From Chris Joye at AFR:
The good news for those concerned about burgeoning bank balance-sheet risks is that our most conservative regulator on the financial stability front, APRA, is bound to act before the year is out. The first phase of this campaign was the public jawboning and targeted communications to institutions that have perhaps been a little too enthusiastic in their efforts to push leveraged housing investments.
Round two will likely see the introduction of capital charges on higher risk loan categories, including interest-only investment products, which will make this finance “more expensive” for banks to offer, coupled with more exacting interest serviceability tests. Banks could respond by passing on these higher costs to borrowers via rate increases and/or simply rationing the affected credit.
Indeed, it is possible that banks will seek to redirect housing demand into more profitable, say, owner-occupied loans that have not been targeted by APRA through new financial incentives.
…I suspect we will eventually see a deceleration in house price growth to a little more than twice the rate of incomes, or say 6 per cent to 7 per cent annually. And I don’t expect house prices to properly correct until the RBA figures out that it needs to normalise the lowest loan rates in history.
The experience of New Zealand suggests a better outcome from macroprudential than that. It immediately slowed price growth and the Australian economy is much weaker than NZ’s was at the time suggesting that the multipliers from tightening will be stronger.
Given Sydney and less so Melbourne are the only two cities driving the growth, any slowing in national property price growth would imply other cities falling in price with broader effects on confidence. And there is no reason to think that if MP is not enough initially that it wont be tightened further.
After all, if housing doesn’t slow enough to cut rates and bring down the dollar then why bother doing it.
