Earlier this week, Australia’s Federal Treasurer Scott Morrison reassured foreign lenders that “Australian housing values, while high, are still ‘real’.”
“Safe as houses still broadly means something in Australia,”
He went on to say, “The rise in housing values has been driven principally by genuine economic forces of supply and demand, where mortgages are subject to full recourse finance, supported by a strong, stable and resilient banking system and world’s best practice credit standards.”
“Low or no doc loans that crippled US housing markets are a rarity in Australia. House price growth in Australia has and always will be a basic lesson in supply and demand.”
But the Reserve Bank of Australia might not be as convinced. On Friday, in an unusual move, it announced it will undertake its own “top down” stress test of Australia’s banking system. In Australia, stress tests are normally undertaken by the banking regulator, APRA.
The RBA explained APRA’s stress tests are normally “bottom down” and require individual banks to determine the impact of a common scenario. “These stress tests usually focus on the impact on individual institutions rather than risks to the system as a whole.”
The central bank’s top down approach will see the central bank make its own model and determine the impact to the entire financial system including if multiple banks become insolvent.
Australia’s banks depend on wholesale overseas funding – both short term and long term – for about 20 percent of their loan book. If financiers believe Morrison is bluffing them, they could reprice short term funding appropriate to the risk, forcing banks to raise rates out of cycle.
»No hard landing for Aussie housing: Treasurer Scott Morrison – The AFR, October 13th 2017.
»RBA to stress test banks as household debt and property investment remain key concerns, The ABC, October 13th 2017.
»Box D – Stress Testing at the Reserve Bank
Admin performing CPR
Safe as houses- flammable cladded ones at that.
But never mind, we don’t have Liar or Low Doc Loans only fraudulent loans.
And let’s not forget Interest Only loans that gained huge popularity from 2012 onwards. The loan you take out when you can’t afford a loan. Remember there’s a 5 year principle free repayment term that’s about to end and whose principle repayments are about to kick in big time.
We saw those “genuine economic forces” on 4 Corners with the Beavis & Butthead genius plan to buy lots of houses because they’re supposedly guaranteed to produce capital gains.
As Michael Francis Says – principal repayments on interest-only loans will soon begin – just about when interest rates are likely to rise.
great timing! let the chaos and mayhen begin.
The part truly difficult to grasp is why no one is even mentioning a real economy – you know, paying top skills top money, having a structure (not based on bullying) etc.
It’s not like that wouldn’t keep the wheels turning or even fix all the problems – growth through spending, but not via the top 1% only.
Everyone too highly strung to even notice real life could go on fine without the boomer engineering – or are we all still to obsess about oh my god the fact they will die, and won’t matter much very soon?
Interest Only lending is our own subprime. During the GFC it was investors who were more likely to default than non-investors.
‘Australia’s banks depend on wholesale overseas funding – both short term and long term – for about 20 percent of their loan book.’
Always thought it was double that. Can anyone verify?
Interesting to hear that a millionaire/billionaire has invested in a double page advert in the SA paper to locate a new home.
I don’t know if this is a positive sign for the market ie. even the elite are having trouble locating property, or if it’s a contrarian indicator, ie. the elite seeking out a desperate seller
Either way, Australian property sure is weird.
You know what I find truly a measure of the decline?
That the distribution of wealth in no way corresponds to any intellectual ability, commitment or moral virtue – it is simply a matter of grabbed the most and kept grabbing the most.
The top 1% by wealth are by no means the top echelons of the society – the very existence of the society is negated (which in turns means no trust is possible, so a free-for-all grabbing spree)
That is how you end up with appealing education, bad healthcare, and no roads or rails properly maintained. Oh yes, and a private electricity grid, meaning the de fact monopoly can charge whatever they want – but we’ll still call that ‘wealth’ – while being completely freaked out about losing the whole country (as a decent place to live, roof over one’s head, steady job sort of thing from the heyday of globally advertised Australian values).
Isn’t misadvertising illegal?
Been keeping an eye on ABS finance data. It’s stalled pretty terribly still. Only new ponzi participants such as FHB seem to be playing the game.Funnily, there’s also a bit of business optimism in the lending figures, the redistribution of wealth from wage earners to the business is in full swing.
Also,people only buy houses when the weather is hot because they don’t have a cold/virus/ flu.
http://www.news.com.au/news/sydney-property-prices-slump-as-boom-slows/news-story/cb64e09be5b7902c1d992275094cbe5f
@ Jamie that is an interesting article.
Says that Sydney home prices are down 1.9% in the last quarter. Just as I have predicted for the last few months that prices would now fall. This is actually a fair drop and even if it keeps that pace (I believe it will actually drop even faster) that is roughly 6% drop annually. Factor this into *Beavis & Buttheads debtfolio of $1m+ and they’re looking at $60k down the drain in 12 months. Around half of their combined pre-tax income. Even worse for apartments.
But as always the article is still heavily biased by vested interests. They talk to 3 “experts”, a Bank economist and two real estate agent employees who tell us there is nothing to worry about. Huh!?? I’d be shit worried if I were losing $60k per annum (not including losses in interest!)
As far as experts are concerned this also goes against a lot of domain journo predictions that Sydney prices would continue to rise but just at a slower pace…. wonder what they predict now. As usual they blame it all on APRA when it wasn’t APRA’s doing that people went absolutely spastic with Interest Only loans in the last few years. Either APRA reign that it now or we end up in an even bigger mess down the track…
*Beavis & Butthead are the two bogan people interviewed by 4 Corners who have gone all in property mad sipping from Birch’s koolaid.
Update, Sept figures- Business lending in the gutter again. Investor loans falling, Owner occupiers stalled. Wonder what tricks are left to expand credit.
Are we witnessing the biggest housing ponzi bubble in history ?
Looks like now the prices are starting to turn . I always felt that when the CCP pulled back on investing (buying) , the fairy tale dream run would start breaking at the seams . All along this has been marketed for them and not the local youth . Our children have been watching from the sidelines for at least a decade or more .
If not from foreign investment and easy credit , this 1000% increase in Sydney properties , that has occurred in the past 30 years would not have become this false reality . If only workers wages had kept up to this escalation things may now be different , but we are not “different” cause wages have remained much the same (stagnant) in this time frame .
I feel this depressive catastrophe has been planned all along . When the nightly news is advertising (spruking)for the “new boom suburbs” , as is happening now , then we know the market is beginning to cool .