Earth to APRA…

In their latest monthly report this is what Herron Todd White had this to say about Western Australian housing:


Western Australia’s mining industry continues to be a symbol of Australia’s growing economic prominence on the global stage. The vast riches on offer have resulted in rapid population growth leaving the housing market in an apparent undersupply. In theory, this should result in upward pressures on property values as demand outstrips supply.

RP Data however named Perth as the worst performing capital city during the May Quarter with values depreciating 4.2% in seasonally adjusted figures. A catalyst of the nation’s economy yet statistically a victim of soft investor confidence providing the very market contrasts we’re trying to dissect this month.

City Beach for example is a suburb that reflects the downward trend that make up the statistic. The prestige Perth coastal suburb recorded a fall in median prices of 9.7% during the months of March to May 2011. This lack of demand for higher end properties has subsequently seen a steady increase in stock and average selling days.

This downward trend however is not limited to the top end of the market with the suburb of Beeliar located south east of the Perth CBD recording a decline of 9.5% over the same period.


South Western WA

According to REIWA statistics the Shire of Busselton has recorded a median house price of $420,000 in the March 2011 quarter, a fall of 9.2% from the previous year. The fall of 9.2% is a reflection of how much the median house price has decreased over all segments of the market place. Some sectors of the market place have been hit harder then others and therefore this quote of 9.2% can be quite misleading without analysing each sector on its own merits.

We also have RPData’s house price chart for Perth looking like this:

The latest housing finance data shows that Western Australian credit demand remains subdued within a falling trend:

And the latest SoMP shows a clear breakout in Western Australian based mortgage arrears:

So under these circumstances, and given the fact that both the RBA and APRA constantly tell us about our world class lending standards and prudent banks, you would think that lending institutions would be tightening up their criteria for loans issued against Western Australian real estate. But hey, when you have the tax payer at your back what’s prudence anyway:

First homebuyers will be able to borrow 97 per cent of a loan under a new Bankwest mortgage product.

Bankwest managing director Jon Sutton announced the $500m loan strategy this morning, which will be available to 1300-1500 WA borrowers.

The loan undercuts the traditional 20 per cent deposit rate normally required of first homebuyers. The bank claimed it would cut the deposit saving time for first homebuyers from four years to six months.

Mr Sutton denied that it was irresponsible to lend first homebuyers such a large proportion of the value of a property, claiming the bank had put in place strict lending criteria that would ensure payments were sustainable. The criteria included a minimum annual income threshold of $80,000 for the borrower or at least one person in a borrowing couple.

Housing Minister Troy Buswell backed the product as a “new weapon in the housing affordability battle”.

Mr Buswell said the State Government’s Keystart program, which required a four per cent deposit, had a relatively small default rate compared to traditional products. He said low deposit loans from the private sector were more effective in helping first homebuyers into the market than a government grant.

The Satterley property group used this morning’s launch to announce a further 17 builders had joined its so-called Building Blocks program. The stable of 30 builders in the program offer bonuses worth an average of $6000 on each product and a land rebate of up to $10,000.

Company managing director Nigel Satterley also reiterated the recent release of a range of land deals aimed at first homebuyers, including a 150 square metre block with a five-metre frontage.

The house and land packages start at $200,000 for a one bedroom (strata), $268,000 for two bedroom and $298,000 for a three bedroom in the suburbs of Ellenbrook and Brighton.

“It’s a buyers’ market,” Mr Satterley said.

Looks like that letter from APRA had the desired effect for 2 weeks.

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  1. Buswell: A “new weapon in the housing affordability battle”.

    Yep. For the vendors. Housing affordability shouldn’t be about your deposit, but the ongoing ability to service the loan. All this does is put more houses within the reach of people getting loans, not bringing house prices back within reach.

    The only effect I can imagine from this would be that it would put an upward pressure on house prices. Whether that’s enough to stall the decline in prices in Perth – well I hope not.

    Incidentally, I’m an exact target for that mortgage offer – and I wouldn’t touch it with a 100 foot pole.

  2. Welcome to the Wild West! I nearly lost my breakfast when I read our local daily this morning, what a disgrace.

    For those that don’t know, Ellenbrook is a good 40 minute drive from anywhere, those 150m2 blocks are going to be an absolute disaster for anyone trying to “climb the property ladder”.

    • “…those 150m2 blocks are going to be an absolute disaster…” Why do you say that? I’m looking at this product in a bit of detail.

  3. To think that Buswell was treasurer…

    How does a 97% loan help affordability?

