What idiot said macroprudential wouldn’t work?

Glenn Stevens for one. Yet today’s credit data slaps him square across the face. APRA’s December bank breakdown has investor loans stalling out completely in annual growth rates:

Dec-15 5.0 4.2 40.6 53.7 -2.5 -7.2
Nov-15 6.0 4.9 45.5 55.1 0.5 -6.4
Oct-15 7.1 6.1 48.5 55.6 5.2 -6.0
Sep-15 8.4 7.9 66.3 56.6 4.8 5.2
Aug-15 10.2 9.7 72.0 57.0 5.6 7.3
Jul-15 11.7 10.1 79.1 58.0 11.7 11.7
Jun-15 12.0 10.2 81.6 14.0 11.1 9.9
May-15 11.8 9.9 86.8 14.1 11.6 10.0
Apr-15 11.7 9.5 74.8 13.9 12.1 10.3
Mar-15 11.4 9.3 79.3 13.6 12.1 10.4
Feb-15 11.1 9.2 71.0 13.3 14.1 10.2
Jan-15 11.1 9.2 73.1 13.0 12.5 10.4
Dec-14 10.9 9.4 75.2 12.4 11.6 10.5

And in chart form:


And closer up without MQG distorting the chart:


The big WBC falls and NAB rises are mortgage portfolio re-allocations and I accept that this data is distorted by such activity. Even so, other banks have been relatively unaffected by such bulk mortgage swaps and check out the deceleration. Here’s the total of the top six banks charted against the annual growth rate:


There is some switching going, as is obvious in the RBA’s credit aggregates today, but it is also clear that the growth rate has plunged below APRA’s 10% annual threshold:


It is also clear that macroprudential has nicely tapped the breaks on the bubble without a rate rise:


Flat-lining the runaway Sydney and Melbourne bubbles:

ScreenHunter_11253 Jan. 28 14.16

It should have been done three years earlier. The dollar would be at 55 cents now and would have been much lower throughout the commodities bust. Rates would be at 1.5% or lower. The Budget would be much better positioned with materially greater protection from the lower dollar across the period. House prices would be growing with income. Consumers would still be moving along. The residential building boom would still have happened. But growth would be more driven by tradables as we whipped the world in commodity market share with a services  and agriculture tradables rebound that had a three year head start.

Instead we got this lunacy charging straight into a Mining GFC:

ScreenHunter_10741 Dec. 03 15.46

So, what idiot said macroprudential would never work? Pretty much all of the RBA hosed the idea from 2012. The good captain must shoulder the blame.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. I guarantee there will be no mea culpa in Glenn’s “everything is awesome” speech on Tuesday!!!

    • Strange Economics

      Investor loans cost more again, like they used to. . So less investor loans and more “occupier loans”. Amazing.
      So everyone has just gone back to pretending to be an owner occupier and then renting it out immediately after purchase.

      • @HnH: Try to suppress labelling (“crashnik” etc) when he is only stating the obvious. Just look at the graph.

      • Same effect because you can’t use the rental income to support the loan size if you’re not an investor..

      • So true, and blind freddy can see that from the graph, it is only the idiots that don’t realise that low interest rates are the cause of the problem everything else just muddies the issue!

      • Strange Economics

        A 50 % rise and a 3% drop in a quarter (after a 15% yearly rise) is not falling. A reasonable 64% retracement of the rise would be a 30% drop. When property yields 2% net in Sydney then the price needs to drop 50% to be investment grade again.

      • That’s right.

        In any case this small fall in the bubble markets could be explainable by FIRB biting a bit harder recently, AUD action scaring off some foreign demand, weather, school holidays, etc, etc.

        If it continues gliding down on a course that approximate the contraction in specufestor credit – I might believe it.

      • So for Strange Economics seems to have got it right, little change other that investors now call themselves owner occupiers to get cheaper rates from banks. They do not have to tell the ATO they are getting better deal from the bank and if they did pay the higher interest it would reduce their tax payment anyway. The ATO would not like that.

