Westpac had slashed the maximum loan to value ratio (LVR) for residential property loans taken out by self managed super funds (SMSF) to 70 per cent.
Earlier last month, Westpac lowered the maximum LVR for all property investors to just 80 per cent. On Friday, Westpac also announced it will increase investor mortgage rates by 27 basis points to appease the banking regulator.
In May, NAB quietly exited residential mortgage lending to the SMSF market, choosing no longer to lend to this higher risk limited recourse segment.
Chris Foster-Ramsay, managing director of Capital Home Loans told the Australian Financial Review, “Doors are being shut on SMSF lending for the immediate future. Clearly, someone can foresee a problem.”
The problem the banks foresee is irrational investors who have paid too much for properties in a heated market and many who may not be able to service the loan due to plunging rents. As SMSF loans are limited recourse, there is little to no collateral for the bank.
The Australian Financial Review suggests some off the plan buyers are finding out at settlement their properties are valued at 20 per cent less than what they paid, and rents are 20 per cent less than what agents had spruiked. The paper cited one example, Scott Thornton who was forced to sell one of his apartments for a $150,000 loss after two years because he couldn’t find a tenant required to service his loan.
A surge in property investors to record levels has seen an increase in the supply of rentals, leading to falling rents and vacant investment properties. Yields are also being eroded as many investors simply paid too much for the property in the surging market.
» Westpac slashes loan ratios on SMSF investment properties – 31st July 2015.
Posted in Australian Housing, Banking Regulation, Melbourne Property Bubble, Sydney Housing Bubble | 7 Comments »
Professor Vernon Smith, an expert on housing bubbles and recipient of a Nobel prize for Economics for his work, told the Australian Financial Review earlier this week, “You have a pretty good [property] bubble in Sydney and Melbourne.”
“It is hard to believe it is very sustainable.”
On Thursday, Professor Smith addressed a Macquarie Graduate School of Management dinner on global house prices.
Data to be released on Monday by CoreLogic RP Data will confirm Smith’s views. The Australian reports CoreLogic RP Data will show Melbourne house prices surged 4.8 per cent in July, up from 2.9 percent recorded in June. If the 4.8 per cent result were annualised, it would top 57 per cent!
Sydney house prices are expected to rise 3.2 percent for the month.
“It is amazing how people get carried away in the bubble,” Professor Smith told the AFR. “Then all of a sudden it’s over and they are petrified.”
The out of control house price growth in Australia has the banking regulator concerned about the inevitable crash. Fearing possible bank collapses when the bubble bursts, APRA has instructed our big banks must bolster capital.
In recent weeks the regulator has forced banks to increase mortgage rates for investors getting carried away in the bubble, in a bid to slow the dangerous market. The ANZ and CBA were the first to announce rate increases of 27 basis points for investor mortgages. NAB has increased rates on interest only loans by 29 basis points, while Westpac – plagued by IT problems, only today announced investor interest rates will increase by 27 basis points.
For AMP, irrational property investors are just too risky. It has decided the cease lending to property investors altogether, effective immediately while it hikes rates for existing investors by 47 basis points on the 7th September.
» Housing bubble could burn investors, warns Nobel Prize-winning economist – The ABC, 30th July 2015.
» ‘You have a pretty good bubble in Sydney and Melbourne': Nobel-winning economist warns property buyers not to get ‘carried away’ as AMP Bank cracks down on investment loans – The Daily Mail, 30th July 2015.
» Westpac jacks up interest rates for housing investors – Sydney Morning Herald, 31st July 2015.
» AMP slaps ban on loans to property investors as expert sees end to housing bubble – The ABC, 29th July 2015.
Posted in Banking Regulation, Melbourne Property Bubble, Sydney Housing Bubble | 22 Comments »
AMP has today announced a freeze on lending to property investors while existing property investors can expect a 47 basis point increase in mortgage rates from the 7th September 2015.
AMP Limited acknowledges the changes are in response to APRA’s crackdown on investor housing loan growth and will review the ban at the end of this year.
» AMP slaps ban on loans to property investors as expert sees end to housing bubble – The ABC, 29th July 2015.
» AMP Bank stops lending to housing investors, jacks up rates – The Sydney Morning Herald, 29th July 2015.
Posted in Australian Housing, Banking Regulation | 5 Comments »
NAB hikes IO loans by 29 basis points, Westpac announces corporate note issue and hiring freeze while they fix computer issuesWritten by admin on July 27, 2015 – 9:04 pm
Following moves last week by the ANZ and CBA to hike mortgage rates on investor loans by 27 basis points, the NAB has today announced it will hike rates on interest-only loans by 29 basis points, a move also designed to slow down investor housing lending growth.
