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Trust us, we’re APRA - Australian banks offering guarantor mortgages up to 100% of purchase price
Topic Started: 28 Jul 2014, 10:45 AM (3,844 Views)
Stewart
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The problem with having an “Independent” RBA is that in order for it’s leaders to keep their jobs they have to be seen to be delivering. What this has come to mean in Australia is ‘smoothing’ the economic cycle, providing support during slow downs and leaning against the booms during the good times.

Unfortunately this is just theory – the reality is that while it is happy to provide support during the bad times, it is loath to lean against the boom to aggressively, despite how necessary it may be, simply because if they miss-calculate or go too far, then whoever is in charge will be blamed for killing the boom and bringing the party to an end.

The economic result for Australia has been a massive build up of economic dead wood, as the creative/destruction process that should be one of the celebrate features of capitalism, is prevented from occurring.

This massive build up of economic deadwood, is stifling the economy for anyone wanting to make their way through the existing landscape, and is sitting there ready to provide the fuel for an economic inferno that will eventually engulf Australia.

The RBA should be brought back into the fold of direct control of the Australian Government, with the head of the RBA answerable to an elected official and hence answerable to the Australian people. Sitting as the independent body it now supposedly is, it is effectively free to be taken over by the virus of self interest policies that spreads our FIRE industry.

Australia doesn’t need only need Macroprudential, it needs a recession – an even bigger recession that ‘The recession we had to have’, to clear out the economic dead wood, instigate meaningful economic reform, and set Australia on path of economic prosperity for all, not just a select cohort or segment of Australia.

After all, we may not handle economic booms very well, but something Australian’s are very good at is handling economic adversity. Bring on a a recession, and bring it on now.
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peter fraser
30 Jul 2014, 01:11 PM
It's a simple use of a guarantee. Guarantees have existed since forever.

Access to credit does not drive prices, it's secondary. What credit does is give people access to money to buy things. If those things are necessities and they are in short supply then people will use that access to outbid others who also want to buy, but by itself credit is not a problem.

Until people grasp the main issue which is a supply shortage in a growing market they will never come to grips with the solution.

The other issue is input costs levied by our three levels of government. Those costs can't be taken out of the price, it's how we pay our taxes. Our houses will always be higher than comparative houses overseas due to those input costs. Overseas the same costs are often taxed retrospectively, but they are still charged. Communities that want roads, schools, parks and amenities have to pay for them. It's really that simple.
Its they have been around forever why is this news?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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APRA warns bank lending standards are being stretched

October 23, 2014 - 12:15AM
Gareth Hutchens, James Eyers and Misa Han

Australia's financial regulator has completed a "comprehensive" stress test of the biggest banks and believes lending standards are being stretched because major banks are competing aggressively on home loans.

Wayne Byres, the new chairman of the Australian Prudential Regulation Authority, told a Senate estimates committee on Wednesday that the stress test was focused on a "significant housing downturn", and comes after the Reserve Bank expressed concern about imbalances between the number of investors and owner-occupiers and the impact that imbalance was having on house prices.

"We've just completed a comprehensive stress test of the largest lenders, which was focused amongst other things on a significant housing downturn," Mr Byres told the committee.

"I don't think there's any issue that it is a competitive marketplace. Lending standards are being stretched."

It comes as Commonwealth Bank chief executive Ian Narev urged governments to take the pressure off house prices by using infrastructure projects to increase the supply of housing stock.

"The appropriate development of infrastructure, particularly roads and transport, will open up new opportunities to develop residential living and therefore create more supply in the market, which gets the overall property market to a good long-term equilibrium," Mr Narev said on Wednesday.

CBA said at its full-year results in August that a new supply of houses, as builders respond to rising property prices, would act as a "natural correction mechanism" to temper future house price rises.

But Mr Byres said APRA had been monitoring the state of high-serviceability ratios, and high loan-to-value ratios, and it may need to "turn the dial up" a little bit to keep lending practices within reasonable bounds.

With the Reserve Bank of Australia keeping the cash rate at a historic low of 2.5 per cent for the 14th month in a row earlier this month, Mr Narev said house price rises were an inevitable consequence of historic low rates and "we all need to be careful in these sorts of environments". But in a view in line with the RBA and Australian Prudential Regulation Authority, Mr Narev said limiting low deposit loans via caps on loan to value ratios was not an appropriate policy response.

At CBA, the average loan-to-value ratio is 48 per cent, he said, compared with the low 20 per cent over the whole economy and a figure in the 60s when mortgages are originated. It is also important to remember that banks in Australia had full recourse to other assets, which reduced the incidents of default, he said.

"This idea that if property prices dip 10 per cent suddenly everything is underwater and even if it is people will walk away from houses isn't right. The key question is can people service the debt. And the key question there is do they have a job. The number one thing we look is the trend on the unemployment rate."

Read more: http://www.smh.com.au/business/apra-warns-bank-lending-standards-are-being-stretched-20141022-119z8r.html
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