Discussion in 'Property Market Economics' started by Propertunity, 1st May, 2018.
ANZ says Australia's housing slowdown is almost over with prices set to rise again
The elephant in the room might be that a lot of investors cannot get finance.
I wonder if the days of just building up equity before buying another IP are/have slowly disappeared..
What else would ANZ say?
"The party is over. It was all a big ponzi"
At the end of the day banks are responsible to their shareholders to make profits to enable them to pay dividends. They can’t make profits by not lending money. There’s no doubt that credit markets are tight at present in AU. But the US is actually back to some dodgy lending practices only 10 years after the GFC.
Once they get over the spanking being doled out by the BRC local banks will need to get back to their core business.
Without doing something to improve borrowing capacity, its a certainty that the days of harvesting equity without needing to pay down debt, are over. In Sydney and Melbourne , at least - that business model is now redundant. And in fact, when the P&I re-sets start rolling on, one might argue that both those markets may have modest corrections.
The less expensive cities such as Perth and Adelaide, and regional areas, are the only places where the borrowing capacity allows for price acceleration. Eventually money will find its way to those areas because it wont be able to find its way anywhere else... so unless property investment becomes redundant as well, expect the ugly duckling locations to become the swans.
So its a great time to be looking at cheaper cities and regionals, now.... before the herds realise thats where the only possibly of growth exists. Unless the lending changes are reversed, of course
Cities such as Perth may be on the nose for example, but will turn... and soon. Money will be pushed there.
I think Perth, Adelaide and regionals will be the stars of the next 5 -10 years. Sydney and Melbourne are done for a decade at least. Brisbane, that ever promising infant child of the big smokes... just has too much supply and there's more to come. Unfortunately the yields there are falling , and its will only get worse because every property group is pushing SEQld.
Pete Wargent Daily Blog: Best & worst
If less people can afford to buy (investors and OOs alike), the jobs market remains buoyant, immigration continues its upward trajectory coupled with a slowing pipeline of new stock, do you think there'll be pressure on rents to go up?
Hard to say.
Obliquely related, when I was over in the Old Dart a few years back we had the Mortgage Market Review:
'Tougher mortgage rules come into force - MMR represents a seismic shift in mortgage regulations' - Guardian, 2014
In the event lending stagnated for 3 months.
Not the same thing by any means, but I reckon you're probably right that eventually lenders will find ways to lend again - just the rules of the game might be a bit different...
Actually they can and they do make it. Even if there are zero new investors, they can still make a profit from existing loan holders. + credit cards, car loans, business loans, foreign exchange and stock fees, and other services. Changing owner for a property doesn't make too much profit for them.
Was the MMR similar in stringency to the RC/post APRA requirements?
I think home loans are really important for banks though - it's the main lending segment they do, it's the bread and butter. Money just rolls in as long as they have the home loan lending. Every other type of lending and banking service is more peripheral to home loans.
Hard to recall, but probably not - I think in the end the main changes were tighter stress-testing & the end of the UK equivalent low-docs or self-certs.
Reason I mentioned it was because in some circles there was a prevailing view that the housing market would be screwed for ever more (not least in the Guardian, surprise!), but in the event the world didn't exactly end. More recently prime central London got nobbled by tax changes impacting the premium end of the market.
Old biblical thingie...........
"This too will pass"
I too think this is fundamentally correct & the govt has always been in bed with the banks, but it will take time, it wont be this year, or next year, it may be 10 for property rises in many places, it will depend on many things, but they will find a way to make more even if housing in Syd and or Mel stalls for that long.
Spot on Gockie. Its not just about margins and fees, but also about leveraging capital. Indeed the banks could be considered the ultimate property investors! In the most basic of terms, the bank needs to hold 100% of your credit card limit in cash, but only 10% of your home loan.
Banks not lending money is like a mechanic with no tools or workshop, worthless.
As much as we like to believe that investors are not getting loans - its still chugging along. I know fellow investors still getting loans although a little more complicated.
Banks/financial institutions rely heavily on home loans (investor and OO) for a lot of their profit. This is their bread and butter.
Saying banks are not lending to investors as a blanket statement is just naive and untrue. Sure its slowed down and I think we needed it to slow as well but its not halted - far from it.
Yep.....in an alternative universe Sydney is marching ahead with large gains and investor loans are business as usual.....
The rest of us know what it is like here compared too years prior.
I'm not saying home loans are not important, I'm saying the statement "banks can't be profitable without (new) home loans" is too bold.
People often overestimate the importance of home loans for banks profit.
Let's have a look at CBA Profit statement.
Net Interest Income accounts for 70% total bank net income. Net Interest Income is not only home loans. Home Loans Net Interest income is 52% of Total Net Interest Income (the rest are consumer finance, business/corporate loans, non-lending interest aerning assets, etc).
So Home Loans Net Interest Income is only 36.8% of total bank Net Income. So what is peripheral product here?
The margin for other lending products / services (personal loans, car loans, CC interest & fees, exchange, stock, insurance, transaction fees, etc) is much higher than for home loans, while expenses for home loans are high (brokerage fees (both trailing and one off), customer service, etc).
Also we need to distinguish existing loans and new loans. Even when bank doesn't have any new loans they still earn $$$ from existing customers, so if the property market is dead for the next 10 years, they still will earn $$$ and will be profitable. All they need to do is to shrink expenses (they don't need to pay to brokers and staff who is responsible for new loans).
As evidence, the property market is/was dead in many countries, population is/was shrinking... but the banks are/were still profitable there.
There are dozens ways to make a profit for the banks. And when one sector becomes non-profitable, they can easily adjust their business to be profitable.
A bit different message to his investors
"People are still going to buy a home, so it doesn't change fundamental demand, but it will change the process and will probably make it harder for people to be successful in their applications," he said.
how is it going to make price rise if it is harder for people to get finance or borrow more?
for price to rise the guys that goes after you have to be able to borrow more
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