Hi Pete
In my last bit which you found confusing, I was pointing out the paradox, that demand is high at the moment, as evident by overworked loan approval staff, so banks could be making much bigger profits if they lent more........but the banks are having to balance short term profits against the risk of long term losses, as when evermore borrowers become distressed by higher rates. The banks are also cooperating with the govt to govern access to the FHB bonus. The point of the bonus is to facilitate just enough property activity to keep the economy stimulated just so.
So I contend banks know credit is the primary driver of house price growth, and they realize there is little room to drive prices higher without also creating unbearable future risk to mortgage stress, in the face of some external shock.
So imho, I see credit becoming tighter into the future, despite the level of demand. And that means limited house price growth.
Hi Winnie
when there is an imbalance (excess or lack of) of any driver it becomes a key to what the market is doing, but the other drivers don,t become irrelevent.
Yes, but there are times, as during the last property boom (my original point), when demand was unmistakenly a dependent variable of credit availability and cost. i.e.
- the rate of sales increased due to looser credit, which drove fear of having to pay more in the future, and the greed to make profits.
- as credit tightened, demand hasn't mattered, as sales and new supply are being restrained by lenders, as outlined in my previous post (sans the FHB bonus).
By any stretch of the imagination, I find it hard to accept credit can ever be a dependent variable of demand. IMO, the primary driver of property will always be credit because the availability of (leveraged) capital to lend to buyers will always be the more finite commodity.......that is unless we move more towards borrowing evermore foreign capital, and the govt bails banks with big loans.
Just as the demand for red ferraris by teenaged boys will never be satiated, so too the demand for houses.
Not being an expert on this I would think that perhaps the problems they had
in accessing funds when the GFC began and then the increased costs of funds above the banks costs would not have aided them in keeping their market share and perhaps the fact that a number of non bank lenders were taken over by banks would also impact on market share or perhaps consumers became wary of borrowing from these lenders may also have had an impact.
But surely if demand is the more important driver, and people can't secure a loan from a bank, then they'd run off to a non bank lender, and pay a higher rate of interest.
The fact that many non bank lenders have had to close shop reinforces that it is not demand per se, that determines the market....rather it is that portion of demand that satisfies prevailing credit criteria, and that portion is far and away determined by lenders, not demanders.
Although a little confused about what your mate told you, with the banks
throttling the approval of home loans, in cooperation with the Fed Govt, to reduce the risk of a higher volume of defaults during a recovery, and to govern the volume of grant bonuses issued by the Fed Govt.
and you posted,
more loans mean more profits right?
Cheers
Pete
In my last bit which you found confusing, I was pointing out the paradox, that demand is high at the moment, as evident by overworked loan approval staff, so banks could be making much bigger profits if they lent more........but the banks are having to balance short term profits against the risk of long term losses, as when evermore borrowers become distressed by higher rates. The banks are also cooperating with the govt to govern access to the FHB bonus. The point of the bonus is to facilitate just enough property activity to keep the economy stimulated just so.
So I contend banks know credit is the primary driver of house price growth, and they realize there is little room to drive prices higher without also creating unbearable future risk to mortgage stress, in the face of some external shock.
So imho, I see credit becoming tighter into the future, despite the level of demand. And that means limited house price growth.