History shows that people don’t know when they are in a bubble until it’s over,” Mr Medcraft told The Australian Financial Review.
“I am quite worried about the Sydney and Melbourne property markets. In housing, the long-term average income to average price ratio is four to five times but at the moment it is at historic highs,” he said.
…”There is always danger when rates get so low. That’s when people start borrowing when they can’t afford it. What generally happens is rates starts to rise which affects your ability to pay, and rate rises can actually bust a bubble, so you end up with a double whammy,” Mr Medcraft said.
…The ANZ study of 3400 investors this month found the number who could recognise an investment as “too good to be true” fell from 53 per cent in 2011 to 50 per cent.
“This invigorates our efforts, frankly. It’s shocking, it’s really shocking,” Mr Medcraft said.
“What is really worrying is the number of people going to payday lenders, those guys on TV – that is troubling. It’s particularly prevalent among young women, a tripling in four years. That is very, very troubling,” Mr Medcraft said. “We’ve put that sector on notice.”
Mr Medcraft should know given he was in charge of the American Securitisation Forum during the US housing bubble, the group that represented the interests of those doing the excess lending.
One wonders why this experience at the coal face has not led to stronger action before now, or for that matter, stronger action right now.
Clearly in lieu of that action regulators are going to jawbone some more. This has the double advantage of covering one’s arse while dodging blame for popping the bubble by doing nothing.