Significant growth in investor-only loans has been raising concern among financial regulators as investors pile into interest-only loans to take advantage of ever rising home prices. APRA statistics for the March 2015 quarter found interest-only loans made up 42.3 per cent of all new loans issued.
While the move by NAB will target both owner occupiers and investors using interest-only loans, NAB said interest-only loans were “predominant structure for investors.”
Westpac has today announced a $750 million corporate note issue to help bolster capital reserves as news spread that Westpac had last week put in place a hiring freeze for all non-critical roles, initially said to last three months.
According to a Herald Sun article, Westpac was unable to follow ANZ and CBA, jacking up investor only loans due to a deficiency in its computer systems. It is understood Westpac technical staff are checking back-office systems to ensure owner-occupier and investor customer information is correct.
A Westpac spokesperson told News Limited, “Given we haven’t had differential pricing across the mortgage book for a number of years, if this was to be introduced we must ensure a smooth transition for affected customers,”
This could suggest a rate hike is still coming for property investors financed through Westpac.
» Will Westpac follow the pack and hike investment home loan rates? Computer says ‘not yet’ – The Herald Sun, 27th July 2015.
» Westpac confirms three-month hiring freeze – Business Insider Australia, 27th July 2015.
» NAB raises rates on interest-only home loans – Sydney Morning Herald, 27th July 2015.
Posted in Australian Housing, Banking Regulation | 12 Comments »
ANZ is the first bank to move, increasing mortgage rates for investor loans by 27 basis points effective from August 10. The bank says it is following instructions from the banking regulator, the Australian Prudential Regulation Authority (APRA).
On Monday APRA announced increases to average risk rates for Australian residential mortgage exposures by Internal Rating Based (IRB) banks. (‘Banking regulator announces tighter capital adequacy requirements for residential mortgages‘)
» ANZ raises property investor interest rates to cool demand – The ABC, 23rd July 2015.
Posted in Australian Housing, Banking Regulation, Sydney Housing Bubble | 21 Comments »
According to figures from the Domain group, Sydney house prices surged 22.9 per cent in the last year, the fastest pace since the 1980’s.
The surge, surpassing growth recorded in the 2001 and 2002 booms according to the Domain’s Dr Andrew Wilson, takes the Sydney median house price past the $1 million mark, making it more expensive than London.
The bubble continues to create an increasing challenge for regulators. Reserve Bank Governor Glenn Stevens stressed yesterday in an address to the Anika Foundation Luncheon titled “Issues In Economic Policy”, that we need to take a longer term view of momentary policy and the implications of record low interest rates. Stevens remarked:
The risk, however, is that this process can lead to a mindset in which policymakers end up responding to quite short-term phenomena, using instruments that take quite some time to have their full effect, including effects that might actually turn out to be adverse.
Stevens is warning any benefit in dropping interest rates now to support jobs and growth is likely to be outweighed by fueling the housing bubble, that could collapse with far more devastating and adverse results.
It is not quite good enough simply to say that evidence of continuing softness should necessarily result in further cuts in rates, without considering the longer-term risks involved. Monetary policy works partly by prompting risk-taking behaviour. In some ways that is good: in some respects, there has not been enough risk-taking behaviour. But the risk-taking behaviour most responsive to monetary policy is of the financial type. To a point, that is probably a pre-requisite for the ‘real economy’ risk-taking that we most want. But beyond a certain point, it can be dangerous.
Reading between the lines, while the housing market bubble in Sydney and Melbourne, two of Australia’s largest markets remains out of control, we can expect to see any changes to the official cash rate on hold as the economy slows and unemployment ticks up. Stevens also remarked, growth of less than three per cent will be the new normal for Australia.
» Median house price in Sydney tops $1 million for first time – The Australian Financial Review, 23rd July 2015.
» Issues In Economic Policy, Address to the Anika Foundation Luncheon – The Reserve Bank of Australia, 22nd July 2015.
Posted in Australian Housing, Sydney Housing Bubble | 5 Comments »
As widely expected, the Australian Prudential Regulation Authority (APRA) has announced our big banks will need to raise their average risk weights on Australian residential mortgage exposures from approximately 16 per cent to at least 25 per cent, but still shy of the 35 per cent required by our smaller banks. The affected banks have until the 1st July 2016 to get their ‘houses’ in order.
This will require our banks to raise billions in new capital. ANZ told AAP they would need to raise $2.3 billion, Westpac would need another $3 billion.
The Financial System Inquiry had recommended average risk rates for IRB banks be increased to between 25 and 30 per cent.
