Did NAB just give up on housing ?

I am amazed how quickly the housing story is changing in Australia. Just 8 months ago anyone mentioning the fact that housing was heading for a correction was met with howls of laughter. I know, I was one of them. Today however sentiment is very different, and it seems to have gotten so bad that NAB is now releasing opinion to the media about how it is going wrong.

The bull run in house prices is set to run out of steam as investors realise that credit costs are dwarfing anaemic yields, according to a senior banker. National Australia Bank finance chief Mark Joiner yesterday said the property market was fully valued and likely to languish.

“I don’t think property can go up from here,” he said.

“It’s at the top of the range on affordability. It’s well out of line internationally.”

Mr Joiner’s comments followed a speech in which he called for the Federal Government to further bolster the savings rate by delivering tax concessions to savers.

“Eventually people are going to realise that taking a 2 per cent pre-tax yield from renting a house that isn’t going up in value doesn’t make any sense, if you’re paying 7 or 8 per cent for the associated loan,” he said.”

I know Mr Joiner is stating the obvious, but it is most interesting to me to actually hear those words from a bank representative. With the RPData producing capital gains charts like this:

Only the brave would be leaping into this market, the rest would be sitting back and waiting to see what happens next. Recent joiners would surely be reassessing their positions. The only people sitting pretty are the long-termers who already have cash or near cash positive properties.

I do however think there is a much more worrying message from Mr Joiner. To me his follow-up statements have “moral hazard” and wishful thinking written all over them.

Mr Joiner said that despite the likely slowdown, banks were unlikely to sustain higher losses at the hands of defaulting mortgage customers.

The domestic share market was also likely to fall out of favour, he said, following an extensive bull run that had yielded “great stock market success (and) great property success”.

“I talk to international investors and they really feel Australia has had its run,” Mr Joiner said. “We had banks growing credit at 15 per cent per annum – that’s not going to happen any more. We had a mining boom – a lot of that’s priced in. I think they’re looking elsewhere.”

Speaking at a lunch in Melbourne, Mr Joiner said the Government should use its tax forum scheduled for October to “debate the importance of a stronger deposit market in Australia”.

Tax concessions for savers would bolster the market, he said. “I would like to see (a situation where) interest earned on up to $20,000 of money on deposit was tax free, or taxed at a concessional rate.”

So the housing market is going to fall in value along with the stock market and international investors are a “wake up” to the fact that Australia is about to stall, but banks aren’t likely to have trouble. What ??? I really hope Mr Joiner has been misquoted because this reads like a fairy tale. Does he know how much foreign sourced debt the OZ banks have ?

After a decade of the banking system supporting the government in its incentivisation of anything but saving and productive investment it suddenly wants the government’s help in doing exactly that because now it suits their needs. I think that is called hypocrisy Mr Joiner but if you are correct in your market predictions then I doubt they will have a choice.

I may have just found that “government intervention” I was looking for.

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  1. Marcelo Camelo

    Hopefully you are right and this is the government intervention that we get. Propping up house prices with boosted buyer grants would be much worse.

  2. It’s clearly a case of carrot and stick to me, and a dog whistle to regulators. His ultimate aim is the $20K tax free deposits that will surely recapitalise the banks and make them able to withstand the downturn he is almost calling for.

    So IOW he’s saying: Lookit, things are going to get nasty from here on in, and we may struggle to roll over external debt and get further external debt. Mr Regulator, you need to help. Here’s how — a $20K tax free savings account for every man, woman and child in Australia. Geddit?

    • Can I include pets? If I can spread $20K each to the dog, cat, fish, child, spouse and myself its cool. Thats 6 Ubank logins but WTF 😉

    • This is a desperate call for survival!

      Banks are desperate for cash to survive next few years.

  3. Tarric Brooker

    Interest earned on up to 20k tax free sounds good to me. Having all that extra capital would definetly prop up the banks perhaps even to the point of getting through a property bubble collapse relatively intact without tax payer money having to be involved.

    Although I cant help but get an April fools vibe to the banks looking at housing and the economy objectively.

    • Even better no tax on interest at all, why rob people?? While were here, scrap income and property taxes, get rid of unions and cut 90% of the government departments. Australia would be a power house within 10 years unlike the 3rd world its headed to.

        • seen it coming

          So thats how Hitler got started! One guy revs them up and the other yaps at his boots.Get rid of 90% of the government? Been tea partying a bit too hard have we?
          Have a good lie down and think about how you can be nice to people.It cant hurt to try.

          • We could always be nice to people by not over taxing them, not creating vast layers of unnecessary bureaucracy, and not propagating a ‘handout’ culture?

          • Nice?? ill be nice to a hot blonde with a tight azz. Yes 90% of the tax eaters need to find real work instead of eating from those that they are bankrupting. If yu cant understand that, then you soon will and if yu have kids they will be eating from the trash bin, good luck Mr nice.

          • Hitler?? im pretty sure hitler was a socialist, im complete anti commie as i said cut 90% of the .gov tax eaters not make it 100% like hitler…hitler, moa, stalin, etc etc are the same. Anarcho capitalism is the future, were each man looks after himself instead of getting raped by the tax eaters. Survival of the fittest, not transfer to the weakest, you commie bastard.

      • You need land taxes to stop land banking and as for unions, in the flying and medical world, they save your arse by insuring competent folk are non fatigued and fully competent.

        Obviously the non qualified airline pilots stories in India has escaped you. The nurse immigrants with false docs?

        Watch Alan Joyce on TV and if he gets his way, catch a train.

        • yes ive seen unions work, go to the hospital and wait 15 hours for a check up.
          Unions are a cancer, they rip tax payers off, have a look at the crews fixing the road, they need 5 people holding a stop sign for $50 an hour, plez stop insulting yourself you look silly.

