RBA warning "sound lending practices" are required...

[Blixsem]

From the RBA - Financial Stability Review. Hhmmmmm.. what do you think ?

"The low interest rate environment and, more recently, strong price competition among lenders have translated into a strong pick-up in growth in lending for investor housing ? noticeably more so than for owner-occupier housing or businesses. Recent housing price growth seems to have encouraged further investor activity. As a result, the composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing?s share of the housing stock. Both construction and lending activity are increasingly concentrated in Sydney and Melbourne, where prices have also risen the most.
In the first instance, the risks associated with this lending behaviour are likely to be macroeconomic in nature rather than direct risks to the stability of financial institutions. Property investors in Australia have historically been at least as creditworthy as owner-occupiers, and mortgage lending standards remain firmer than in the years leading up to the financial crisis. Even so, a broader risk remains that additional speculative demand can amplify the property price cycle and increase the potential for prices to fall later, with associated effects on household wealth and spending. These dynamics can affect households more widely than just those that are currently taking out loans: the households most affected by the declines in wealth need not necessarily be those that contributed to heightened activity. Furthermore, the direct risks to financial institutions would increase if these high rates of lending growth persist, or increase further. In this environment, recent measures announced by the Australian Prudential Regulation Authority (APRA) should promote stronger risk management practices by lenders. The Bank is discussing with APRA, and other members of the Council of Financial Regulators, additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors."

 

[Lord Shanghai]

More jawboning from the RBA. Shouldn't be taken seriously. Although the RBA is competent - remember, it's given us more than two recession-free decades which is unprecedented in either Australian or OECD history - it lacks the spine to make any serious decisions.

Does anyone remember Alan Greenspan's remarks in 1996 about "irrational exuberance." The Dow almost tripled in the 4 years following his remarks.

The RBA will huff and puff. But rates cannot rise, given the general economic slowdown. And they don't have the stomach to institute other changes which could curb speculative borrowing. And even if they did, we should look to overseas comparisons. eg. the Korean Central Bank in 2003 required all banks to lend no more than 60% of the worth of a property. That action did not cool the market - Seoul prices havve risen almost three-fold since.

 

[Blixsem]

Any drastic changes would also negatively impact the over 1 mil people employed in residential construction.

Not to mention the retail industry relaying on people furnishing these new dwellings.

I agree with you, Lord Shanghai, and it will be interesting to see what happens...

 

[Lord Shanghai]

Cracks have been appearing in the facade of the RBA for a few years now. There was that awful corruption scandal, which is now all over thank goodness. And now, I am told, allegations that the RBA blackbans journalists who don't tow the official ie. jawboning line. So if you are a journalist and you displease the RBA, be assured that there will be no more inner-circle briefings for you or your 'paper. Dissent is definitely unwelcome at the RBA these das.

All that aside, let there be no doubt that the RBA is the envy of central bankers everywhere. I cannot think of a single example of any OECD country which has gone recession-free for more than two decades. In that respect one cannot fault the RBA.

 

[Angel]

There might be an increase in loans recently for investors. It doesn't necessarily mean we are buying more stock - many are refinancing current stock at lower interest rates.

 

[datto]

We have to thank the ALP's policies in the 90s for our prosperity today Another 20 years without a recession could be on the cards if we play our cards right (no pun intended).

 

[Lord Shanghai]

We have to thank the ALP's policies in the 90s for our prosperity today Another 20 years without a recession could be on the cards if we play our cards right (no pun intended).

Keating was no leftie. A man very much in the style of Sir Roger Douglas. As the Fabians like to say "A (highly effective) wolf in sheeps clothing.

As for the remark about another 20 years of no recessions. Highly unlikely, based on historical precedents. We are teetering on the brink as it is - hence the non-action by the RBA.

 

[datto]

As for the remark about another 20 years of no recessions. Highly unlikely, based on historical precedents. We are teetering on the brink as it is - hence the non-action by the RBA.

So, no interest rate rises in the near future? .......yeehah!

