Will the strenghts of Sydneys economy outpreform APRA's effort?

How long before such a tight employment market in Sydney results in higher wages?
Their is still a lot of projects 5/10 years worth in pipeline for Sydney so will this tight employment market continue.

Unemployment rate falls to boom-time levels for nearly half of economy

Extract from article above.
"
Sure, national employment growth was healthy again last month as the unemployment rate remained at 5.4 per cent – but in the economic powerhouse of Greater Sydney the unemployment rate probably started with a 3.

In October, the unemployment rate for the Greater Sydney statistical area was just 3.9 per cent. That’s the stuff of booms. The last time Greater Sydney scored 3.9 was in 2007. It hasn’t been below 3.9 for 17 years.
"

 

That's pretty insane! wonder if it will get lower?

 

Most IO investment loans at present sit at about 5% to 5.5 % and thats the bank ones not shark or low doc loans. That is very, very high considering the current cash rate set by RBA but Apra has made it possible and it basically vaccumes the money from general spending.

On the other hand they sit there wondering why inflation is so low.

In general where the market will go to next is a direct function of how backward the decesion makers at different levels of government are.

 

except for the billions (30+?) of dollars the banks pay out in dividends each year

 

Well think about how this mess happened in the first place.
Rates were lowered due to poor economy to reduce money spent on home loans as a way to get people to instead spend money and stimulate business and therefore the economy.
The people who got this extra money instead of spending more on going out and buying things, they just used the extra money to increase their debt. This continued as rates steadily declined over the past 5 years. So now rates are low, inflation is still crap because everyone spent their extra money on more debt instead of buying goods and services to stimulate the economy. They can't increase rates until the economy improves because people will not be able to afford their (old and new) mortgages and people will sell off in masses causing a recession that will screw the whole country.

From what I understand, the idea is to reduce this extra cash going to buy more debt and instead be used for goods and services as a way to stimulate the economy and thereafter increase inflation and rates in a safer way. By increasing investor rates, investors will find it harder to borrow and I assume they hope to accomplish their original goal without just increasing debt.
How else can they get people to spend money (on goods and services, but not on more debt) without increasing investor rates while keeping other rates low?

If they just let it continue without intervening, it looked like it was going in a pretty dangerous direction.

Is this all way off? I am not an economist. Happy to learn.

 

Simple math...
IO loans represent a higher risk for lenders, so higher risk -- higher rate. At the same time, the portion of IO loans per lender should be regulated as a high ratio of IO Loans is a risk for whole country and its financial system. To regulate it, the only mechanism is to increase the rate till the level when IO Loan market share reaches the target level. You can't just implement "quota" for customers, lenders must provide equality to their customers.

Other APRA actions were caused by the needs to meet lending standards. ASIC reviewed many banks in the past (2012-2015) and conluded that lenders often do not follow the standards, and provided their recommendations/action plan to APRA.

RBA/ASIC/APRA just make sure the lending standards are as described in the law (National Consumer Credit Protection Act 2009) - that law was enforced as a reaction on GFC, and the law is made by politicians and politicians are elected by people.

So, like it or not, but APRA/ASIC are doing the right things for this country. It will cool the prices for some time, but most investors will be fine in long term. Not many people want a scenario like in other countries during GFC. Once they meet the target, the rates for IO/IL may be lower... but again... they'll start rise the rates if the IO market share will start growing again.

 

I'm with you @Illusivedreams ... Sydney to stay in the green

 

IO. Loans at. 5/5.5% wow.I would say Liberty or Pepper.
Most major banks can Do much better.

Say westpac 4.09% IO 2 years fixed $2500 sign on. Bonus.

 

I agree. My latest loan is P&I at 4.19% variable. I am happy to pay P&I for a rate that low.

 

Sydney is not much of an economic powerhouse. We are running a rat treadmill economy (like Melbourne) built on endless population growth (and debt). It juices up some industries like services, construction and the FIRE sector. Governments are also spending more on infrastructure trying to keep up with population growth (and largely falling behind).

 

100% agree.. anyone in the 5%s should be looking to refinance!

 

Growth is growth is growth. The elements powering the economy are constantly evolving. At the moment it is property/residential construction, before that it was mining, before that it was commercial/industrial development, before that it was the olympics, before that it was whatever. 100 years ago it was probably horse shoe making. You just need to be in the right sector at the the right time to take advantage.

This train of thought that if you're not physically making something in a factory your economy is false is dinosaur school economics.

 

Thank you

 

Well growth for the sake of growth is pretty dumb or dinosaur school. For a start you are missing the concept of 'per capita'. Ie doubling the population might double the economy and give a sugar hit to certain sectors but it doesn't make us any better off on a per person basis. It's also ultimately unsustainable as the population growth will have to stop sometime, we will end up with huge mega-cities that are more like economic sink holes and with poor liveability.

 

The first part of your post is correct. But it didn't take a genius to figure out that if homeloans are going to be cheaper, people will buy houses. So back when they reduced the homeloan rates, they should have at the same time ensured that some soft measures are put in place so people don't go on a frenzy of buying houses.

Right now it is foolish to think that by increasing IO loans rate and banishing foreign buyers we are going to have everything under control.

If they want the economy to improve, its very simple.

• Reduce cash rate down to 0% and keep it there for as long as it takes. This will also have the added bonus of dropping the AUD and encouraging countries to buy more from Australia while also making foreign goods more expensive here so people will buy more australian products.
• Allow foreign investment, be it in property or otherwise rather than punishing it.
• Remove this whole IO rate increase none-sense but at the same time significantly reduce owner occupier P&I rates. This will ensure people still have money to spend and are encouraged to pay down debt

If I was in charge of this country I would abolish APRA and take away interest rate decisions from RBA and incorporate both of them as part of federal government body.

The fact you have 3 different bodies making decisions that impact the economy and they are almost always out of sync with each other clearly causes the problem.

 

Not really in Perth, Brisbane, Adelaide, Darwin etc

 

If you look at history the RBA used incorporate a lot of APRAS functions its only in resent history tat was separated.




IF you were running the country you would realize how ****ing hard politics is.

Every one thinks they are right. Every thinks if I did this than this would be amazing.

The issues they have no idea how hard it it is to please so many people and play the game of politics how now one really does what they want to do but rather do what they are compelled to do.

 

If you are making decisions to "please" everyone then thats not hard. It's impossible.

Making sensible decisions however is not impossible.

I am not sure what you are arguing here, are you saying that what I have stated is wrong? or are you saying its right but they couldn't think of it?

 

I love your posts, you go and google the best graph you can find to present a counter argument, no matter what the original argument is, love it

Here is the flaw in posting graphs and data off google.

Firstly you don't know the sources that data was collected from and how / by whom it was analysed, The control measures etc. On paper many things are possible but in reality they are far from it.

But even assuming the data is spot on correct from your examples above, who is to say that a big portion of the dividends of the banks are not given to foreign investors and end up in another country? who is to say these dividends actually end up being spent by the people on the receiving end, back into the Australian economy?

Who is even to say that the magnitude or the amounts that banks declare as profit are anywhere near the amounts they have collected in interest.

The macro economic impacts of high interest rate IO loans at present isn't something you can just dismantle by posting a graph off of google.

See how flawed it is to just grab a graph off a google search and try and make an argument base off of it?

Allow me to get this right.

Are you saying that if interest rates didn't go down between 2010 to 2015, the housing market would still have experienced the exact same (or even anywhere near) this amount of movement?

 

Its written at the bottom of the graph