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ANZ backs tough rules to cool housing market, but says bubble fears are overstated; If prices surge for several years there may be a case for 'macroprudential policies
Topic Started: 27 Sep 2013, 12:42 PM (2,325 Views)
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ANZ backs tough rules to cool housing

September 27, 2013
Clancy Yeates

ANZ bank's Australian boss, Phil Chronican, says tougher credit rules for banks may be a ''sensible'' option if house price growth becomes unsustainable, though the property market is currently nowhere near that point.

Amid a debate over the rising housing market, Mr Chronican acknowledged property prices were ''undoubtedly high relative to many other markets'' and expensive compared with other assets.

While he believed concern of a housing bubble was ''overstated'', he said that if prices surged for several years there may be a case for ''macroprudential'' policies.

These are measures designed to decrease the level of risk across the financial system without needing to raise interest rates.

New Zealand, for instance, will next month cap the share of new home loans banks can issue to buyers who have a deposit of less than 20 per cent of the property's value.

Economists are also debating whether Australia may need to consider macroprudential policies, amid concerns record low interest rates could stoke a debt-fuelled housing boom.

The Reserve Bank has not signalled it is considering these moves, and nor has the Australian Prudential Regulation Authority.

Mr Chronican said he did not believe regulators were ''anywhere near'' needing to impose tougher lending rules at the moment.

With house prices rising at their quickest pace in three years, Mr Chronican acknowledged the strong long-term growth that has prompted some overseas commentators to sound the alarm.

The price of a home had increased 5.5 times over the past 27 years, from $85,000 to more than $500,000, he said, making homes appear expensive compared with income and other assets.

But he argued the rises were justified by a failure to build enough homes to keep up with population growth, and dismissed talk of a property bubble as ''overstated''.

ANZ, the country's fourth largest mortgage lender, estimates there is a shortage of 270,000 homes, a figure it expects will blow out to 370,000 by 2015, putting more pressure on prices.

Read more: http://www.smh.com.au/business/anz-backs-tough-rules-to-cool-housing-20130926-2ugyw.html
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Housing bubble? Give me a break.

I forewarned a few weeks back, that we might see an increasing detachment from reality as this residential market recovery takes hold.

I was thinking it would start in earnest sometime next year. But it looks like I was wrong. The loopers are already at it & in force. Lord help us when we actually see some real heat in the overall housing market.

Just the normal noises

For the record, Sydney house prices are up 8.3 per cent over the past 12 months according to RPData, but were up only 1.2 per cent last year & were down 2.4 per cent in 2011.

As for the rest of the country, Perth is up 7.9 per cent for the year but down 0.5 per cent last month while Melbourne is up 5.4 per cent for the year & the Brisbane-Gold Coast region is up a measly 1.8 per cent.

Hmmm, a housing bubble indeed.

Yet we now have the IMF – yes those clowns – planning to visit Australia (to help get a suntan, I suggest, rather than anything else) to determine if Australia is in deep throes of a housing bubble.

It was just two months ago, when we were still waiting for Australia’s housing market to bust.

For mine, what we are experiencing is the normal machinations of the property cycle – nothing more, nothing less.

Valuations are often short at the recovery stage of the cycle. They sometimes overshoot near the peak. There are many issues regarding valuations in Australia. We have written about them several times. Go here, here, here & here if you have nothing much better to do. But given this is a Saturday post, maybe reading the weekend funnies would be more enlightening.

Development, redevelopment & renovations

One of the problems with house price reporting is the way prices are measured & more importantly what influences the rise (or fall) of both median & mean house price figures.

New development or redevelopment often causes the middle & average price to rise, without seeing resale values increasing much at all.

This is what often happens around key infrastructure, such as railway stations. New projects lift the median/mean values, whilst resale prices remain flat at the time of new development/redevelopment. The same can be said about weekly rents. Base property values/rents often rise faster closer to core infrastructure, but the overall residential cycle must be on the improve.

A similar trend can be found in many areas affected by flooding across Australia in recent years. Many of these areas, especially in Queensland, have now been redeveloped. This has seen new properties replace older stock. Median/mean values have often risen as a result. But many owners in these areas, who are trying to resell flood-affected but unimproved homes, cannot get much more for their property than they originally paid for it. They are often getting less than they most likely would have if they sold just prior to flooding.

Median & mean housing prices are also affected in the same way when it comes to individual house renovations.

Many areas across Australia are experiencing a renovation surge. Areas which are going through his swell of reno activity are seeing a strong lift in suburban median & mean prices. But when you factor in the cost of the renovation itself (and especially if you include your time at a commercial rate), then the true uplift in financial gain is far less than the headline suburban price growth being touted.

