Lowe -rubbished the suggestion that tightening lending practices had played a significant role

Is he serious?


And he also rubbished the suggestion that tightening lending practices had played a significant role in driving down prices, claiming only around 10 per cent of Australians borrowed the maximum they are offered by banks — a move he deemed “sensible”.

However, he also warned against lenders tightening the reins too much.

“ … credit conditions tightened more than was probably required. Now, as lenders continue to seek the right balance, we need to remember that it is important that banks are prepared to take credit risk,” he said.

RBA governor says population spikes sparked downturn

 

Public servant on 1mil a year, hard at work.

Other classic Phil Lowe ******** statements of recent times:

"Next rate move is up"
"Housing downturn won't effect economy"
"Strong jobs growth soon to lift wages"

We are left with two options:

A. The man at the reins of our central bank is a fool.
B. The man at the reins of central bank will say anything to fluff up sentiment/protect his own organization. Projection important, truth not. I.E a politician.

I'm sure he's a smart feller, so I'd have to guess B

 

Jawboning is important part of his job. Don’t forget that.

 

If you look at the problems that Perth and the mining towns faced it was a big shortage of properties as the population boomed , massive price rises and then a really big constuction boom with a lot of political pressure to increase housing supply.
Unfortunately due to the lag time between the start of the build and people moving in , many areas ended up oversuppied with properties once the mining and oil and gas construction phase ended and pop growth came to a shuddering stop.
If Sydney and Melbourne are/were going through a big housing construction boom just as immigration is really slowed , then there is always a risk of price falls.
Thats even before you look at affordability ,fallout from the royal commission and recent changes in serviceability.

 

The guy is a clown

 

While I’m generally on the side of RBA and APRA and I think they are tremendously smart organisations, lead by some of the brightest minds in the world. IMF review in Australia just confirmed that.

... BUT... that statement was dumb. Like seriously? I think on his salary you never need to obtain credit. So he has no clue.

I just recently approached a bank for credit card. They were like yeah sure, nek minnit.... I got a list of documents longer than war and peace. I gave up.

 

Irrespective of their posture and pretence I think RBA is really concerned about the fact that our household debt to disposable income has reached an unsustainable level which if not tamed can bring down the entire house of cards?
Lower valuations doesn't lower debts, it has to be repaid for it to derisk.

With households already high debt risking the financial stability, and when you have very limited policy tools at your disposal, jawboning on steroids becomes necessity.

 

Out of touch....

However to a degree I agree that it wasn't credit alone - in my opinion it wasn't until consumer sentiment changed spurred by the media that we say the market start to move significantly downward.

 

What came first chicken or Egg.

So credit tightening started to occur with APRA 2015 or so. Credit became harder and harder to attain for investors 1 and PPRs 2.

As credit became harder to attain Investors and some PPRs had to leave market . Market starts to slow.

Sentiment changes.

Market falls to ****

Sentiment gets worse.




(Also in this time Off shore money got tougher . Rules on Non residents were imposed as well as larger duties) All of this contributed to the end of the cycle.

In my humble opinion the Sentiment came after the regulatory changes.

 

Correct but his statements are simply misleading and at best false at worst ignorant .

 

What he says impacts the market.

He’s not attempting to be accurate - he’s attempting to impact the market through his words.

 

On the whole, I thought it was an excellent speech and account of events (and for eco nerds like me, very entertaining!).

Nice seeing some real cut through analysis and storytelling compared to media nonsense (60 minutes). His highlighting the most obvious part of the recent housing story through his speech that the media underreport because it's not exciting enough or well understood.

Supply was too low for a long time, and prices eventually rose. Price rises meant lower demand. Supply increased significantly (delayed) at the same time. Prices fall. Supply is now coming back and falling again. Prices stabilise. Pretty basic economics is the main reason why house prices have risen and fallen.

Eventually patterns of supply/demand fundamentals reflect in price. It sometimes takes a while, often there's lags, but the fundamentals appear in price. All the other reasons are secondary to the above supply/demand dynamic that's been around (important too of course). He pointed out all the other reasons too, just noted that the starting point is the above and the other factors were push/pull factors to the story above & that underlying story is what drove outcomes. Its also the key reason why Sydney went up fast & fell fast, while macro index indicators for cities like Brisbane have just trended along (closer balance between underlying supply/demand).

You could have had a restrictive credit environment (with a massive cash rate drop) throughout the past 5 years, and there'd still be a cycle that exhibits something like the above because of the underlying supply/demand issue at play. Yes the size of the rise and the size of the fall would've differed, but the underlying story wouldn't. There is likely more scope to speculate on the true impacts of this in his speech, but he does make some pretty clear comments about it being too tight at the moment.

Overall, supply didn't keep up with demand.

Ideas that borrowing capacity changes, APRA, etc being the main driver of market outcomes are probably overblown. He appears to make that point by taking a bigger picture view shows that MOST borrowers don't borrow near their capacities, that average LVR's are not very high, that 33% of homes don't have mortgages, etc. So the majority are broadly limitedly affected by capacity changes.

