 per cent of first homebuyers have a 20 per cent deposit, but the number of people saving for a larger deposit is starting to increase. This year, for example, 17 per cent of first homebuyers had a 20 per cent deposit, compared to 12 per cent last year.

“Property prices have stablised and aren’t expected to rise quickly,” she says.

“But things can turn around pretty quickly.”

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