Lending to become easier for Investors for the first time in 5 years

I don’t know, doesn’t sound farfetched, so maybe. Not really the purpose of this post/discussion, it’s more specific to lending policies over the short term.

I do know that regulators will worry if there’s significant further price falls in a short period ahead and will increase the policy response accordingly. That will trigger changes to lending policies.

 

just curious what's the main goal of regulators like APRA?
Defend the price even if it means kicking the can further?
or to defend the long term stability of frothy financial system by managed deleverage?

 

In simple terms;

APRA - to ensure financial stability. A 20-30% price drop is a very serious threat.

RBA - to defend the economy. A 20-30% price drop and a 1-2trn wealth wipeout in 12-24 months is a very serious threat to the economy.

They are not specifically defending house prices. They are defending the economy and financial stability.

Long period of stability in prices won’t really bother anyone if economy and fin stability are in tact, probably keep them happy given it would promote a healthier household sector over time.

 

Great posts @Redom & @euro73, always love reading what you guys have to say.

I do have to say one thing though and it’s not to start a fight .
When APRA was in full swing the sentiment was This is here to stay and if anything expect worse.
A few of us believed like anything with passing time that easing would commence. Some of these suggestions were can I say laughed at..

This is by no means what I would consider large easing but it’s the start and let’s be honest it’s actually happened quicker than I think any of us has expected.

Give it another year and more falling house prices and just watch the next easing occur.
I’m in no way suggesting the days of easy credit will return but it’s quite obvious they are flexible if the market and economy calls for it.

 

This post sounds like a desperation piece written by someone who has only experienced blue sky and wants the overleveraged economy to continue dancing on.

Have you in your professional career ever experienced interest rate rises, let alone a recession?

 

not really. After 70-100% rise within last 5-7 years, 20-30% correction is not threat. That 1-2 trn wealth was just on paper. The threats for RBA/APRA are LVR, debt-to-income, price-to-income, rent-to-income ratio, etc. The price itself is meaningless. It's more important how it relates to other indicators.

 

Housing market is like a big cruise takes time to turn, halt, reverse course and speed up.

I think a 20/25% fall may be under APRA acceptable outcome range, for if not, given the intensity and pace of this fall so far, APRA should immediately start loosening the credit tap for it to be effective in stalling the pace in next 2/3 quarters. But instead of something concrete, they are just jawboning, which makes me think that this slowdown is just as per thier playbook or at least thats what they are pretending.

Regulators all over the world like to think the market is thier obedient pet... till it's not, other wise we would never have busts

 

Just like falls risks financial instability so does exponential rises devoid of fundamentals like income. It goes both ways.

We have had an abnormal house price rise in frothy segments, leading to an abnormal level of household debts, this on back of stagnent income leads to sucking households disposable income out of economy just to service extorbitant mortgages.

 

There's probably a few things to note here @albanga - lending hasn't opened up yet & the scale of potential credit loosening mentioned is very marginal at best when compared to the changes that were previously implemented. The post was about what I believe will happen over the course of the year.

I think @euro73 spot on here, there's no going back to actuals which he often drums on about. At the end of the day, that's what highly leveraged investors really need. This type of tinkering helps at the margins and makes lending flow a bit better. It does not allow someone with x10 debt to income ratios to continue to borrow. In short, while this is the start, the 'stabilising' point is pretty close to this & won't be anywhere close to 2014 for a specifically leveraged investor profile.

 

You're right, house price movements themselves are not a threat, but you've actually unpacked why its a threat. Those indicators usually begin to suffer when prices fall fast.

 

That's true, the seeds of financial instability are usually sown on the upswing and the increases in risk exposures taken during these conditions. The costs are felt when there's fast falls though. The regulators tried to slow the upswing & similarly may intervene to slow the downswing too (if required).

 

those indicators will improve actually. and it's logically correct - if they were damaged during rapid price growth, we can assume they can be improved during price correction.

E.g. rent-to-income ratio. The rent is falling in many suburbs in line with price decline, while wages remain flat. And it stopped growing in many suburbs where it was always growing.

Debt-to-income: lower price - less $$$ to borrow, considering cash component remains the same.

Consumption in non-RE sectors: it will be improved as more money will be left/spent after paying for mortgages / rent.

If APRA/RBA just want lower prices, that can be easily achieved by more effective instruments - tax policies - to discourage home ownership for investors and they could do that long time ago. Their goals are completely different, they want healthy and steady economy (in long term, from different perspectives)

 

Pretty much exactly what I've said. They want a combo of fin stability & a healthy economy. House prices don't matter so much if the primary two objectives are met. I've just added that fast falls just put at risk those two metrics (to be seen) & if it continues they're likely to intervene marginally to assist. Explained how and where APRA may be able to intervene.