    It may improve the ability of people to get a mortgage, but it certainly doesn’t make the loan or the house any more affordable.


  4. “low deposit loans from the private sector were more effective in helping first homebuyers into the market”

    yeah, just like those nice farmers up north are “helping” those cattle on their way to sunny and warm indonesia.

  5. No concern over low-deposit loans: Buswell
    “West Australian Housing Minister Troy Buswell is confident a new low-deposit home loan won’t put the state on the same path as subprime mortgages in the US.”
    Yeah, Buswell-Prime isn’t quite as catchy as Rudd-Prime or Sub-Prime.
    “Mr Buswell said the loan would have to meet the requirements of the Australian Prudential Regulation Authority.”
    Now, what the hell is the APRA requirement?

  6. innocent bystander

    Buswell also said it was a great idea becuase of the low vacancy rate and bidding wars for rentals.
    I need to get out more.

  7. I’ve missed WA. The attitude pretty much is:

    “We have the mining boom, everything will be sweet”

  8. I think you guys have got this all wrong.

    We all now know housing credit drives prices not the other way around, so what better way for the banks to ensure they don’t lose any money on housing? keep throwing money at it! It’s the prudent thing to do..

  9. Maybe if it were a non-recourse loan with no negative impacts to credit rating if the keys are handed back, then they may get a few bites.

  10. Sandgroper Sceptic

    Yeah as a Sandgroper the morning news was gross. Buswell’s comments are idiotic.

    City Beach, Cottesloe, Peppermint Grove, Dalkeith, Claremont etc all those premium suburbs are showing lots of weakness, prices falling, stock growing and owners becoming more desperate. These “initiatives” to help first home buyers will do nothing for the premium segment…it has a big air pocket forming to the downside.

  11. Sandgroper Sceptic

    I still think we need hard caps on LVRs as banks are simply going to game the system, why 97% why not 105% etc?

    I would favour 50-70% max caps. We would suffer a one off hit as they are imposed but would make the market a lot more stable for the longer term.

    • You can already get 105% right now with a ‘family guarantee’ in Australia. Ireland was offering up to 125% before their property market went bust. We still have some way to go!!

    • It may work in the long term, but when in the history of politics & 4 year electoral cycles has anybody chosen to take a one-off hit?

    • OK this is a very silly thing to suggest.

      A 70% LVR wouldn’t be a one off hit, it would completely kill the housing market for around 10 years or more as people try to save 30% deposits plus stamp duty.
      do you want to move house or upgrade in next 7 years? forget it, no one can buy your existing home!

      ever tried to save up $110,000 cash?! based on purchase price of $350,000..

      please think things right the way through

  12. A 3 & 97 loan is not the purchase of an asset its an ‘option’ over the asset.

    The banks & tax payer will pay for the bonuses on the $500 million of ‘options’ written and the losses when it expires ‘out of the money’

    Gambling is an understatement

    • An option that you have to pay double what it costs to rent?

      Wouldn’t it be cheaper to rent and then buy a call option over a house price index (when are these Rismark/ASX indicies starting????) Or just sell monthly/quarterly puts – probably pay for your rent that way too….


  13. Madness. Absolute madness. The only reasonable explanation for this is the pollies are somehow incentivised to do this.

    I can see this website becoming a significant reference point for an inquiry, some years from now, into how things all went wrong and how some people did actually see it coming, and did think differently at the time.

    • Anything that helps to put a floor under house prices is a huge vote winner and will continue to be for the foreseeable future. There are 2 very large cohorts of voters out there…..those Baby Boomers who have convinced themselves they are now rich because their houses have appreciated astronomically in price, and those who have bought houses at inflated prices with a large mortgage. Both groups will lose substantially if the current trend toward fewer first home buyers continues. The Boomers because those fabulous capital gains might not be realised, and the the mortgage holders are in danger of slipping into negative equity.
      Buswell is on a winner here…..

      • “Buswell is on a winner here…..”

        Only if house prices actually start rising. He’s on a massive loser if they continue to fall and these new buyers become underwater in less than a year.

  14. Good ole Buswell
    he is actually one of the smarter pollies in the WA Liberal Party but goes to show how little they all know about housing….

  15. somewhat_worried

    …and what happens to all those 3/97 mortgages when the mining boom busts?
    Europe in crisis –> US overextended –> inventories building –> lack of consumer confidence leads to saving not spending–> demand for consumer goods plummets –> bottom drops out of China –> our resources boom goes bust. What then?