Will the government do anything to destroy current boom trajectories?

If so, what could they ( realistically do) to cool the markets?

If they did do something, when would you expect to see it? What impact could it have on markets?


@Redom @John_BridgeToBricks @euro73 and anyone else.

 

as i see it ( as an amateur ) the government is propping up the property market to simulate economic growth ,

so unless there is genuine sustained growth in the economy .. NO

if it did want to 'cool the property market ' , it could let FHOB incentives to expire and/or reduce legal immigration numbers , but that MIGHT result in crash rather than cool , letting interest rates creep up may easily have the same impact .

i guess you would have to decide if we are in a recession , depression , or sustainable economic growth ( i dislike the third choice )

cheers

 

The rba, apra and the federal and state legislatures are very different things.

 

Too much is hypothetical, and even if the direct outcomes of these hypothetical events are predictable, the broader ramifications are not. The only 100% known quantity is what actually did affect the market, and that was APRA in 2015-2017.

NZ is doing that right now. More macro-prudential tinkering might happen here again.

This is the only thing we can really point to with certainty. The rest is a bit of a guessing game.

 

what COULD they do? That's easy. assessment rate increases. All APRA needs to do is reintroduce a floor rate of 7% P&I and voila! It would take the wind right out of everyone's borrowing capacity sails. We saw the results of a 7% P&I assessment rate in 2016,17 and early 18. Wouldn't crash the market, but would probably pull it back 5 or 10% and stop the danger building up in the banking system...

what WILL they do? who knows? The Govt will probably allow everyone to liquidate super and charge on.... I dont see how APRA could fail to act if that sort of fuel was about to be poured on the fire. But setting that aside; these aren't normal times, and they may not need to do anything ... everyone is assuming this will have legs. But here are some things to consider;
Most importantly; this is almost entirely owner occupier driven. All the data tells us that investors are nowhere to be seen, yet many believe they will keep the momentum going when they jump back in. My question is; with the borrowing capacity constraints investors face still in place, how does waiting for even higher prices ( which require bigger loans) make investors more likely to jump back in? If they were coming back, surely they would have jumped in by now? But so far at least, they just arent showing up in any APRA loan data .
There is a jobkeeper and jobseeker end date fast approaching and if just a modest % of the new highly leveraged O/Occ buyers lose a job, how will they hold on?
There isnt a bottomless cup of owner occupier buyers out there, especially with borders closed and immigration non existent
So it may just run out of puff by itself.... but if it doesn't, the most likely intervention ( if there is an intervention) would be an increased assessment rate one would think.

None of what's going on makes any sense, except in the regionals. That is clearly being driven by people with the proceeds of big city sales relocating to places with limited supply and paying overs to get what they want.... which still ends up cheap by big city standards. But the FOMO in the cities seems like an accident waiting to happen. Especially with an economy being propped up by safety nets that are about to be withdrawn.... Yet, its happening. Thats the reality. And because I have many chips on the board, Im making a motza ( on paper anyway) ...

 

I think they will let it run for a while, because they want some trickle down inflation.

We saw the 10 year yield spike on Friday which suggests that a free market would have higher rates and lower asset prices. I suspect the Fed will be ready in intervene to suppress again.

There will be two options in the coming years:

1) Regulate lending; or
2) increase interest rates

They should do #2 but they will do #1 instead. But my view is that this is not going to happen until the genie is well and truly out of the bottle in about 2023/4 when it will be too late.

 

This is what I'm anticipating (hoping) will likely happen.

I wonder how long it will take the market to react from the time they start to tinker with lending to prices cooling/sliding in some cases...

 

In my personal opinion, there are important distinctions we need to have here. The government are elected officials who are interested in being re-elected. APRA and RBA are independent organisations. There is often tensions between RBA and the government, for example RBA believes the government should do more to boost economy by investing in productivity (transport, research etc). If government wants something, doesn’t mean RBA or APRA would do it. Both are also sufficiently respected nationally and internationally to be able to fend off any pressure from government... for now.

