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Big four major bank economists deny the obvious housing bubble; It's not true until it's been officially denied, and now it has
Topic Started: 27 Aug 2014, 12:10 AM (7,475 Views)
herbie
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Ex BP Golly
27 Aug 2014, 01:16 PM
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Hmmm - There still are rare occasions when a bloke looks at some group photos and suspects he just might not be in the bottom 20% of the world's ugliest men after all? ... :D

PS: Where's Gail Kelly? (Chuck her physiog in 'n I reckon I could even just scrape into being in the bottom 25% maybe? :) )
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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The whole thing is just a joke. No government will let it happen until the baby boomers are out of government and just let their kids clean up the mess, like Australia would implement progressive reforms to fix the economy – this isn’t the 80s when labor had their shit together. It’s a hilarious first world problem having to whinge about how good the parents had it and still have it at the expense of the young. To be blunt… they will either help out their kin and hand over money or just die out and leave behind their overly priced assets and the bullshit continues for Gen X.
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Barista
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I tend to see it almost as a football club dealing with a salary cap. The Politico-Housing complex Spruiks. They’ve had a golden era, flags aplenty, champion players, and supporters used to success ……

We are the golden spruiks…..
We are the old, crass, golden spruiks…..
We’re the team that never lets you down….
We’re the only team babyboomers know
With all the interests
Who like to join us
We’ll keep house prices up
And they’ll know that they’ve been paying
For the famous golden spruiks

They are still finals material, for sure. But there is the salary cap – called the market. Of course they will hang onto the teams legendary centreman (the real estate sector) but somewhere on the coaching staff you could be sure there will be someone wondering if his demands are going to be worth it until the end of the contract. That big gun forward who kicks all the goals (Mining) is still the greatest player in the league but, well is he invincible the same way he was a few years ago? Do they need to work out different avenues of attack? (and what have they got if they need to do something different) And that ruckman who gifts possession (banking) to the midfield – still very very good, but word is has a gambling problem.

But elsewhere they have issues. That skilled knuckleman who has terrorised opposition forwards for a generation (consumer debt) has been nutted, and just doesn’t instil fear any more, and is getting shoved aside more and more as panic creeps in – particularly if the ball comes in quick in the form of bad data. That has put pressure on those rangy running backs in the retail world, who are being exposed by an opposition press called unemployment, and find their every possession is under a lot of pressure.

Up at board level (dominated by Torynuffs and ALParatchiks) they contemplate the ugly concept of regeneration and ‘bottoming out’ gets discussed. ‘We don’t bottom out’ is the mantra.

We know how it goes from here. Over time the ability to blow the opposition away gets diminished. One day there is an injury (and the data or global macro turn worse). The crowd, reared on a generation of success, start to become impatient. Players start retiring. The club cant recruit what it needs to be a competitive power any more.

Then one day someone comes to power and opens the books. The market says naughty naughty, and imposes punishment. There will be lost draft choices, and a generation of underperformance…

And on, and on, and on.

Life follows art follows life and it all turns up being rerun on pay TV.
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Admin
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Make mortgages more competitive, smaller banks urge

James Eyers

Global rules forcing smaller banks to hold twice as much capital against mortgage lending as the big four is distorting home loan competition, the Australian Bankers Association has said.

In its second submission to the Murray inquiry, the ABA argues the Australian Prudential Regulation Authority should recognise efforts by regional banks to improve their systems and reduce the amount of capital they must hold against mortgages.

“The [financial system inquiry] has stated clearly that the capital regime as it applies to housing loans is not competitively neutral. Regulatory change is needed to underpin competition and deliver good outcomes for customers,” said Suncorp Bank CEO John Nesbitt.

However, the Reserve Bank of Australia in its second submission, released on Wednesday morning, said it was “crucial” that bank capital be allocated according to risk, warning “changes to the capital framework on competitive grounds should not come at the expense of greater risk, and should not amount to a weakening relative to global regulatory minima”.

The major banks are deemed “advanced” by regulators as a result of their investment in information systems so are able to use their own internally-generated mortgage book risk weights - which average 18 per cent. But the smaller banks must use the “standardised” approach because regulators deem their IT systems sub-standard. Their average mortgage risk weightings are 39 per cent. As the weightings dictate how much equity capital is held against lending, the higher risk weighting makes it less profitable for smaller banks to write home loans.

The interim report of the inquiry released last month suggested several approaches to enhance competition, including increasing risk weights for the major banks, reducing risk weights for regionals or introducing a tiered system for the regionals, which would allow them to reduce risk weights according to the level of work done to get to the advanced level.

The regional banks in their second submission asked for “a more efficient and staged process” to be established “to assist regional banks achieve accreditation under the ‘advanced’ capital framework, particularly in relation to housing.”

It also requested a 20 per cent risk weighting for safe loans, rather than the current 35 per cent. “This relatively small change to the current approach would deliver material benefits in terms of competition without additional risk,” the submission by Bendigo and Adelaide Bank, Bank of Queensland, ME Bank and Suncorp Bank said. Around one third of the lending done by regionals could qualify for the lower risk weighting. “It is in this low-risk end of the market where the differences in capital treatment between ‘advanced’ and ‘standardised’ approaches is unsustainably large and creating a lack of competitive neutrality,” the submission said.

Read more: http://www.afr.com/p/business/financial_services/make_mortgages_more_competitive_apGVEarPFx7Us1q1mBJBvN
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What the banks aren't telling you about the housing market

Callam Pickering

Wherever you sit on the housing bubble debate, can we all agree that our major banks are far too conflicted to offer an unbiased view of the market?

