Where did those home equity loans and lines of credit go? Irvine Renter points out that the situation went really toxic when people realised that they could take out money, not just for renovations – which would then increase the house’s value – but for consumer spending. Boats, cars, holidays, that kind of thing. But I can see that many people who would balk at spending on these kinds of things might consider using their home equity for something they consider more important, more reasonable, more of an investment.

Back in the Australian context, I’m wondering how many households have been mining their home equity for education.

Under the previous government, a culture was built up whereby private education has been valorised at the expense of public, and (because of poorly designed funding systems) rewarded disproportionately. At the same time, the public school system has been starved of resources to the point where even parents who would rather choose a properly constituted public system feel compelled to go over to the private system simply because the local high school is too run down.

The peak body of the “independent” (private) schools has relentlessly pushed the line that private schools aren’t just for the super-rich, and that many parents of modest means are “making huge sacrifices” to send their children to private schools. We used to have the apocryphal taxi driver trotted out: “We have taxi drivers’ children at our school!” It’s difficult to prove or disprove the industry’s claims that our elite schools are filled with the happy offspring of taxi drivers and process workers, whose parents are forgoing the second and third car and the annual holiday to Tuscany in order to fund their childrens’ education.

I think you can see the holes in this argument. I have been looking around in vain for the second and third Mercedes which I can hock, and the Tuscan holidays, and the beach house which I can sell, but sadly, they are not there.

The marketing spin skirts around the unspoken ideas “if you really love your children, you’d go private” and “education is a competition, and private education will give your kids an edge”. And of course there was the idea, enthusiastically kicked along by the last Federal government, that private schools espouse values whereas public schools don’t. It puts a great deal of psychological pressure on parents. I’m thinking that many parents – and this is conjecture only, mind you, and this is a blog, not the Fin Review, so… many parents may have been doing the equity mining thing to put their kids through private school.

Recently articles like this and this have begun to appear about school fee defaults and home reposessions. Note that the second article describes a mother who contemplated suicide when she was forced to consider taking her kid out of private school. Moral panic can be a dangerous thing. Note also that the Christian Values of the private system, the superiority of which has been rammed home to us by marketers and the Howard government, seems quite a flimsy facade when they start behaving like the businesses they are.

The articles cite job loss, loss of bonuses and the effects of declining interest rates on grandparents as the reason for the defaults. The writers don’t mention the effects of the credit crunch and the end of the home ATM bonanza. They are talking about people losing houses. It’s just my guess that housing credit is contributing to the situation.

The outcome, of course, is rising enrolments in the previously despised public system. You’d think I’d be pleased, because surely it’s possible that a genuine crisis in the private system might lead the Labor government and State governments to re-think the current neglect of the public school system and decide to fund a system which will educate all comers, whether they’re headed for the boardroom or the coolroom. Well, it’s possible. But it’s very probable that before any such desirable policy change takes hold, I’ll see the same effects on the public system as I saw on the public transport system after the rise in petrol prices: severe overcrowding and overstrain on the system without any commensurate action by State governments to respond to the increased demand. All just as Exploding Boy is beginning his secondary school career. Lucky us.

As some of you already know, I get to take some serious time off in the school holidays because I’m only paid for 48 weeks of the year. This year SO went away twice – low key swimming-canoeing-fishing trips, both times – but I was lazy, holiday houses were full and I elected to stay at home and just do the SAHM thing for a month.

I did go frockblogging in Bendigo, which was divine, darlings! and some touristy things around town, which I mean to write about soon.

Exciting developments: Online Opinion published the “Home ATM” post, and the Larvyprodders invited me to write for them. With all this time at home and additional inspiration, did I complete all the draft posts I have sitting around and the ones which have been stewing in my head? No, I did not. I spent much of the time gardening, reading and doing buggerawl.

Mr Bucket really went off over the Christmas shopping period with the result that we are now boat owners! Look at Exploding boy expertly navigate our sophisticated craft. $400 on eBay. Capitalism rools!



Meanwhile, back home, not much vegetable action going on. I have a patch just out of camera range with MOAR tomatoes and a pumpkin vine which hasn’t really taken off yet. This is pre-weeding of course. Behind the self-seeded pittosporum, which I haven’t got around to dealing with yet, you can just make out the horror that ensues when Bok Choy goes to seed.



Instead of buying one punnet of regular tomatoes and one of cherry, I bought two lots of cherry tomatoes by mistake. It’s not too tragic.



Here’s the backyard looking a bit lusher than it does now. The reason for the gate is that we have a fenced-off area in a futile attempt to exclude dogs from that part of the garden. It’s an old screen door the neighbours across the road threw out. I like to call it the Peacock Gate as it sounds so Ming Dynasty. Jane Austen fans plz note – the apricot tree is a Moorpark and yes, you should get one because they are delicious.