The move to strengthen our banking system comes as our internal ratings-based (IRB) institutions, Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), Macquarie Bank, National Australia Bank (NAB) and Westpac Banking Corporation (WBC) were found flouting their privilege in calculating their own risk ratings, putting super profits ahead of stability with the knowledge that naive taxpayers will be on hand to bail out these “too big to fail” banks. (‘Australian banks not the safest in the world – far from it.‘)
APRA indicates this is an “interim measure” and further tightening of risk ratings and enhanced capital adequacy requirements can be expected once the Basel Committee releases a review of it’s international framework towards the end of the year.
» APRA increases capital adequacy requirements for residential mortgage exposures under the internal ratings-based approach – 20th July 2015
» APRA’s home loan rule changes could push up rates by 0.65pc: analyst – The ABC, 21st July 2015.
» Have the Big 4 just flunked APRA’s stress test? – Who crashed the economy?, 16th November 2014.
Posted in Australian Housing, Banking Regulation | 6 Comments »
The number of new mortgages to owner-occupiers tumbled a seasonally adjusted 6.1 per cent in May, the biggest fall in 5 years according to Australian Bureau of Statistics (ABS) data released on Friday.
The value of loans written to investors fell 3.2 per cent, while owner occupiers slumped 5.3 percent. Regulators had been targeting the overheated investor segment, forcing banks to tighten lending to limit further damage from Australia’s housing bubble.
Economists were surprised to see such a large fall, the same month the Reserve Bank slashed the official cash rate from 2.25 per cent to just 2 per cent, a new record low. Many were also surprised to see a larger fall in the owner occupier segment, a segment not being targeted by macroprudential regulation. Following the Reserve Bank announcement in May, Treasurer Joe Hockey pleaded, “I say to the Australian people directly, now is the time to borrow and invest, whether you be a household or business.” It’s possible many Australians saw through the Treasurer’s plea, fearing a deteriorating economy and have decided to suspend purchases instead. (Treasurer Joe Hockey delusional as RBA cuts to record emergency lows‘)
The figures reported on Friday correspond to the month before Treasury secretary John Fraser told a Senate enquiry Sydney and some parts of Melbourne are “unequivocally” in a housing bubble. (Treasury secretary John Fraser says Sydney ‘unequivocally’ in a housing bubble‘) According to Google Trends, concerned Australian’s conducted a record number of searches on the property bubble during the month of June. (June 2015: The month Australia learned it had a housing bubble‘)
This week, Westpac and ANZ reduced maximum LVRs for new loans to property investors to further cool the market. (‘Banks continue to curb investor lending‘)
Hence, it is expected to see a further deterioration in lending data in the next coming months.
» Home loan slide an early sign that APRA limits may be working – The ABC, 10th July 2015.
» New mortgage lending falls 6.1pc as banks toughen policies – The Age, 10th July 2015.
» Home loan approvals at two-year low – News Limited, 10th July 2015.
Posted in Australian Economy, Australian Housing, Banking Regulation, Monetary Policy | 36 Comments »
Rents are falling in every state except Melbourne, according to CoreLogic RP Data rental data for the month to June 30. As more investors pile into the market, rents have risen just 1.1 percent this year, the worst result since records started in December 1995. In real terms, rents have failed to keep up with inflation and are now falling.
Rents fell the most in Darwin, collapsing 2.5 per cent in the month. Perth rents tumbled 1.1 per cent, Canberra 0.70 per cent, Hobart 0.60 per cent, Brisbane 0.5 per cent, with Sydney and Adelaide both falling 0.2 per cent. Melbourne bucked the trend rising 0.6 per cent.
The report indicated, “Sluggish rental growth is most likely due to surging investment demand, record high levels of new housing construction and a slowing rate of population growth nationally.”
» Tenants rejoice: Rents growing at slowest pace since 1995 – The ABC, 10th July 2015.
Posted in Australian Housing | 15 Comments »
Australia’s record low interest rate environment has been a challenge for financial regulators trying to cool asset bubbles such as residential housing. Fear of buyers taking on too much cheap debt when interest rates are at record lows is thought to be keeping some regulator’s awake at night, as household debt to household disposable income metrics balloon to record levels.
Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft has told a Senate estimates committee, borrowers need to do their sums on a mortgage rate of 7 percent, not 4 percent as interest rates won’t stay low forever.
The banking watchdog, the Australian Prudential Regulation Authority (APRA), has been instructing banks to perform loan serviceability stress tests at an interest rate floor of 7 per cent, a buffer for when rates eventually rise. Banks such as ING Direct have been stress testing their borrowers’ at an 8 per cent interest rate floor.
So you can imagine the surprise today when Reserve Bank of Australia senior research manager Peter Tulip delivered preliminary results of his research showing Australian house prices are undervalued by 30 percent, simply because interest rates have plunged in recent times as the economy slows and jobs are lost. Dr Tulip makes this assessment on the assumption house prices were “fairly valued” last year.