 

[Freddie Mac]

Reading between the lines I beliveve the RBA will be taking the measures in preparation for further necessary interest rate cuts to stimulate the real economy.

 

[HomePage]

the Korean Central Bank in 2003 required all banks to lend no more than 60% of the worth of a property. That action did not cool the market - Seoul prices havve risen almost three-fold since.

Be that as it may, a 60% LVR cap here would certainly slow down or even stop highly leveraged property investors in their tracks. That would probably be enough to cool the overall market.

 

[C Stewart]

Reading between the lines I beliveve the RBA will be taking the measures in preparation for further necessary interest rate cuts to stimulate the real economy.

Hmmmm, I reckon a cut in the next 6 months might be a stretch... Definitely can't see rates going up much either though... I think we might be in the middle of the same 50 point basis band for a while.

 

[Rolf Latham]

Be that as it may, a 60% LVR cap here would certainly slow down or even stop highly leveraged property investors in their tracks. That would probably be enough to cool the overall market.

so would stopping borrowing period, and returning control of all capital back to government.

ta

rolf

 

[Ausprop]

Hmmmm, I reckon a cut in the next 6 months might be a stretch... Definitely can't see rates going up much either though... I think we might be in the middle of the same 50 point basis band for a while.

a 50 point increase in the face of a rapidly slowing economy?

 

[Tano]

Be that as it may, a 60% LVR cap here would certainly slow down or even stop highly leveraged property investors in their tracks. That would probably be enough to cool the overall market.

Yes, australian investors.
It wont do much to international investors. There seem to be alot more of them with alot more money than local investors.

 

[Redom]

All that aside, let there be no doubt that the RBA is the envy of central bankers everywhere. I cannot think of a single example of any OECD country which has gone recession-free for more than two decades. In that respect one cannot fault the RBA.

Brilliant.

Show me a central bank that has managed to keep growth between a 2-4% GDP band between Australias biggest ever mining boom and its associated fall off.

From a macro-management perspective, its brilliant. Testament to the effectiveness of reforms delivered in the previous few decades (inflation targetting, flexible exchange rates) - but the effectiveness is brilliant. Direct comparison is the 1970-80s boom/bust cycles.

Cheers,
Redom

 

[Redom]

More jawboning from the RBA. Shouldn't be taken seriously. Although the RBA is competent - remember, it's given us more than two recession-free decades which is unprecedented in either Australian or OECD history - it lacks the spine to make any serious decisions.

I'm not sure its just 'jawboning'.

I think the average punter will see it as that (jawboning)- their wont be any hard caps on LVR's or even DSCR limits, thats for more interventionist governments that the media keep harping on about as if they're the only 2 supervisory tools. To most, it may appear as the RBA's just chinwagging and not doing anything, but APRA are there with their hammer ready and have begun knocking (slowly).

Its already being used, just behind the scenes and not 'ribbon worthy'. Fact is media don't actually print news unless its got a fancy red ribbon on it and can make a headline.

I posted here about what APRAs doing and how it comes to surface in the market: http://somersoft.com/forums/showpost.php?p=1239844&postcount=20

For those in lending and following policy and products by key lending institutions, there's been been small switches from lenders who are particularly aggressive. This is APRA counselling the aggressive lenders and telling them to get their act together. For example, Macquarie, the investor lending specialist toned down their cash outs above 90% bigtime. Its not 5% of security value above 80% - more conservative than Genworth. Some will say its Macquarie management making decisions to deleverage risk from their balance sheet - but its most likely APRA counselling the bank.

None of this is 'fancy' or 'noteworthy' - but it is RBA/APRA working together and doing their job - prudential supervision.

Not sexy, not paperworthy, but more than chinwagging.

Cheers,
Redom

 

[C Stewart]

a 50 point increase in the face of a rapidly slowing economy?

More just meant I think rates won't move more than 25 basis points (up or down) from where we are now for a while. Not that I'm expecting a 50 basis point rise.