In the front garden, too much mulch is never enough. It could still do with another trailerload. I’m going to replace the saltbush on the left in the winter, because it’s so drought tolerant it threatens to take over the entire garden. Sorry about the orange rubbish bag, Edna. The path is our former chimney (1950s house design, obvs) which collapsed when we re-stumped.



Now that the heatwave’s upon us and I’ve gone back to work, we are dedicating the weekend to Doing Buggerawl.

Maggie is the current champion.

I don’t think Rudd’s “fiscal stimulus” is going to do much to save us all from a recession. Why? Because although we’ve had the resources boom, I think a lot of our economic “growth” has been due to demand created by people spending more than they earn, and doing it for a long, long time. I think it’s unsustainable and will inevitably have to stop, and I’m no Robinson Crusoe there. We’ve heard a lot about people who have credit cards stacked on top of other credit cards and who end up declaring bankruptcy. I think that from now on we’ll hear a lot more about the other story, people pulling money out of their houses for consumption spending.

Like me, you might be watching the price collapses and home defaults in the US and thinking “is it going to be just as bad here?” Many well-informed people think it won’t. It’s scary, though, to see so many people lose their homes there.

Of course, the flip side is that houses might become more affordable. If, that is, people still have jobs and credit to buy them with.

In the last few months I’ve been following this blog, which tracks house sales in the Irvine district of Orange County (yes, that’s “the OC”), California. Unlike the stratospherically rich suburb in the TV series, this is a place roughly similar to – I’d say – Malvern or Brighton in Melbourne. So, much more upmarket than where I live. It may not sound like fascinating reading, but in California, it’s somehow possible to obtain and publish details of the house’s financial history as well as the number of granite counter tops. The lessons to be learned are salutary.

I like the Irvine Renter’s blog concept, in which he ties each post to a song with a Youtube link, although I don’t always agree with his song picks!

One of the central themes of the Irvine Housing blog is HELOC abuse. A HELOC is a Housing equity Line of Credit. Long story short, it is borrowing money against the equity in your house, supposedly for improvements to that house which then increase the value. But in the last few years homebuyers, thinking house prices would rise forever, have been taking out one HELOC after another to support their consumer spending – cars, holidays, boats, that sort of thing. Some people are even using it as income. IR calls it the “Home ATM”, because they’re treating their house like an ATM that gives out free money.

We do this too here in Australia, we just call it a home equity loan or refinancing, and there’s a scary looking thing called a Viridian Line of Credit, which seems very much like a HELOC to me. Sometimes, financial advisers encourage people to roll their credit card debt into their house loan, because of the lower rate of interest. It seems to me that that’s not an easy way out, because unless you cut up your card after that (or become the perfectly responsible pay-off-every-month customer, which probably wasn’t happening before) you’ll just keep on increasing your mortgage faster than you pay it.

As Irvine Renter points out, this was all fine when everyone thought house prices would never fall. But now that they are, some people end up owing more than the house is worth. “Negative equity”, they call it here. Irvine Renter calls it being “underwater”. He calls the desire to spend your house “the Kool-Aid”, because it seems so simple and tempting.

We were tempted to sip from the Kool-Aid in 2001, when the presence of a second child (one more than available bedrooms), plus wiring and plumbing that had reached its use-by date, coupled with a loan that was laughably titchy in today’s terms (55,000) made us decide to get the place in order. I don’t regret that, because if I do the maths I can tell we’re unlikely to end up underwater. And I really don’t want to live with wiring that’s going to kill us.

But we’ve survived that because we’ve paid it down since then. The people featured in the IR blog have been increasing their house debt year by year. Back when we borrowed to renovate, everyone was madly sanguine about what a massive price we’d get for the house if we ever sold, but we like living here. We didn’t renovate it to flip it – we did it to live in ourselves. Thank the FSM we didn’t get a taste for the Kool-aid and start using the home equity to pay for a big shiny SUV, holidays, furniture and consumer gadgets.

An important difference between Australia and the US is that over there the homebuyers can choose to walk away from the whole mess and the bad debt is taken over by the bank. The homebuyers’ credit rating is up the creek, but they don’t get chased for the balance of the loan. In Australia, we do.

It’s going to take more than the injection of a couple of thousand per selected household to kickstart an economy if that economy is dependent on people spending more than they earn. Once the homeowners have to stop using the home ATM, the music really will stop for some. That’s going to mean a lot of pain for people who make stuff and sell stuff and provide services. More thoughts on that later.

H/T Belle (this is becoming a habit, isn’t it?)