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.