    • Really? Here’s the latest QoQ changes, from RP Data:

      Syd – down 2.04%
      Mel – down 0.32%
      Bris – up 0.91%
      Adel – down 0.80%
      Perth – up 2.31%
      5-City – down 0.65%

      Sure. Too early to claim victory. But MP seems to be having an effect.

      • Today's Empire Tomorrow's Ashes

        I seem to have some unicorns frolicking at the end of the rainbow carefully anchored to my property.

        At its end it’s all gold bars, lollipops and mermaids.

        [Sorry, couldn’t help myself]

        Not to split hairs here but as others say, attribution might not be so clear cut in the face of other variables.

    • casewithscience

      Brisbane auction clearance rate has gone from 70% last year to 40% last weekend. A lot of reserves not reached. Bubble popping and bank exposure is substantial.

      • do u think it will pop in bris CWS?? I too have noticed our auction clearance rates to be low as well….I don’t know where all these high paid jobs are coming from in bris…seriously!

      • casewithscience


        My next door neighbour is a banker and has just hurriedly sold his house.

        I definitely feel the jitters up here.

      • Brisbane house / unit market is not really an auction market unless you are talking about the top 10-15% of properties by price. Stats are also difficult to interpret as a lot tend to be combined with the Gold Coast market which is quite different. I would consider 40% clearance a normal result for “Brisbane”.

  2. Kind of surprised to see the uptick in Perth prices there at the end of last year. Seems counter intuitive given the mining downturn here.

  3. The RBA will be watching house prices very closely over the next few months.

    They were happy to ignore the explosion in feverish investor (including SMSF) lending because they felt it would fill the pot hole created by the forever mining boom running out of gas a decade or two earlier than expected.

    They were probably taken by surprise by the great flood of “interest” from offshore in property (new and existing) which helped turn what was intended as ‘moderate’ investor only stimulation into a throbbing scene from “Hot Satin Nights”.

    Now both spigots have been turned off – investor frenzy and the off shore “tigers and flies” bid.

    The RBA might be very concerned that “real” people will not now come rushing out to swallow mega mortgages just so prices are supported and we get the fantasy of a dreamy “slow melt”.

    When the market has been full of specufestors and hot money more than a few people may decide to sit on the side lines for a while.

    The RBA might also be concerned that the wholesale markets might start pushing up mortgage rates independently of the RBA and make matters worse.

    Having built this bubble the RBA (and APRA and ScoMo) will be keen to protect it the moment they see any sharp object approach.

    • Question is, what will they protect it with, how effective will it be, and for how long?

      OK, so that was three questions but they all follow. So far the RBA, APRA and Government have been able to manipulate this like gods on Mount Olympus but with debt now at saturation point against rate rises coming in via markets, moribund wage growth, falling national income and a Government that has limited fiscal weaponry (certainly compared to 2008) they’re quickly running out of options and losing control of this happy Australian housing bubble narrative.

      • There are things they can try but they all have a cost attached and many of them are likely to be successful for short to medium term. But of course the price of driving up the cost of a fundamental economic input with debt cannot be postponed forever.

        Ultimately, the thing that is most likely to stuff them (and probably already has) is that in order to fill the mining hole with new construction jobs you are expanding supply and that means you need to expand the number of people coming into the country to buy them / occupy them.

        That is fine so long as you can employ the people needed to buy and occupy the houses that are being built rapidly. So not only does the economy need to produce enough jobs for the locals it also needs to produce enough jobs for the bodies being let in to occupy the new houses that are being built.

        It is easy to see why selling new houses to people who don’t want to come here (Chinese capital flight) is a great business model until the demand dries up.

        Now we are going to have find people who want to buy a new house to live in AT the top dollar we have been charging. That will be increasingly difficult.

        We need to find a new group of off shore people who are prepared to buy new houses in Australia that they don’t intend to live in at nose bleed prices where yield is not a concern.

