As house prices fall, and the economy begins grinding to a halt, we are witnessing the start of the housing bust blame game.
In recent weeks, we’ve witnessed L-Plate Treasurer, Josh Frydenberg, urge the banks to lend:
“My message to the banks is still very clear – keep the books open.
“It’s in the banks’ interests, it’s in the economy’s interests, and it’s certainly in the public’s interests.”
A wide variety of corporate shills have also warned that a rising tide of banking regulation is curbing lending:
Corporate leaders including former mining boss Hugh Morgan, property developer Bruce Dixon, Westpac director Peter Nash, South32 chairman David Crawford and financial services chief executive Ahmed Fahour yesterday echoed Mr Frydenberg’s comments. They warned that banks, risk-averse in the wake of the royal commission into the financial sector, could drag the nation’s economy to a halt.
Whereas the Council of Financial Regulators, which includes the RBA and APRA, have also raised concerns that banks are being “overly cautious” with their lending.
Today, Macquarie economists has entered the fray, via The Age:
A “meaningful” change APRA could make would be to lower the 7 per cent minimum interest rate at which banks are required to test all new customers, which is about 3 percentage points higher than interest rates banks actually charge…
APRA could “sensibly justify” that a 7 per cent minimum interest rate was now too high, because banks had tightened up their assessments of mortgage customers in other ways…
What is not mentioned above is that the housing market has shifted to internal dynamics anyway, whereby weakening demand, not credit supply, is causing prices to fall, as noted by NAB last month:
Further evidence has emerged of a softening housing market, with National Australia Bank chief executive Andrew Thorburn revealing home loan applications to the bank have fallen by 7 per cent over the past six months.
While Mr Thorburn said he still expected housing credit to grow by 3-4 per cent next year, concerns over falling dwelling prices and the possibility of rising interest were taking hold among borrowers…
Mr Thorburn said the supply of credit was not a problem — it was more on the demand side.
In any event, just like the solution to alcoholism is not to get back on the bottle, the solution to a credit bubble is not to relax lending standards and double-down on debt.
This is the long overdue housing correction that Australia has to have.