As Sydney and Melbourne house prices rocketed in the last twelve months, notching up double digit gains multiple times that of inflation, interest rates have fallen from 2.5 per cent to just 2 per cent, a twenty percent fall.
Tulip said, “We find that owning a house costs 30 per cent less than renting,” with little consideration on what happens when interest rates rise from the depths of a 60 year record low during the 20-25 year term of a mortgage.
» House prices 30% undervalued. Buy, don’t rent, says Reserve Bank official – The Sydney Morning Herald, 8th July 2015.
Posted in Australian Housing, Sydney Housing Bubble | 26 Comments »
As widely expected, Australia’s central bank decided today to leave the official cash rate unchanged at 2.0 per cent. In the statement following the policy decision, the Reserve Bank, as it has done over the past couple of months, reiterated “The Bank is working with other regulators to assess and contain risks that may arise from the housing market.”
Effective tomorrow, Westpac will require all new property investors to put down a deposit of at least 20 per cent, while ANZ will require a minimum 10 per cent deposit.
The moves by Westpac and ANZ follow NAB’s decision last month to cap maximum loan to value (LVR) ratios for property investors at 90 per cent. Early last month, ING Direct capped LVRs to the more exuberant NSW property investor at 80 per cent, leaving property investment loans to the rest of the country capped at 90 per cent. Commonwealth Bank subsidiary, BankWest was one of the first banks to move, capping Australia wide property investor LVRs at 80 percent in May.
The banking regulator’s statistics for May, published this time last week, showed ANZ, CBA, NAB and Westpac grew property investor loans by 10.6 per cent, 9.9 per cent, 14.1 per cent and 10 percent respectively year on year, some exceeding the 10 percent speed limit imposed by the regulator. The other “advanced” bank, Macquarie should have received a handful of demerit points companying its 86.8 per cent speeding ticket.
It is understood the banking regulator, APRA, wrote to banks (again) last week with a please explain on their investor mortgage book growth.
» Statement by Glenn Stevens, Governor: Monetary Policy Decision – Reserve Bank of Australia, 7th July 2015
» Westpac caps LVRs on investor mortgages at 80pc – The Sydney Morning Herald, 7th July 2015.
» House prices: bank lending practices face more APRA scrutiny – The Australian, 2nd July 2015.
» Property investor loans keep growing above APRA’s 10pc limit – The ABC, 30th June 2015
» Four Banks and an out of control mortgage market – Australia: Boom to Bust Blog, 2nd July 2015.
Posted in Australian Housing, Banking Regulation, Monetary Policy, Sydney Housing Bubble | 14 Comments »
According to Google Trends, searches for “housing bubble australia”, “australian housing”, “australian housing bubble”, “sydney housing bubble” and “housing market bubble” surged last month to levels never seen before.
Highlights of June 2015 included:
- Treasurer Joe Hockey denying there was a housing bubble and telling first home buyers they should get a “good job” that pays “good money.”
- Treasury secretary John Fraser telling Senate, “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney.”
- Reserve Bank Governor Glenn Stevens saying, “Yes I am very concerned about Sydney and some of what is happening is crazy.”
- Organisation for Economic Cooperation and Development (OECD) warning Australia’s residential property markets are at risk of a “sharp correction”.
- World’s biggest bond investor, PIMCO, warned Australians are being “irrationally exuberant” by borrowing too much to invest in residential housing.
Figures released yesterday by the Reserve Bank show Australia’s households now have debt levels of 155.9 percent of household disposable income, a new all time high.
Posted in Australian Housing, Sydney Housing Bubble | 43 Comments »
The collapse of commodity prices has sent rental vacancies in Perth to levels “almost approaching record numbers” according to the president of the Real Estate Institute of Western Australia (REISWA).
REIWA president told the ABC, “It will not be surprising to see the vacancy rate hit 5 per cent shortly, which means there are a lot of rental properties sitting empty and available for tenants.”
According to the REIWA, some 8,100 rentals are currently vacant and extra stock is flooding the market at a rate of about 150 properties a week.
This has forced rents down by up to 20 percent and Mr Airey says landlords need to adjust to these new market conditions.
» Perth rental vacancies spike as property market continues to struggle – The ABC, 25th June 2015.
Posted in Australian Housing, Perth Property Bubble | 60 Comments »
The International Monetary Fund has warned Australia’s big banks don’t appear to be well capitalised and increasing capital should be a priority.
The warning comes in the concluding statement following the article IV mission to Australia this month. (‘International Monetary Fund team to examine housing bubble – May 2, 2015‘)
It reports Australia’s banking watchdog, APRA, has been taking the appropriate targeted and gradual action towards risks in Australia’s hot housing market for some time (‘Property bubble a Macroprudential challenge for regulators – Oct 27th, 2014‘, ‘Woof – The watchdogs have a bark! – Dec 9th, 2014, APRA to keep banking crackdown secret – March 26, 2015‘).
