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 (10,597 Views)
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.
There is no way that lending for housing in the UK only represents 16% of total bank and building society lending. Any system that concentrated 84% of its lending into commercial enterprises would be giddy from turbulence and it would have crashed years ago, as indeed it almost did in the UK.
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?
Where do you perceive the risks and why?
as barns stated there is a greater risk in commercial lending as it's often not backed by recoverable assets, but my argument is that the risk is clear and understandable, whereas a tacit and slightly opaque (in that they won't openly come out and say it but their policies and interventions suggest otherwise) government guaranteed safety net is attached to mortgage lending.
Therefore banks can lend more money in mortgages without needing to care about the consequences of a major correction in property prices permanently affecting their business, apart from a couple of executives getting handed a golden parachute and a period of restricted lending that temporarily reduces profits and market cap.
"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.
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?"?
Laughable.
You can spin this all you like, but there are far too many eggs in one basket.
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
Yes - you are! And obviously you have absolutely no response to all the numerous points made in answer to your original question.
Quote:
You can spin this all you like, but there are far too many eggs in one basket.
The only "spinner" around here is yourself. You would do "The Hollowmen" proud with your ability to obsfucate, duck, weave, and switch tac in an instant when it looks like you might be cornered!
Where are your considered answers addressing the very relevant points made by Peter, Shadow, Sydneysider, Barns and myself, to the issue raised?
The arguments being made are pure obfuscation.
Moody's say it themselves: Australian banks have the highest exposure to residential mortgages in the world
60% of the book's health dependant on asset price of houses and apartments which, according to many, are over valued.
In what universe is that not a precarious situation for our banks to be in?
In fact, I wouldn't be surprised in that's a similar level of exposure that the Irish banks had before they went tits up minus the developer loans.
Sydneyite
16 Jul 2013, 04:45 PM
Yes - you are! And obviously you have absolutely no response to all the numerous points made in answer to your original question.
The only "spinner" around here is yourself. You would do "The Hollowmen" proud with your ability to obfsucate, duck, weave, and switch tac in an instant when it looks like you might be cornered!
You are laughed at pal.
Tell me how exactly risk is diversified when 60% of the book is a one way bet on the price of houses?
Wood from the trees.
And you are damn right I'll make a moral assertion. Why shouldn't I?
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
All the more reason not to drop the basket. A cash rate reduction from 7.5 to 2.75 and grants of $36,000 (at one stage in regional victoria) demonstrates fear more than greed imo Does anyone here honestly believe they wont go to zirp if there are any major shockwaves?
APF - a place where serious people don't take themselves too seriously. There's nothing else like it.
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.
Strindberg do you know of the 60% what proportion is lent to small businesses but secured on the property of the small business owner? (Genuine question).
All the more reason not to drop the basket. A cash rate reduction from 7.5 to 2.75 and grants of $36,000 (at one stage in regional victoria) demonstrates fear more than greed imo Does anyone here honestly believe they wont go to zirp if there are any major shockwaves?
That's a different but sensible question.
What I am laughing at is the bulls trying to portray this as normal, even desirable.
The genie has been out of the bottle for years. These guys deny he exists.
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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