 

I understand that and noted in my post that the changes were minimal.
However their is sentiment now that slight easing will occur as early as this year. 9 months ago before the housing downturn any easing was given 0 chance. The sentiment was more pain to come..

All I’m saying is it hasn’t taken long for some positive outlook (albeit minimal), much much faster than anyone would expect. And like anything with time it will only ease more.
Again I’m not saying it will ever get to the Glory days but if we say capacity went down 30% I think give it another few years and that will likely move to 15%.

Only time will tell
However your post and agreement by other stalwarts on here seems to be A LOT more positive than 9 months ago when posts suggested this was just the beginning.

 

Policy response anything less then, opening the credit tap open will not help much given the momentum and multiple headwinds. Interest rate cuts will be blunted by margin pressure rises and RBA has not much left to cut before we reach zero.

In spite of all the bull talks like Sydney is different, desirable, preferred etc, economy/jobs are gung-ho and how sydney has never fallen more then 10% like ever.

Yet we are here... Sydney houses have already fallen 12% and looking at 20%,
its no longer a question of if ....rather by when? will it be by Dec19? or jun 2020,
it can't be sep19 or can it?
The extent and pace of fall has baffled even the bears let alone bull or inbetweeners,
what many bulls expected as their worst case and by end of IO cliff in 2021 has become a reality much before and faster then expected,
Hence the talks of likelihood of early policy response then anticipated before?
I don't see it as positive rather it just highlights the cracks in our strong financial system argument.

But so far regulators are just jaw boning and nothing has changed credit wise, talks of easing credit is mere wishful thinking at this stage.

 

I agree with you.....I’m just highlighting how quickly sentiment has changed.
Go back and read posts from 9+ months ago.
The thought of even the slightest easing was laughed off. The general consensus was buckle up for a lot more pain.

Regardless HOW we got here, we are here and whilst it hasn’t happened yet @Redom usually always hits the mark. I’m absolutely confident slight easing will occur to compensate the massive overshoot.

Slight adjustment in 2019 (say 5% borrowing cap returned), another 5 the year after and so on.
Eventually balance will be returned to the force

 

In a worst case scenario for Sydney , Rental vacancy rates would also keep on going in the wrong direction, just as credit is tightened up .
You would have to be a brave investor to buy into a market that is oversupplied in rentals and falling rents with a big cloud hanging over immigration, a clampdown on foreign ownership and many Chinese unable to get money out of China,which can be added to many local owners unable to refinance and suddenly seeing their repayments shoot up ,just as rents go the other way and are also forced to compete to keep tenants.
For owners that are sitting on empty IPs(with high levels of debt) it can chew through your back up funds pretty quickly , for those that have seen really good capital growth its a lot easier decision to just unload.
But at the same time it pushes the general market down and adds to the list of why people are being pushed to sell property.

 

I am a @Redom fanboy, learnt a lot from his post, One of few posters who rationally dicusses counter agruments, hence I put it out as I see it to get countered, discuss, understand and learn from it.

I get what you are saying my concern to @Redom points is two fold

1. If regulators fear 20% as some kind of no go zone for Sydney, they have to start acting now to be effective in stalling the fall in next 2/3 quarters. This response can't be just jawboning nor tinkering around the IRcut fences, it has tobe meaningfull credit easing to be effective. For it they don't the intense momentum which build up real fast will drive the market to that no go zone in a hurry, if they wait for 2/3 more quarter to meaning fully intervene we are looking at 25% fall by mid 2020.
2. Another point to ponder over is why is market falling?
   • Who are the sellers, why are they selling in such a hurry and at such a discount?
   • If it's just a lack of buyer's market should stall.. why is fall momentum strengthening?
   • I understand majority here discount the impact of forced selling due to IO2PI rollover so far, I think it played an important role and will get bigger this year and will continue to play big role till IO cliff is over.
   • If forced seller are playing an important role, Is IR cut by 50 or even 100 basis given the margin pressure enough for them to hold?
3. What can drive it down further?
   • Continued IO cliff till 2021, unless banks start blindly extending IO loans with out assessments this will remain a pain point.
   • OTC forced sale will be big this year and next.
   • NG/CGT impact is yet to be realised
   • And then we have FONGO and FearOfPaying2Much , Fear is the most reliable of human emotions, it's a double edged sword playing the same role both in upturn and downturn, resulting in market drive devoid of any logic during the last few miles

 

@TheSackedWiggle

1. Regulators start by talking, then doing. Much of this post is based on reading the signals they’re putting out. They need more data to come out before acting. I did the same in 2014 post when predicting how they’d manage the upturn. The same signals are coming out in reverse.

You may be right about timing and the importance of acting early. I can see that happening. I suspect key q1 data will be the real driver of action.

re 2 & 3, nice points, your views on price movements probably have more of a place in various more relevant threads. General thoughts on price changes probably a little removed from specific lending policy changes.