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.
The market will eventually decide, we all know that, and the more these muppets keep the debate going in the mainstream media, the better chance of a house-price correction actually happening. With or without government interference, the horse is finally preparing to bolt!
Keep up with the inane comments Joe – it’s all helping to speed up the inevitable. House price crash here we come.
Funny thing is, if I didn’t know any better, it is possible that Joe and Tony and Glenn are orchestrating this to make it look like a drop in property prices won’t be their fault. After all, it’s a given that they probably care more about their jobs than they do about their investment portfolios. Could be…
Joe is only interested in his property prices and his greed!
I’m predicting an economy slam-dunk mid-December and I mean slam-dunk! There are now too many factors to juggle and one ball goes and they all go.
Reform won’t come until after a crash as usual and these dingbats will either hide from the media, make poor excuses for their myopic foresight or most likely the media will hide their mates and not even chase them.
I agree with Rupert, it doesn’t matter what the government do now, they’ve kicked the can as far as it will go and now economic and international market forces will take the reigns. Bring it on and let’s sort the wheat from the overbloated middle-class welfare chaff.
mr & mrs hockey have a large and profitable property portfolio …… http://news.domain.com.au/domain/real-estate-news/treasurer-joe-hockey-is-selling-his-15-million-farm-20150610-ghkjee.html
Hockey is border line corrupt and needs to go.
http://www.abc.net.au/news/2015-06-10/hockeys-housing-comments-prompt-call-for-mp-rent-transparency/6536146
If it’s not the NSF, he is now paying his wife rent from a $270-a-night allowance.
The best thing the liberal party can do is let him go.
Notice how the Ministry of Truth keeps peddling the lie that the increase in property prices in Syd & Melb is driven by a housing shortage. The facts are that at least 50% of buyers are investors driven by tax incentives and low interest rates. After it all implodes we will find that we have an immense glut of property and as greed turns to fear, investors will all be heading for the doors as they realise negative gearing only works in a rising market.
The Sydney market is beyond crazy and the Melbourne market is doing its best to catch up.
It seems the biggest problem is to get Joe and Tony to admit there’s a bubble, and they keep digging a bigger hole for themselves by alienating themselves from the public, and coming out with stupid, insensitive, out-of touch comments. No wonder there is so much anger within the electorate.
I was thinking about the reason for their denial of any bubble and realised that, firstly, if they admit there’s a bubble, then there is an expectation that they will do something to pop the said bubble, and secondly, they don’t want the country to go into panic and start selling which would trigger a whole wave of selling, and therefore burst the bubble. It is far easier to kick the can down the road, pretend nothing’s wrong, and leave it all to whoever’s next in charge to handle the issue.
Even in his ivory tower, Hockey knows that no person on an average wage can buy an average house in Sydney within a reasonable commute. He has to know that even with two decent wages, it would still be extremely difficult, if not impossible to buy a house without a massive mortgage and/or parental help.
It really is surprising to me that there has not been street marches from those outpriced by foreigners, SMSF investors and other cashed-up investors using negative gearing to outbid would-be homebuyers.
But, and this dawned on me today, if Hockey willingly popped the bubble (by admitting it was a bubble and maybe doing something about negative gearing, and stopped foreign investment) then there really would be marching in the streets by those whose properties would fall under water. Can you imagine – millions of people whose wealth is all in property, losing a large chunk of their wealth, especially as they grow older? Then you would see outrage.
As I have stated in many forums over the years, this bubble has gone on for so long that young people think that obscene prices are normal. They might think they’re high, even stupidly high, but they don’t realise that even if prices halved, they would still be way, way over what they should be. And all due to government policies that have pushed up prices and inflated this bubble, and keep inflating the bubble.
Lately, there have been a lot of articles about whether we are in a bubble or not. As always, the vested interests, and those who “did it tough” in the 80s with their 18% interest rates on their $50K mortgages spout their advice to stop buying lattes to afford a house, and an increasing amount of angry comments from those who simply can’t get into the market, no matter how hard they work and save.
The anger needs to be maintained and more pressure needs to be put on the government. They will continue to deny the bubble, of course, until there comes a point where they can’t ignore the growing frustration within the community. We’re not there yet. We know we will be, only when politicians call a bubble by its name, or the bubble bursts.