While the IMF is confident APRA will reap the desired results, it notes the banks have been stubborn and have only recently started to act, hence tangible results to date has been hard to see in even the most recent lending data. (‘Sydney value agnostic investor bubble shows no sign of abatement – June 14, 2015‘)
“We expect APRA’s approach to succeed, but it may need to be intensified, for example, if investor lending and house price growth do not slow appreciably in the second half of the year. Such intensification could include requiring banks with fast-growing investor lending to hold more capital, raising risk weights on investor lending, and restricting the duration of interest-only loans.”
The report notes, Australia’s banking system “is dominated by four large banks with similar business models which rely significantly on wholesale external borrowing, most lending is housing related, and household debt and house prices are elevated. And although capital ratios have risen since the global financial crisis, this largely reflects a shift towards mortgages and a lowering of risk weights.” (‘Australian banks not the safest in the world – far from it – December 8th, 2014‘)
“More tangibly, the recent APRA stress test (‘Have the Big 4 just flunked APRA’s stress test? – November 16th 2014‘) indicates that in a severe adverse scenario, bank capital would have to be substantially higher to ensure a fully-functioning system. Putting a floor of 25-30 percent on mortgage risk weights would help, but capital ratios would also need to rise substantially. Given major banks’ high profitability, such ratios can be achieved at little, if any, macroeconomic cost, especially if done gradually, and will make the financial system, the budget, and the economy stronger.”
In recent weeks there has been heightened awareness of Australia’s currently unprecedented housing bubble.
» Australia: Concluding Statement of the 2015 Article IV Mission – International Monetary Fund, 24th June 2015.
Posted in Australian Economy, Australian Housing, Banking Regulation | 11 Comments »
‘Crazy’ value agnostic investors continue to leverage up in an environment of poor rental growth, according to investor mortgage finance commitments released by the Australian Bureau of Statistics on Friday.
In the year to April, NSW property investors have borrowed $64.2 billion to spurge on the residential property market, another all time record.
This comes as CoreLogic RP Data also released data on Friday showing rents are now rising at their slowest annual growth on record, caused by the surge in property investment. According to the ABC, “Bureau of Statistics figures show it is 20 years since rental growth has been this low nationally.”
» 5671.0 – Lending Finance, Australia, Apr 2015 – Australian Bureau of Statistics, Friday 12th June 2015.
» Rental growth slowest on record says CoreLogic RP Data – The ABC, Friday 12th June 2015.
Posted in Australian Housing, Sydney Housing Bubble | 40 Comments »
An open letter from Mel Wilson, Human Resources professional and mother of two from Wodonga, Victoria to Treasurer Joe Hockey. Please share Mel Wilson’s facebook post here.
I just wanted to touch base with you regarding your comment that young people are able to enter the property market if they just “get a good job that pays good money.”
I just wanted to ask you how one might go about this?
Are you going to be reviewing all the current Awards that are in place to ensure that most jobs pay “good money”?
Are you going to be creating hundreds of thousands of new jobs that, under your Awards, pay over $100,000 per year?
Apologies if I have missed this fantastic news, but as someone working in 2 senior HR roles, I believe I would have known about this so that I could pass the message on to some very tired, over qualified employees who currently fall under various Federal and State awards and are being paid between $18 to $25 per hour.
Are you aware of what the average Australian wage is?
Are you aware of what the average Australian mortgage in Sydney is?
Are you aware of the first-home buying process?
Just in case these facts and figures aren’t available to you, I thought you might be interested.
The average weekly wage according to the Australian Bureau of Statistics on 1st January 2015 was $1,128.70, or $58,692.40 before tax. This means a take home amount of about $904.00 per week.
The median house price in Sydney, according to the Domain Group Housing Price Report, as of March 2015, was $914,056.
Not sure if you know how first home buying works at the moment, but you normally need a deposit of about 20%. This is to pay for the Stamp Duty (which is a State Tax you must pay every time you buy a property), and also to assist in the approval process so that you don’t need to pay Lenders Mortgage Insurance.
So in this instance, the first home buyer would need about $182,811.00 saved to purchase a house that is the average price in Sydney.
So to go out and get one of these “good jobs that pay good money” I assume these young people you speak of would need to go to university first.
On average, it takes about 3 -4 years to get a degree, so if a young person goes to University straight out of school, they can expect to finish their course and be ready for the workforce at about 21, with a HECS-HELP debt of over $20,000. To make this a bit easier for you to understand, let’s say there is a young person named Joe Junior who has done just this.