In an interview with The Australian Financial Review yesterday, Bill Evans from Westpac, Alan Oster from National Australia Bank, Michael Blythe from Commonwealth Bank of Australia and Warren Hogan from ANZ emphatically declared that Australia does not have a housing bubble.

The interview followed comments by Jeremy Lawson, global chief economist of Standard Life and former senior economist at the RBA, who said that Australian property was overvalued “by between 20 per cent and 30 per cent” based on a new valuation model proposed in an RBA research paper in July (my assessment of that research is contained here).

Naturally that doesn’t sit well with the major banks. Australian banks have binged on mortgage lending over the past couple of decades, reaping record profits year-after-year, which has resulted in Australia possessing one of the highest levels of private debt in the developed world.

In recent years, they have taken it to a whole new level. Slowly but surely, they have undermined the very business sector that allows Australia to pay such high prices.

Mortgages to owner-occupiers and investors have accounted for more than 100 per cent of outstanding credit growth since the end of 2008. That means that credit to businesses actually declined. Mortgages now account for more than 60 per cent of total credit outstanding and is rising rapidly, up from just 43 per cent at the turn of the century.

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“We simply don’t have the speculative credit element there to describe it as a bubble,” Hogan said.

Or do we?

Assessing a critical limit on speculation is always difficult, but speculation is elevated, with investor loans rising to more than 47 per cent of loan approvals. Consistent with this, interest-only mortgages (much loved by property investors) increased to a remarkable 43 per cent of new mortgages in the June quarter.

The last time investor activity in Sydney was this high it resulted in a significant downturn. Real prices didn’t recover for a decade, but I doubt any of the majors provide that sort of information for prospective buyers.

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In fact, given the extraordinarily low rental yields on most Australian property owing to generous negative gearing and capital gains policies, isn’t it reasonable to declare almost every new property investment venture a speculative one?

“Housing credit’s running at the bottom end of the range the past 30 years,” Blythe said. “You need to see banks easing their lending standards as they chase more dubious borrowers. That’s certainly not happening and you need a general expectation that house prices are going to keep rising forever.”

This is a common mistake. A housing bubble doesn’t require excessive lending in a historical sense, it simply requires lending to exceed growth of household incomes or the broader economy until it reaches a point where it becomes unsustainable.

Furthermore, credit growth is not low because banks are being prudent and households cautious, but because the stock of existing credit is now much higher. Lending growth was relatively stronger throughout the 1990s precisely because it was coming off such a low base. That’s hardly a tick in the favour of current lending practices.

We are seeing some modest easing of lending standards, though not necessarily worse than they were pre-crisis. As noted above, interest-only loans are at an elevated level, while loans approved outside serviceability have doubled over the past four years.

New loans with loan-to-valuation ratios greater than 80 per cent are several times higher than the recent speed limits introduced in New Zealand by the Reserve Bank of New Zealand -- a market where property is similarly priced compared with history.

Our major banks seem rather complacent about the challenges facing the housing market, which will threaten their entire business model. The reality is that the housing market has become increasingly cyclical. Following two decades of unprecedented growth, house prices have suffered three downturns over the past decade, with mounting evidence that another could be on its way (Watching the housing market for vital signs, August 21).

These downturns occurred despite solid income growth, low unemployment and the mining boom. What would happen if the economy suffers a genuine setback such as rising unemployment, a sharp fall in mining investment or China slowing significantly? How does a combination of the three sound?

Add in a variety of other issues such as negative real wages, university students potentially beginning their careers with six figures of debt and an ageing population, and it becomes clear how vulnerable the Australian housing market might be.

Not that you’d know this by listening to these chief economists. Don’t expect much discussion on the housing implications of a shift towards lower income growth. Certainly don’t expect them to offer a critical view of the systemic risk posed by the four ‘too big to fail’ banks and their exposure to an increasingly volatile asset class worth more than $5 trillion.

The unfortunate reality is that with hundreds of billions on the line we shouldn’t expect our major banks or their chief economists to talk sense about Australian property. If there really is a bubble or a housing downturn, you can be sure that our banks will be the last people to let you know. They can’t afford it to be any other way.

Read more: http://www.businessspectator.com.au/article/2014/8/27/australian-news/what-banks-arent-telling-you-about-housing-market
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John Frum
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Callum's bear porn's been hitting the hardcore overdrive of late.

You sense an ambitious young man spotting a opportunity to make his mark with a timely call.

Good luck I say.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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Veritas
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If that image doesn't tell you something is badly wrong I don't know what would.

All Part of the cycle though apparently. :re:
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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Looks like a picture of the four stooges, I'm not normally one to judge a book by its cover , but they look like a bunch of dopes.

The four stooges.

Not matter what the market is doing, they will ALWAYS talk it up.

They are liars, that is a fact, and act in what they think are the best interests of the banks, not knowing that is will be their demise of greed and lies and the engineering of robbing the people and economy of more money over longer periods of time.

They are in fact their own worse enemy but fail to realize this also.

It the same reason no vested interest can be trusted to give an unbiased and truthful report or analysis.

Well done Callum, keep up the good work..... :tu:
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A Lurker
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Percentage of loans with greater than 90% LVR trending down.

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peter fraser
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A Lurker
28 Aug 2014, 10:06 AM
Percentage of loans with greater than 90% LVR trending down.

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Yes that makes sense. Probably because of the high proportion of investors in the market. They tend to use lower LVR loans to avoid the LMI cost and to avoid issues with LMI exposure limits per borrower.

People may not be aware that mortgage insurers have a $2.5M exposure limit per borrower. That doesn't matter to a PPOR buyer who has no investments, but it sure stops investors buying a lot of properties with high LVR loans, which is what most people think they do.

There is also a fair bit of cash out there in the market.
Any expressed market opinion is my own and is not to be taken as financial advice
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