The rush is on, many first home buyers (FHBs) will be hurrying to make their first property purchase before June 30th 2009, fearful that they will miss out on the maximum benefit from the (FHOG).
Really though, it’s not the end of the world if FHBs don’t find the right property in the next few months. Personally, I will be quite shocked if the government chooses not to extend the scheme. Let me explain.
In these challenging times, the economic need to keep an active and vibrant property market is as necessary as it has ever been. Remember, that when people buy and sell homes they support a whole bevy of service industries - real estate agents, removalists, conveyancers, pest inspectors, classified advertising and builders, to name a few. Property buyers also add retail demand by buying furniture, white goods, plants and hardware.
However, what is more front-of-mind for governments is the impact that property market health has on credit markets. Apart from the opportunity to write new business, healthy property markets ensure that the balance sheets of all our banks stay strong.
For example, if we experienced plunging property values like the US has, our banks would surely suffer write-downs to their assets. Because they are leveraged, banks would have to tighten credit markets by an even greater amount than the asset write-down as they try and maintain the same capital adequacy ratios.
Further credit rationing would, of course, affect what people can borrow, which in-turn affects house prices and then you have a classic feed-back loop that radiates throughout the whole economy. No wonder economies around the world are trying to stimulate property markets.
Just recently, the Obama administration launched a US$275bn housing market stability plan. In the plan, he launched a three-pronged strategy. The plan is to help borrowers re-finance to cheaper rates, assist those facing foreclosure with repayment relief and to provide further liquidity to credit markets.
Obviously, keeping the property market rocking along is essential if developed economies are to get back on track. So, is it really conceivable that the Rudd Government will let the extension to the FHOG expire after June 30?
I don’t think so. In fact, I wouldn’t be surprised if there are more announcements for further new programs to come. Programs that will be earmarked to encourage property transactions and put a floor under prices announced in the upcoming May budget.
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