If Joe Junior is extremely lucky, and is up there with the best of the graduates from that course and that year, he will get a job straight out of University paying usually under the average wage.
However, lets just be extremely generous here and say that Joe Junior got a job and was on the national weekly take home wage of $904 per week.
Joe Junior needs to only save every single dollar worked for about 4 years to save his $182,811 deposit for their first home. Thank you, Mr Hockey, for throwing in that $7,000 first home owner grant too – that meant Joe Junior could get into his first home 8 weeks earlier!
Just a quick side note, this example does not take into consideration the rising house prices, or Joe Junior’s HECS-HELP debt that he obtained from getting his degree to get one of your so-called “good jobs”.
Joe Junior is now 25 (not so junior anymore), has been living at home with his parents this entire time and has not been able to spend a single dollar on any bills, board or holidays or public transportation. He also can’t afford a car or petrol for a car but then again “poor people don’t drive cars”. Oh wait, Joe Junior isn’t a poor person – he has a “good job that pays good money.”
Luckily Joe Junior’s parents have been happy to drive their little Joe Junior to and from work every day and provide free housing, clothing, medical expenses and also provide the food for his breakfast, lunch and dinner each day.
So finally Joe Junior has saved his $182,811 deposit (of which only about half will go towards his mortgage due to the stamp duty cost), and can now purchase his first home, with a mortgage of about $822,650.00.
According to the Commonwealth Bank’s online mortgage estimator, the repayments for a mortgage of this amount are $1,073.00 per week over 30 years.
So hopefully Joe Junior’s average weekly wage of $904.00 has gone up enough to cover the cost of the mortgage.
Joe Junior has been applying for these “good jobs hat pay good money” that you speak of (I assume by “good money” you mean more than the average wage as you have just seen it is not even enough to cover the cost of the average house prices’ mortgage in Sydney), but hasn’t had any luck as yet. He needed to stay in the same job post university to demonstrate to the bank job stability so that he could purchase his first home. So he only has a degree, and experience in the one job, one industry, and there are just not that many jobs out there paying “good money.”
Joe Junior now also can’t wash his clothes, eat food, or get to and from work as he no longer lives with his parents, so getting one of these “good jobs” is even more difficult.
So Joe Senior, are you really aware of all the facts and figures when you says things like buying your first home is “readily affordable” to young people?
Just slightly confused as to what you were thinking when you said these words at the media conference in Sydney.
Looking forward to another one of your politically correct, direct and well thought out responses.
Another baffled Australian
And this skit featuring Treasurer Joe Hockey is also quickly doing the rounds, It’s so easy to buy a house.
» ‘Dear Joe, are you aware what the average Australian wage is?': Young mum’s brilliant letter to Joe Hockey following his ‘get a good job’ comment is shared 20,000 times – The DailyMail, 12th June 2015.
» Wodonga mum’s letter blasting Joe Hockey over first home-owner advice goes viral – The Border Mail, 12th June 2015.
» Working mother Mel Wilson gives Joe Hockey a lesson about house prices – The Sydney Morning Herald, 12th June 2015
Posted in Sydney Housing Bubble | 20 Comments »
A day after out of touch Treasurer, Joe Hockey told first home buyers they needed a “good job” that pays “good money” to break into the Sydney property bubble, Reserve Bank Governor Glenn Stevens has weighed into the debate, saying the Sydney property market is crazy, “Yes I am very concerned about Sydney and some of what is happening is crazy.”
In the Brisbane Economic Society of Australia luncheon today, the central bank Governor added “What is happening in housing in Sydney I find acutely concerning for a host of reasons many of which are not to do with monetary policy,”
His remarks follows that of Treasury secretary John Fraser who told a senate hearing last week, “When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney. Unequivocally,”
Talk of property bubbles has infuriated treasurer Joe Hockey who is trying to sell his $1.5m farm in Queensland. Listed since mid-April, the listing states the “owners are looking for a quick sale.”
Last week, the Organisation for Economic Cooperation and Development (OECD) warned Australia’s residential property markets are at risk of a “sharp correction”.
In the OECD Economic Outlook, Volume 2015, Issue 1 the Paris-based think tank warned “Domestically, the continuing property market momentum adds to the risk of a sharp correction and there are sizable upside and downside uncertainties in the strength of household spending growth.”
It adds to a raft of warnings in recent weeks on Australia’s property bubbles, including a comment from ASIC Chairman Greg Medcraft warning “History shows that people don’t know when they are in a bubble until it’s over.”
It is also testing times for our banking regulator tasked with the job of getting Australia’s under capitalised banking sector “unquestionably strong” before the bubble bursts. Macro-prudential action started in earnest last year, but the results to date have been questionable. Banks in recent weeks have been raising capital, lifting serviceability requirements, lowering maximum LVR (loan to value ratios) and in some cases, ceasing lending to higher risk segments such as self managed super funds.