It is also important to understand function of each of those. APRA is mainly concerned with stability of our financial system, returns on super and ensuring that insurers have enough money to pay for any claims they might get. So as long as this boom doesn’t pose systemic risk to the system they are unlikely to step in. They will watch it closely. But unless there is significant deterioration of lending standards or /and borrowers overextending themselves, I don’t think they will care.

It’s not their job to ensure houses are affordable. But it’s their job to ensure lending is done in such way so we don’t see massive defaults.

That served us well during GFC, it served us again during COVID as large buffers meant banks could defer loans with little impact on cash.

 

Let's look at some facts:

If we take-away the hysteria and noise, the property markets currently are sitting at c1%-4% higher than the peak of 2017. That is we are still where we were 4 years ago.

In other words, we are barely out of the woods (if we are looking at the data) from the losses suffered since 2017 peak. I do believe there is enough data showing very significant trajectory of growth, however unless the markets deliver c20% within 12 months (just like NZ did), the gov or any of the institutions like RBA, APRA are not going to be rushing in with sledgehammers. Regulators and gov will act only after the trailing-data shows that level of growth and not the domain headlines each sat mentioning the prop that got sold for $1m over reserve!

It is the confidence thing!

Takes incredibly-long to build and gets shattered very quickly - and gov are very well aware of this. I also believe in what is shaping up to be an election year, the gov is unlikely to be wanting to change the 'feel good' atmosphere that households feel with burgeoning home values and in return which drives spending- which the economy needs more of and not less.

My firm belief is that we will "NOT" see any regulatory action in 2021 - even if the markets deliver 20%+ growth. It will only be on the table at some stage next year, if that rate of growth persists and even then, so long as int rates remain where they are, there is only so much the gov can do without damaging the larger economy and the sentiment.

 

Most reports I'm reading, folks I talk to and seeing what's happening on the ground leads me to agree mate.

 

There were some massive macro-prudential changes in NZ, so are we not sure NZ is also just recovering lost time too?

 

Not 'massive' - they are discussing bringing in LVR down to 60% for investors from May this year but note that the current boom is FHB-driven in Aus and investors haven't come into the equation yet.

When the migration taps re-open and if the responsible-lending laws are relaxed or Super potentially used for home deposits, that's when the rocket will be under the markets and the resultant gov intervention.

This is not a BOOM as yet - there is a lot of noise but the trailing data is what drives policy.. not newspaper headlines and the gov will let the data come in showing we are sitting at 15%-20% and then potentially they might start discussing what needs to happen.

 

I'm talking about like 5 years ago not the current stuff.

 

It will be interesting, as last time it was price rises in Sydney and Melbourne that had politician's attention. Plenty of noisy folks and media types there with various birthrights. In Perth meanwhile property owners had been bleeding for ages but eh...it's Perth (sincere apologies Perth).

So what happens should the Inner West and Eastern Suburbs (and Melb equivalents) not move much in the apartment/terrace/townhouse space? Maybe less of a call to arms?

 

It was the massive (and rapid) build up of IO loans that got their attention , not rising house prices. APRA doesnt care about house prices- it cares about the safety of retail deposits. ie it doesnt want banks to collapse on the back of a systemically dangerous loan book. They will be watching things like DTI ratios this time around ....

 

ANZ just released this...

 

OO driving the recovery.

When that changes to investor finance in the lead, the end is near imo. Unless they tinker with everyone's borrowing ability.

 

I have my doubts about whether investors are coming back. It's not that they are reluctant...it's that they have a hard stop (due to APRA).

Now obviously I don't mean literally no investors will come back, cash rich investors will jump back in, but I don't see a pathway for people who have maxed out serviceability from being able to get back in. That portion of investors is massive.

 

+1. OO finance is reassuring. Hopefully the change to investor finance would take a little bit (Praying to the Cthulhu it takes 24 months)! Majority OO lending should keep regulators pacified

 

I think the next 4-6 months will be telling whether or not investors will/are able to flock back.