IMO, this particular explanation seems the simplest & most coherent of them all. At worst, it's a cool account of what he thinks happened.

 

Some of these comments are fair - I think he may not be right on all three, so it's worth highlighting and holding someone to account.

But I certainly don't think he lacks integrity.

It's just a tricky narrative to accurately project. Smart people are often wrong about forecasts/what may happen in the future about an economy.

 

NAB latest to come out and state 2 rate cuts expected in 2019 and possibly more in 2020.
As warned. Economy cooked

 

Has anyone has heard of the the Austrian school of economics? This is the oldest existing intellectual school of economics in the west, and the only framework that predicted the great depression, and even the crash of 2008.

Check out "Austrian business cycle theory", or it's most famous disciple, FA Hayek.

This schools says, amongst other things, that central banks and central banks alone distort the business cycle and create all recessions.

They say that free markets would correct most imbalances if allowed to, and the only reason booms protract or asset bubbles occur is because central banks are permanently mispricing interest rates. If you dig in, it's a very compelling hypothesis.

A fun rap video to explain.

 

The way I look at current monetary policy, is like a hose.

The RBA are at the tap, with the water being pushed out too hard and too fast. APRA therefore grabbed the hose and "kinked it" to stop the water coming out.

The fact that we never solved the problem at the root (ie we never turned water down at the tap) is going to lead to all sorts of problems if we let the pressure build.

 

The recent boom is a great case study in market cycles. The lack of building in the decade to 2012 left Syd unprepared for the demand surge. The fast price growth, more buyers, eventual huge amount being built, prices overshot... and the wild ride continues. I still blame suburban nimbies and councils for the initial supply restriction that set off this kerfuffle

 

If Phil believed those things when he said them, he is probably one of few. Markets stopped believing Phil's rosy ******** ages ago and priced according. Even a laymen like me could tell gdp was gonna be way under RBA projection and is in fact on life support via high immigration numberwang, that there would be not upward movement of the cash rate, and that fulltime work has mostly been falling and replaced by casual (i.e no wage growth).

Phil has been blowing smoke. He will slowly backpedal in tone then cut cash rate later this year as the economy tanks further.

 

Haha I think you like to call out what you see. Fair enough, it’s all fair criticism of the RBA’s current stance based on current data. Going granular, I didn’t understand their forecasts for December quarters growth that came out in the statement of monetary policy recently - it made no sense given all of the lead data that was out telling them that economic growth data would be poor. Similarly I don’t understand their current employment projections - I don’t understand how businesses across the country are going to maintain employment growth when the economy/consumption has been slow for 6-9 months.

To be fair, in Sydney at least, it certainly doesn’t feel like recessionary conditions or anything near economy going up in smoke. Truth be told, it feels far more like a boom. We have the lowest unemployment rate in 40 years now. 40! Anyone who wants a job, gets one. Young, old, low skilled, it’s almost as easy to get a job today than it has ever been. You can’t drive for 20 minutes without seeing major works somewhere. Another massive massive project announced this week starting in 2020 with the parra metro.

That’s IMO not a feature that could be congruent of an economy in the doldrums.

The most recent indicative data coming out is also showing a far more bouyant Sydney post Christmas (retail sale bounce back was good here, bad in Melbourne).

All of this tells me something that I’ve believed but the RBA have downplayed: housing and housing sentiment is having a far bigger impact on consumption than their models suggest. I think it’s the ‘animal spirits’ being applied to individual households. Housing sentiment/values is scaring households, so they spend less (similar to business uncertainty).

Sydney consumption data fell of a cliff at the same time period housing sentiment was at decade lows. Melbournes now experiencing the same.

Similarly, Sydney lead consumption data is strong again (retail sales were decent in Jan, data yet to fully appear)...at the same time housing sentiment is strengthening.

Overall, so far the RBA seem to be taking the line, ‘I think it may be a sneeze in the economy’ rather than a full blown cold. I think if they hold their patience, that may actually hold true. I’m not quite sure they will though (especially if weaker lagged employment data starts appearing).

 

Not every one wants Mutli unit developments in their backyard.

I lived in Zetland Bondi and Edgecliff in that order for a long time. Being stuck in bumper to bumper and squeeze in to trains and buses.

Question is why?

So we can have more and more and more migrants?

I'm a migrant myself and pro migration and when I arrived 30 years ago Sydney was different city.

We cam for the space the environment Sydney has to offer.

I don't want towers.and townhouse everywhere.

The constant traffic and taking 1 hour to get to Bunnings on weekend or to drive into work.

It's life taking it strips you to try core. I remember days of coming home and taking 1.5+ hours each way.

So yes I had moved further and no I don't want the developments here . Yet Kirawee (Syd Sutherland Shire) development is a bloody shocker. With no new infra just more high density. So yes we can have 200k migration per annum.

Really now this what you want in your backyard.