Effective today, ING Direct – who is already more prudent than the big four, has reduced the maximum LVR for investment loans for New South Wales properties to 80 per cent in response to the possible bubble and pressures from APRA. Outside of NSW, ING Direct has a maximum 90 per cent LVR for investment properties.
ING has a strong 8 per cent floor for stress testing borrowers serviceability, with regulators concerned what will happen when interest rates inevitably rises. APRA is encouraging banks to test serviceability on a floor of 7 per cent, a level endorsed by ASIC chairman Greg Medcraft who recently told a Senate estimates committee, borrowers need to do their sums on a mortgage rate of 7 percent, not 4 percent as rates won’t stay low for ever.
» Sydney house price boom “crazy” – AAP, 10th June 2015.
» Australian real estate at risk of sharp falls: OECD – The ABC, 4th June 2015.
» Property prices at risk of ‘sharp correction’, says OECD – The Age, 4th June 2015
» Property investment lending jumps in April but APRA crackdown now biting – The ABC, 10th June 2015.
Posted in Australian Economy | 18 Comments »
According to Channel 10 Adelaide, The Reserve Bank of Australia has “denied” the Adelaide property market a much needed boost by leaving rates unchanged.
You could be mistaken for thinking it was 1989 and the official cash rate was 17 per cent. But, no, the report aired yesterday after the Reserve Bank left the official cash rate at just 2 per cent, a record low.
But it is not interest rates that is dragging on the Adelaide housing market, but rather Australians are up to their necks in debt. Household debt as a ratio of household disposable income now sits at 153.8 per cent in Australia, some of the highest levels in the world. At the height of the sub prime crisis in America, household debt peaked around 130 per cent in the USA.
Data from the Australian National Accounts, released today, show in aggregate, households are paying 4.96% of household disposable income on dwelling interest payments, still greater than the 4.18 per cent recorded in 1989 when mortgage rates were in excess of 17 per cent.
First home buyer, Hannah O’sullivan welcomed the central bank’s decision to leave rates at record emergency lows, but said it could have been better. If interest rates went down it would put a little more sense of urgency into buying, she remarked.
But this talk is scaring regulators, with naive first home buyers ignoring what will happen when the official cash rate inevitably rises. Regulators are urging all buyers to think long term as mortgages are 25+ year commitments. Rates won’t stay low for ever.
Australian Securities and Investments Commission chairman Greg Medcraft told a Senate estimates committee, borrowers need to do their sums on a mortgage rate of 7 percent, not 4 percent.
The Ten reporter said despite two cuts to interest rates this year, Adelaide property prices hadn’t spiked like had been the case in Sydney and Melbourne. Hannah O’Sullivan said “it is a little bit frustrating,” an interesting comment from a potential first home buyer.
Property lobbyist, Daniel Gannon added what the market needs right now is “major stimulation” and interest rates do provide one potential opportunity for first home buyers to get into the market.
And as for Hannah’s strange comment, some readers have conducted a Linked In search and believe she could in fact be a Human Resources coordinator for real estate agency Toop & Toop. Apparently the photo’s a good match too. It’s been a couple of years since we have seen real estate professionals double as first home buyers and potential investors without disclosure, a potential sign of desperation in a cooling market. (‘The Real Estate industry is increasingly misleading the public‘)
As we wrote in 2009, The next time you see an article in the media about someone buying a first house or investment property, be sure to run the potential owner through Goggle to see if they are an agent or associate. It’s a good chance they are.
» SA housing market lagging – Channel 10, 2nd June 2015.
» ASIC warns new borrowers on rates – Yahoo, 3rd June 2015.
Posted in Australian Economy, Australian Housing, Monetary Policy | 36 Comments »
Treasury secretary John Fraser told a senate hearing today he has no doubt there is a property bubble in Sydney.
“When you look at the housing price bubble evidence, it’s unequivocally the case in Sydney. Unequivocally,” he told the hearing.
He warns bubbles have also formed in many parts of Melbourne, “Certainly I think that’s the case in the higher priced areas of Melbourne, and I base that on my own observation as well as the data,”
The warning follows a recent comment from ASIC Chairman Greg Medcraft, “History shows that people don’t know when they are in a bubble until it’s over”
Financial regulators have been working behind the scenes in recent months to implement macro prudential controls aimed at cooling the housing bubble and reducing the impact of a pursuing banking crisis. To their disappointment, little has been working. It is expected the RBA will hold off cutting the official cash rate when they meet tomorrow, waiting for any tangible evidence the first round of macro prudential controls is having an effect.
