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 (10,596 Views)
Which sectors do you feel it would be preferable for them to be exposed to, instead of housing?
Businesses. Businesses that employ people, create a good or service, exports, increases the nation's productivity levels.
And yes that includes lending towards house building.
Pretty much what banks did before the growth of the property/finance complex.
Sad really, hopefully we can manage to come away from this without hurting ourselves.
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
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
They say highest as a percentage of total lending, not highest in absolute terms.
Which sectors do you feel it would be preferable for them to be exposed to, instead of housing?
Shadow I think the point he is making is that compared to historical levels and overseas banks there is much less diversification amongst Australian banks current lending exposure, by having such a large exposure to the one asset class i.e. residential property.
For example, if you own shares having 60% of your wealth in one share, and 40% in say 3 other shares exposes you to more risk than having 25% evenly divided amongst the 4 shares.
Even though commercial lending is generally riskier this is largely offset by lower LVRs, and higher interest rates charged by the banks.
Nobody could work very effectively without a house to live in. How productive would you be if you had to sleep in a cave or tent every night?
propertymogul
16 Jul 2013, 05:07 PM
For example, if you own shares having 60% of your wealth in one share, and 40% in say 3 other shares exposes you to more risk than having 25% evenly divided amongst the 4 shares.
That assumes each of the shares has an equal risk rating.
For banks, lending for property is a lot less risky and less volatile than any other form of lending.
the problem is that the banks are loaning money out to people, but there are no businesses being created to make things and employ people to pay for the houses.
Nobody could work very effectively without a house to live in. How productive would you be if you had to sleep in a cave or tent every night? That assumes each of the shares has an equal risk rating.
For banks, lending for property is a lot less risky and less volatile than any other form of lending.
Alright, well why stop at 60%? Why not?
If lending to property is as "productive" as any other type of lending then why not keep ramping it up.
Why not 90%?
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
Business and personal loans are more profitable for the bank (due to higher interest rate) but riskier.
Real estate lending is less profitable (lower interest rate) and less risky.
The banks aim for a balance between overall profit and risk that they feel comfortable with.
They seem to be doing a pretty good job of striking that balance, since they are some of the most profitable and highest rated banks in the world.
That is until their mortgage book goes south.
Which they are very vulnerable to purely by virtue of the fact that they have so much riding on it.
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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