Read more: http://matusikmissive.com.au/2013/09/28/sanitys-side/
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Black Panther
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A Harbinger for the Transmutation.
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goldbug
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Black Panther
28 Sep 2013, 10:09 AM
A Harbinger for the Transmutation.
The Australian residential propety market has mutated alright, has been transformed into a fool's paradise perched atop a Trillion dollar loan book.




UK railways gone wild

Crazy fact: It required an Act of Parliament to authorize a new railway, but since so many politicians were railroad investors themselves, a whopping 272 Acts of Parliament were passed in 1846 alone allowing new start-ups.

How high it went: 100%

The beginning: In 1830, Britain opened the Liverpool and Manchester, the world's first modern inter-city railway system. In the mid-1840s, after suffering from a slowed economy, the Bank of England cut interest rates, which encouraged people to invest in new railways since bond yields were terrible. Sound familiar?

The Industrial Revolution had also created a ton of rich Brits and in 1825 the government repealed the Bubble Act which had been implemented after the South Sea Bubble. Oops. Railways were popping up everywhere, promoted as a foolproof venture.

The crash: You could say it all ended just as it started -- with the central bank. The Bank of England hiked interest rates, which suddenly made government bonds attractive again, especially in comparison to the host of far-fetched railways ventures looking increasingly tenuous.

Railway share prices plummeted and many of the new middle class lost their entire life's savings. Still, at least the UK had lots of spare track, and in fact many of the railway corridors created then are still around today.

Source: Global Financial Data, Inc.
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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peter fraser
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goldbug
28 Sep 2013, 08:06 PM
The Australian residential propety market has mutated alright, has been transformed into a fool's paradise perched atop a Trillion dollar loan book.

UK railways gone wild

Crazy fact: It required an Act of Parliament to authorize a new railway, but since so many politicians were railroad investors themselves, a whopping 272 Acts of Parliament were passed in 1846 alone allowing new start-ups.

How high it went: 100%

There is a slight difference between railroads and houses.

Perhaps you hadn't noticed.
Edited by peter fraser, 28 Sep 2013, 08:27 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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John Frum
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Black Panther
28 Sep 2013, 10:09 AM
A Harbinger for the Transmutation.
:z: wonder what's on tv tonight. :z:
peter fraser
28 Sep 2013, 08:26 PM

There is a slight difference between railroads and houses.

Perhaps you hadn't noticed.
Indeed, a housing correction affects far more people, and its legacy has far less potential for future utility.
Edited by John Frum, 28 Sep 2013, 09:02 PM.
"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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peter fraser
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Soul Torpor
28 Sep 2013, 08:55 PM
Indeed, a housing correction affects far more people, and its legacy has far less potential for future utility.
less potential for utility???

Don't most people live in homes, whereas many people could survive without a train in their lives.

A place of abode is about as utility as it gets.
Any expressed market opinion is my own and is not to be taken as financial advice
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John Frum
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peter fraser
28 Sep 2013, 09:46 PM
less potential for utility???

Don't most people live in homes, whereas many people could survive without a train in their lives.

A place of abode is about as utility as it gets.
That would be be the case for a construction boom, not for a price boom like we have at the moment.
"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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Pig Iron
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Soul Torpor
28 Sep 2013, 11:11 PM
That would be be the case for a construction boom, not for a price boom like we have at the moment.
so once a house isn't new it's got no utility? i think you are over reaching a great deal.
I am the love child of Tony Abbott and Pauline Hanson
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Fed Up
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Incredibly, house prices are booming again!

They shouldn’t be, given the current state of affairs, and the fact that we already had a huge bubble but everybody is used to high prices now.

Why is this bubble defying the laws of gravity? One important factor is negative gearing which costs us more each year. Next year and the year after, if prices disconnect even more from rents, it will cost us more, but I reckon the no amount is too much for the government to keep spending on negative gearing if it supports the bubble.

Then of course the amount of foreign investment. We might never know the true extent, as it’s kept pretty much hush hush, but without a doubt it’s having a massive effect on inflating the bubble. Now I know foreign investors can also sell, but this is different from when the Japanese were buying in the 1980s. The Chinese are a new and growing breed of middle-class and wealthy with money to burn, and they want to park it here. Many of them are not buying as an investment, but as an easy way into Australia. The Gold Coast has always been a holiday area, but now that they’re buying in our cities and suburbs, and pricing Australians out, this is a very unsatisfactory situation.

And thirdly, the rate of immigration. It’s higher than ever, and we get no say in the matter. But I will give you this one; maybe higher unemployment might put off potential immigrants. But until then, they’ll keep pouring in.

We really have to ask ourselves – is this a bubble that they are just never going to let pop? Is our government more determined than other countries to keep our bubble going?
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