        Now that will be interesting.

      • Today's Empire Tomorrow's Ashes

        Be away with you, vile and foul villain of such crashnicketty aspect.

        Thy dour and most naysaying attitude are not welcome here!

      • “..Be away with you, vile and foul villain of such crashnicketty aspect…”

        I am bullish on property!

        In the sense that rising property prices are critical to household credit growth and household credit growth is critical to the money supply and the money supply is critical to the economy. Until someone decides to shift our monetary model away from household debt – giving up on rising house prices means giving up on the economy. I can’t see the government, opposition, APRA or the RBA doing that anytime soon.

        So you can be sure that every last bit of furniture will be thrown onto the fire to ensure that the demand for credit from households does not collapse.

        * first home owners grants
        * even lower interest rates
        * allow people to deduct mortgage interest from their tax.
        * etc

        The only real mystery is that people (right across the spectrum) are still reluctant to talk about what has to happen and that is very simple. Wind down the reliance on the money created by banks in the process of making loans and return it to the public where it belongs.

        When the money supply is back under public control we will no longer require the loony mechanism of household lending for mortgages to get money into the economy.

        The time to get bearish on property is when people seriously start talking about ending the looniness of using residential home lending as the major method of dispersing new money into the economy. Once housing is no longer critical to that process – interest and speculation in it will fizzle out very quickly.

      • @ pfh – I’d agree with this. I’d also wonder out loud whether Chinese domestic issues have more to do with recent trends than much else.

    • Yes.

      Basically all the articles here lead to the same conclusion ….. that is ….. “Lower teh ratttttteeeeessssss!”.

      It’s really intriguing what their obsession is.

    • What you were expecting? Apparently, the mortgage lending is flowing towards the provinces in NZ.

    • The compulsion to repeat unnecessary and embarrassing early and wrong calls reveals the underlying agenda

  4. C.M.BurnsMEMBER

    so APRA targets 10% growth in debt as a threshold; yet wages are growing at 2%.

    sounds legit. and sustainable.

  5. Part of that growth in external liabilities was to driven by the capex in resource related projects.

    and maybe after such substantial rises in property it’s not so much the macro prudential that has cause th fall in mortgage growth but a realisation that prices had now run ahead of themselves and it there was no short term urgency as there was no more capital gain to be had. Probably no need to buy for the next 3 to 5 years! In about 12 month in Sydney all those cranes will be gone and in their place will be thousands more apartments to rent.

  6. Peak to trough in the US, Ireland and Spain it took 5 years for residential property prices to fall between 40% and 60%.
    5 years.
    Housing bubbles do not pop overnight.
    Those anticipating a median house prices of $750k in Sydney this winter will be sorely disappointed.

    • Mining BoganMEMBER

      That’s the spirit! Think positive. Reconnect with family and friends, take the dogs for a walk and take up a hobby while you’re waiting.

      There’s more to life than sitting on a perch like a gargoyle waiting to pounce.

    • Thanassis Veggos

      The worst I’ve seen is Greece… huge mortgage-RE bubble from 1998 to 2008, followed by unprecedented financial disaster for 7 years straight (and still going), govt budget annihilated, banks bankrupt, capital controls, retrospective property taxes, austerity, unemployment, houses unsold on the market for years and years etc. And yet today the median house price is still 60% from the peak in 2008.

      That’s a hell of a lot of time to make a wife wait when she has decided it’s time to upgrade. Especially when the kids are about to go to school, and “the schools in that area are so much better, don’t you want them to have a good education?”
      Not to mention the other argument “if we had bought when I told you 2 years ago it would have been 20% cheaper”. What do you say to that. [email protected]

  7. Out of interest, what macroprudential was imposed via regulatory authorities and what by financial institutions? Does anyone know?

      • Where did banks independent of authorities impose conditions; where did authorities impose conditions on banks.

        ie. Market v regulatory, voluntary v non.