    • Interest on $20,000 at 6% is $1200.

      Big Deal.

      There is no limit on the tax break available for negative gearing or capital gains. You can make a capital gain of a million bucks and still get a tax break on the full amount.

      Tax on interest earnings should be halved like CGT, or better still, tax both at the normal income rate. What kind of perverted tax system taxes unearned capital gains and interest above honest labour?

      • Exactly. We need to re-regulate capital and unearned income in this country.

        Unfortunately, both the left and right disagree on each other’s sticking points….

        It’s time for a fuselage party methinks.

        • yes Mr prince moa hitler has spoken, we a 1 party dictatorship hahahaha. Wow its time to leave the country and come back once the scum bags eat each other. The “left and right”. Both scum bags of eternity.

  4. “incentivisation of [sic] saving and productive investment”

    …is so old fashioned.

  5. The bankers must be feeling nervous about now. It’s clear to every man and his dog that property is in big big trouble.

    I’m just surprised how long this bubble went on, but we’re very close to the pop now.

  6. Well the NAB is notorious for running over land mines. Didn’t they just start a big campaign to capture more market share?

    • NAB where also the initiator of the acquisition on Countrywide US .. at the start of the sub prime fiasco …

  7. No government intervention this time. With housing already unaffordable and stretching many to near bankruptcy, the government can’t be seen to prop up a market that’s already unrealistically distorted. Time to stand on your own.

    • Absolutely right. It’s the only explanation I can find for why there has been no sound, no move coming from Canberra.

      It’s as if they have already decided that this has to happen… now they are staying well away to prevent themselves and their parties from becoming contaminated in the unavoidable fallout of public outrage.

      Hence the focus on getting rid of as much deficit and public debt as possible? Preparing for the perfect storm?

      • There’s absolutely no chance the government will not act should the banks be finding it difficult to meet their obligations.

        I think the reason “why there has been no sound, no move coming from Canberra” is that so far the banking system is under no strain. It may be something to do with the vast quantity of government debt the banks are stuffed with. Very good collateral, until that bubble bursts.

        • Broke banks will be absorbed by the government, householders will be shafted. For those who think that this represents a great opportunity to punish the masses with higher rents think again. Those banks that do survive and the government will soon become the largest land lords in Australia. The only way to make money on these properties will be to rent them – cheap.

        • I was actually talking about the housing market JMD, which is quite clearly under a lot of strain. 🙂

  8. As the ship is sinking the spruiker’s are shouting their loudest.
    Here is a great quote form Sky’s businesses Margaret Lomas property ‘expert’, from her monday night show this week,

    “we both agree that economists these days are crying out that we are going to have a crash, and that it’s a bad time to buy property, at the end of the day it all comes down to MICRO-economics and asking the wright questions”


    • The rants of this particular host bring shame to the sort of disclaimers they present before forerunning the program! However, the can do attitude of “You deserve to be a millionare” is admirable even when reality flies in your face.

      Disclosure: Only bypass this show to comprehend insanity amongst few.

    • Not quite FHB.

      I’m writing a follow up piece to my part 1 series on the banks next week. http://macrobusiness.com.au/2011/03/the-banksters-part-1/

      For a contrarian investor, the consensus is right, but probably not the timing, although the banks have rallied hard since the Japanese/MENA correction.

      The majority still consider the banks cheap, so directional shorting is probably not the wisest move right now.

      Disclosure: I’m long some of the banks trading wise, but that position could change.

      • I have significant savings in one of the Big 4 right now, when was the government guarantee going to be revised again, October?

        Ive been considering a bit of gold and silver, although not sure if its worth moving the $$$ to a safer option – if there is any.

        • Christian – if you do decide to buy gold and silver (sometime I strongly recommend) then remember to take physical delivery and store it safely yourself.

          Stay away from the EFTs. They’re running a fractional reserve scam just like our Big 4.

          • Oh I realise that physical delivery would be the only option given that any certificate could be worth zilch come the time everyone wanted to collect! i.e. not enough physical gold to back up what was sold.

            Again, I was just thinking out loud. I doubt the government could or would withdraw the guarantee on deposits totally given that there would be a bank run that would sink them overnight if it was pulled.

  9. I reckon NABs recent marketing was a brilliant strategy to distance themselves from resi lending. Think about it, they declare gloves off whilst being associated with bearish article after article. At the same time I’m seeing multiple cases where good credit applicants are being knocked back by them. Example – borrower with income (family) circa $200K, assets over $1m, no debt, can’t get a $300K loan for a second property. WTF?

    • The stricter the lending standards / LVR’s get the worse property will fall.

      The precious few that have any sort of real savings (100k+) but still require a loan to make up the difference may still be unable to buy in for some time.(I include myself in this scenario).

      Those people left holding depreciating assets wont be able to unload easily, not to mention those that default outright (then becoming the banks problem to recoup the money).

      I get the feelign that this will tank alot harder than the moderates are expecting given that there will be no flood of buyers to help those under water – they wont be able to get the loans as already highlighted. Therefore prices drop to a level where cash is king.

  10. Giving tax relief for interest income means taxing unearned income more than earned income. That is, the poor workers will be taxed at a higher rate than the idle rich.

    • Much like the 50% capital gains tax discount? I’d be happier to get rid of the discount and keep interest income taxed at the full rate, but I doubt that’s likely to happen so reducing tax on interest income is the next best thing.

  11. Has Westpac joined in? “.. an associated return to rising house prices, stronger credit growth, and a consumer much more confident in their finances is unlikely without further ( household) balance sheet consolidation. That takes time and brings with it the risk of further weakness for consumer demand and the housing market. – Bill Evans, Chief Economist at Westpac.”