Only a dickhead would get a mortgage today…I mean a true dickhead….investors are just greedy and get advice from their try hard pretend financial advisors based on just prices going up. For any FHB wanting to get into the market I’ll say it again…..you dickhead….. Don’t pity stupidity people.
If my comments are offensive then all I can say is that the stupidity I hear on TV regarding property and the behaviour of the people is more offensive in my opinion. But for the record I do not believe that the polititions do not know what’s going on, they are crystal clear on the risks. Grubs!!
Is this Glenn the same Glenn, who with his mates at the RBA, were not so long ago saying that prices were supported by fundamentals ?
There is a guy named Phillip J Anderson who predicted a few of the big economic events of the recent past including the financial crisis of 08 and he argues housing always(and he means ALWAYS) goes through the same credit cycles and his basic argument is that Australia’s housing won’t go through a big correction till the early 20’s.
Anyways food for thought.
I have been waiting for the big crash forever and was convinced it would happen a couple of years ago. So I always opted against buying into housing and instead saved up close to 200k. Now I wonder if I would have been better served buying as I may have sold and made double that by now.
Oh well.
Australia’s souffle economy is about to go pop. Multiple decades of economic ignorance and miss-management is about to come home to roost.
@Steven 20s is a long way off I cannot see the mainstream media reporting this problem for another 6+ years think about it. The end is much closer. SOME economist are good are predictions but usually fail with exact time frames due to war, global economics and even war.
I am curious to find out what blog system you are using?
I’m having some minor security issues with my latest site and I would like to find something more risk-free.
Do you have any recommendations?
GOLD!
https://youtu.be/zzTVs89EjdY
Artificially lower interest rates… watch house prices explode… act all concerned that it’s happening, but do nothing about it and take no responsibility.
at #9 Steven
I recently attended an evening with Phillip J Anderson hosted by Prosper. VERY engaging speaker. I found his forecast challenging which essentially went that we are in for a period of volatility but that the market has a way to go up from there.
I bought his book: still ploughing through it.
I thought the market would crash years ago. There had been talk of a bubble back in 2003 and as prices went higher, there was more talk of a bubble. But surely, nobody could ever have predicted that government policies and rock-bottom interest rates could have pushed up prices to where are now.
Who ever could have predicted that successive governments would turn against their own people and destroy the simple dream of home ownership for so many with their bubble-blowing policies?
Steven, I read Phillip Anderson’s predictions. I think it was last year when he said we were just starting a boom and I thought, how can that be when we are in a bubble by any and all measures? But so far, he has proven to be correct. Not because the fundamentals stack up in any way but more because of the distortions artificially pumping up prices.
Maybe, just maybe, now that the government is starting to crack down a little on illegal foreign investors, that might dent the bubble a little.
But seriously, how much bigger can the bubble grow? If the average in Sydney is 11 times an average wage, will it be 15 or 20 times before it pops? Or 30 times wages? It is possible of course. There are a lot of rich people who already have many properties each, and would have no trouble buying more. And then there are all the foreign investors who could afford, between them, to buy up every property on the market if they wanted.
So yes, you would have been better off, in hindsight buying property than saving the money. But who knows, if the bubble pops at some stage, then you’ll be sitting pretty.
I’ll say it again – the market will decide, not a change in fiscal or legislative policy (although that would help)
I know several reasonably high net worth individuals in Sydney and they are finally coming round to my bearish take on the property market. I am increasingly and very pleasantly surprised when people I come into contact with, both socially and through business, agree with me that we are definitely in a bubble and that only a fool would buy in the current market.
If the top 1% of earners in Sydney think house prices are too high, it’s only a matter of time for it to trickle down to Main Street. With no buyers – prices come down. Simples!
I’ve been battling relatives and older workmates on housing for years, so I created a folder highlighting the sales history of randomly selected houses. “My favourite” involves the purchase price in 2014 to the sales price in 2015 increasing by $180K. I showed a workmate in his 50’s and his exact quote, “they must have built an outdoor setting, their expensive to do” This is what we are up against, it is now considered normal for older Australians who have bought and sold property all their lives not to bat an eyelid over $180K increases in 1 year.