      • Even StevenMEMBER

        Macroprudential is by definition imposed by regulatory authorities. The 10% limit on investor loan growth was not voluntary. APRA made them comply. Having worked in a bank previously, I’d be skeptical of banks being able to exercise restraint or adequate self-regulation beyond near term self preservation… and maybe not even then.

        I think the debate has largely moved on from whether MP is effective, and on to whether the intervention by authorities is simply ‘too late’.

        Personally, I think it’s too late. Property prices have reached unsustainable levels and I’m focused on working out the likely speed of the descent and the impact.

        Having said that, I’m nowhere near as bearish on banks (from a shareholder perspective) as many others on this forum including HnH, UE etc. I’m NOT suggesting they are a good purchase, but their demise is greatly exaggerated… for many reasons…

  8. Japan’s just gone to negative rates – Glenn – you watching – AUD has sprung up to 71.2 – next Tuesday you need to act on the AUD – it needs to be 60 cents not in the mid 70’s. Pull your head out of arse and make it happen – use Macro prudential to keep a lid on houses but get the currency down or otherwise the carry trade is going to take the AUD back over 80 cents and destroy our export industries.

    Morrison you need to increase withholding tax on interest earned by foreign banks (same as a rate cut to them so they will piss off) and start charging stamp duty on FX deals made by banks prop accounts (as opposed to customer accounts) which should also piss them off.

    The RBA needs back up on their monetary policy through more stringent fiscal controls.

    • There it is
      Right on cue
      Don’t whisper it in code
      Join the FIRE cheap debt cheer squad
      Sing it out loud and proud
      Cut teh rates!

      • Even StevenMEMBER

        Not sure why low rates are so bad IF combined with macro prudential which limits debt accumulation in non-productive assets. Can you please explain?

  9. Well, so much for macro prudential… CBA called me this evening to ask if I wanted to buy a property or an investment property. It was conducted so unprofessionally it might have been a kids football club offering a raffle.

  10. There is no evidence of causation here, just some broad coincidence. You’ve been saying that the prices were unjustifiable, that it was a boom, that it was unsustainable and could be a significant fall. Maybe it just ran out of steam after such large rises in such a short time., Maybe it was the commodities rout creating uncertainty, maybe it was all the news from China, maybe it was the recession indications from the US, it could be the US rates rise causing some fear, it could be the slight rates rise changed the mood, it could be because the rise over the last few years has strained the bankers credulity at last, maybe the buyers just can’t see any significant gains from this new high base? Why do you so blindly attribute this to any macroprudential moves? Where is the clear indication of causation?

    • Even StevenMEMBER

      Explorer: Seriously? All four banks’ investor lending credit growth have tapered to on or about 10% and you put this down as ‘coincidence’? I realise we pride ourselves on our scepticism here, but that’s taking it too far. Where is the psychological resistance to MP (or its effectiveness) coming from? Genuinely interested…

      • Even StevenMEMBER

        EDIT to my post above. On reflection, it seems you are questioning whether it is the 10% (i.e. slower) credit growth which is the primary cause of the softening in house prices, or whether other factors.

        Personally, I’m convinced that house price growth has (and is) being driven largely by debt. So yes, I think it is highly likely (if not certain) that slower credit growth = slowing house price growth (or falls).

      • I agree that when credit growth (Steve Keen’s “mortgage pulse” slows houseprices either decelerate the rise or fall. I am simply arguing that there is no evidence of causation that any macroprudential factors are the sole or even major cause of the slowdown in credit growth. I have listed about 10 other factors that could be in play or having an effect. Correlation is not causation. This is not to say that macro has had no effect, just that the victory dance for macroprudential factors in this article is like George W on the aircraft carrier in the Gulf claiming victory in Iraq!

  11. There is no evidence of causation anywhere in this article, one could just as easily argue that dwelling prices, rents, forecast low capital gain and the current economic outlook could be deterring local investors.