Moody's Assessment of Overvalued Australian Housing: Local analysts don't know how serious it is; Stark warning bells sound: Australians blind to impending financial Armageddon
Tweet Topic Started: 16 Jul 2013, 09:36 AM (10,598 Views)
Actually the problem is that banks are encouraged to lend into housing because APRA who follow the BASEL guidelines set the rules which push banks towards housing and away from business finance.
The new BASEL III guidelines that are yet to be adopted are even more punitive for commercial borrowers so I can't see it changing anytime soon.
barns has it nailed.
How on earth does that begin to explain Australia having 60+% tied up in residential mortgages and U.K. which is widely regarded as having expensive properties allocating about 16% to residential mortgages.
Actually the problem is that banks are encouraged to lend into housing because APRA who follow the BASEL guidelines set the rules which push banks towards housing and away from business finance.
The new BASEL III guidelines that are yet to be adopted are even more punitive for commercial borrowers so I can't see it changing anytime soon.
barns has it nailed.
So regardless of why the banks are lending the way they are, do you agree that this is not necessarily a good thing for the government/regulators to ignore the potentially detrimental macro effects of encouraging mortgage lending?
"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.
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
How on earth does that begin to explain Australia having 60+% tied up in residential mortgages and U.K. which is widely regarded as having expensive properties allocating about 16% to residential mortgages.
not sure, possibly because a greater % of Australian industries are bankrolled with foreign capital?
"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.
Actually the problem is that banks are encouraged to lend into housing because APRA who follow the BASEL guidelines set the rules which push banks towards housing and away from business finance.
The new BASEL III guidelines that are yet to be adopted are even more punitive for commercial borrowers so I can't see it changing anytime soon.
barns has it nailed.
How on earth does that begin to explain Australia having 60+% tied up in residential mortgages and U.K. which is widely regarded as having expensive properties allocating about 16% to residential mortgages.
Do you have a reference for that 16% claim.
Any expressed market opinion is my own and is not to be taken as financial advice
not sure, possibly because a greater % of Australian industries are bankrolled with foreign capital?
Might be just that the UK book is bigger.
16% is enough to inflate those prices.
Whereas here is requires 60% of the loan book.
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
Actually the problem is that banks are encouraged to lend into housing because APRA who follow the BASEL guidelines set the rules which push banks towards housing and away from business finance.
The new BASEL III guidelines that are yet to be adopted are even more punitive for commercial borrowers so I can't see it changing anytime soon.
barns has it nailed.
So regardless of why the banks are lending the way they are, do you agree that this is not necessarily a good thing for the government/regulators to ignore the potentially detrimental macro effects of encouraging mortgage lending?
I don't know the exact ratio but yes a 60% housing 40% commercial ratio sounds very safe to me. There is the issue that a lot of lending coded as residential is actually commercial.
Could you please explain why a 40% commercial content in lending is risky?
Id like to see some to the bulls explain that banking exposure chart away.
What's to explain away? Real estate debt has proven to be far less risky than other forms of debt such as commercial business debt and personal debt - credit cards etc. The fact that Australian banks are more heavily weighted towards the least risky form of debt is probably one of the reasons why they barely skipped a beat through the GFC and remain some of the best rated and most profitable banks in the world. Also, Timo's emotive post and thread title don't really align with the facts in the articles...
Moody’s Analytics economists say Australian housing is “modestly, but not excessively overvalued relative to fundamentals”
I'm not really sure how the bears think this 'revelation' strengthens their position?
But I guess they will grasp at any straw these days...
Australian banks 60% housing loan book does not represent money lent for the purchase of housing. It includes money lent to small businesses but secured on the property of the small business owner. This is something that was not possible before banking deregulation.
The outcome is win-win. The banks get better security for their loans (which are effectively business loans) and the small business owners get a lower interest rate than they otherwise would on unsecured business loans.
Larger businesses obtain capital by other readily available means eg equity.
The 16% housing loan figure for UK banks, if true, is probably related to the involvement of the UK banks in the City of London's finance activities which dwarfs their other activities.
you asked how we "explain" the banks balance sheet wrt 60% allocated to residential mortgages vs a lower ratio in the past, in the process, suggesting that this somehow represents an increased financial risk for banks as business and for the economy generally, topping it off with the comment: "Clearly though, they are in deep..".
Barns, myself, and Peter (EDIT and now Shadow + Strindberg) subsequently pointed out that the current situation represents far less risk for banks than that of 20+ years ago, and that the structure of business finance has changed substantially over that period due to financial deregulation, increased use of equity, o/s venture capital and so on. And I haven't seen any retort of those points, from you or anyone else? The only thing you then came back with was a "switch" to the "economic/moral" argument with this question:
"Please explain to me how banks switching their lending away from job creating businesses to investment in ensuring we have some of the most expensive real estate in the world is desirable? I understand why it works for the banks, but why does it work for your average joe? "
Firstly, a highly questionable series of assertions; eg, we do NOT in fact have the most expensive real estate in the world, and we know you do not understand the capital flows assoicated with housing transactions either from other threads.... Followed by an ACKOWLEDGEMENT that the current position is in fact better for banks from a business/risk perspective, followed by a "moral" question about whether the banks business choices make "average joe" better off or not? Ie a completely different question to the one you originally posed?
So I think it is you that is "nowhere" on this issue? Or perhaps a better phrase would be "all over the place?"?
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