The market for risk deepens: Another small step . .

Those interested in the development of our economy may be interested that insurance against one’s house prices falling has just been introduced to the Australian Housing Market not a bad time to get a policy if you ask me! Of course the beloved Peach Discount Mortgage Broking won’t be able to directly sell the insurance – and rebate commissoin to buyers – because of government regulation. But we’ll see what we can do!

The new insurance should improve the efficiency of the housing market and the market for housing debt though in doing so it may also push up the price of housing and thus the borrowing necessary to get into a home. On the upside though, it will enable you to offload lots of the risk that scares you to death when you buy a house.

Still, like most new products, margins are likely to be high. And I doubt it will take off with any great vengance. But it’s a good addition to the market for anyone who wants to offset that risk. This is the kind of market that Robert Shiller sees as an important next step in improving our lives.

The one consumer organisation that the journo asked about it didn’t like the idea.

Australian Consumers Association spokesman Norm Crothers said the cover was unnecessary for most buyers and had the potential to encourage people to stretch themselves beyond what they could afford.

Silly sausage. Still, I guess it was a way of getting into the papers which might get him his bonus this year.

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2024 years ago

I don’t see it being that appealing. Also it could be open for abuse if sold by off-the-plan spruikers who use it to counter buyer objections to purchase too dear apartments.

To the extent it increases house prices, this is good for lenders, good for brokers, good for sellers but terrible for buyers. Hence it could be harmful for intergenerational equity.

With manufactured commodities we cheer if they becomes cheaper since it raises living standards and purchasing power without inflation (hence support for economic reform, efficiency and free-trade).

Strangely, though houses are as much a necessity as the appliances that fill them, we seem to hail booming property markets, not as a sign of inflation or inefficiency (which they are), but as some sign as prosperity (albeit limited to existing owners)!

A bit inconsistent isn’t it?