Posted in Australian Housing, Banking Regulation, Monetary Policy, Sydney Housing Bubble | 24 Comments »
Sydney and Melbourne residential property markets could already be in a bubble according to the chief of Australia’s Investment and Securities regulator. Talking to the Australian Financial Review this week, ASIC Chairman Greg Medcraft said “History shows that people don’t know when they are in a bubble until it’s over” warning, in particular, that many Self-Managed Super Funds (SMSFs) could be exposed to a conceivable correction.
For most economists examining housing finance figures, this comes as no surprise. Recent data from the Australian Bureau of Statistics (ABS) show value agnostic investors have been piling into the Sydney and Melbourne market like no tomorrow, and as rents continue to fall.
Medcraft’s warning for SMSFs won’t come as a surprise to the National Australia Bank (NAB) either. The NAB quietly exited lending to self-managed superannuation funds early this month. With limited recourse borrowing, the risks were just too great. According to a report in the Australian, a NAB spokesperson declined to comment, outside of a statement saying the bank is “constantly assessing its product offering through our risk appetite and the broader regulatory environment.”
ANZ has indicated it has no exposure to SMSFs.
Activity below the radar
Fears of a housing correction impacting the stability of Australia’s banking system has forced the banking regulator to secretly act. As we reported in March (‘APRA to keep banking crackdown secret‘) the chairman of the Australian Prudential Regulation Authority, Mr Wayne Byres said the regulator was unlikely to ever disclose what capital controls it will impose on individual banks who do not exercise prudence. He told the house economic’s committee:
Prudential regulators are traditionally the people who try to operate behind the scenes—below the surface, below the radar. Financial institutions survive and thrive because they have confidence and the community has confidence in them, and you are happy to put your money into the bank, you are happy to take out your insurance policy and you are happy to invest your superannuation money because you have confidence that, when the time comes, you will get your deposit back, your policy will be paid and your super money will be there.
Unfortunately no institution is perfect, and sometimes issues arise. Prudential regulators tend to try to operate behind the scenes to get issues fixed and to avoid them becoming a source of concern to the community. If we can do that well and head off problems before they become serious problems, that is actually reinforcing of financial stability, because it is preserving the confidence that exists in the system.
The Reserve Bank of Australia (chair of the council of financial regulators) had been waiting on the many proposed macro-prudential controls to be implemented before it further slashed the cash rate, at the risk of fuelling the credit fuelled asset bubbles. On the eve of the rate cut this month, Westpac announced conformance with APRA requests. The bank said it would apply stricter loan serviceability tests to new property investor loans and tighten lending to foreign investors.
While the industry is tight lipped and potentially overwhelmed about all the new lending restrictions, brokers have indicated the National Bank, Commonwealth and Westpac have all removed package discounts to investors and tightened serviceability requirements. Negative gearing tax flows have been removed from serviceability requirements. Assumptions on rental incomes have been slashed.
Brokers also report two of the major banks have slashed maximum loan value ratios (LVR) for loans to non-residents from 80 to 70 per cent.
Bank recapitalisation begins in earnest
We reported last year (‘Have the Big 4 just flunked APRA’s stress test?‘) and (‘Australian banks not the safest in the world – far from it.‘) that there has been growing concern about the lack of loss absorbing capital our big 4 “advanced” banks hold.
Two weeks ago, NAB went to the market, cap in hand, to raise $5.5 billion, one of the largest capital raising in history. $3.4 billion will be sunk into the troubled Clydesale Bank in the United Kingdom, leaving a spare $1.5 billion left over to bolster the balance sheet back home.
Westpac on the other hand has announced plans to raise an additional $2 billion capital through a dividend reinvestment scheme.
CLSA’s bank analyst Brian Johnson has suggested the big four require an injection of more than $41 billion in additional capital over the next coming years. According to his estimates, CBA will need $13 billion, ANZ $11.9 billion, Westpac $11 billion and NAB $5.1 billion.
Banking stocks officially in correction
News that our banks will need extra capital injections, and with the outlook of further super profits diminishing among a challenging regulatory environment and potential property bubble, has caused a plunge in the bank’s share prices.
Since the peak only weeks ago, ANZ’s share price is now down 14.1 per cent, CBA down 14.3 per cent, WBC down 19.4 per cent and NAB down 14.0 percent.
» NAB exits property loans for SMSFs – The Australia, 6th May 2015.
» Investor home loans tighten as regulator APRA clamps down – The ABC, 18th May 2015.
» Big four banks hit iceberg after APRA’s Wayne Byres talks mortgage risk weights – The AFR, 1st May 2015.
» Westpac dividend reinvestment to boost tier 1 capital ratio – The Sydney Morning Herald, 4th May 2015.
Posted in Australian Housing, Banking Regulation, Sydney Housing Bubble | 51 Comments »