Keating: “The housing boom is really over”

Paul Keating yesterday at the AFR conference:

Mr Keating said the banks were facing tighter controls as a result of the Basel rules on capital adequacy, while financial regulators had had a “gutful” of them. This was likely to lead to changes that would restrict the banks’ ability to lend.

“The housing boom is really over,” he said.

“APRA (the Australian Prudential Regulation Authority) has said ‘no more of these interest-only loans’.

“The salad days of bank lending are passing, so the banks have to get a bit smarter.”

Mr Keating said the royal commission into misconduct in the banking and financial services sector would also “make life harder” for the banks.

“They have regulators all over them,” he said of the banks.

He said banks did not really want to lend to business these days and would “rather just do housing loans”.

Mr Keating said there had been “misincentives” within the big banks to grow their business by writing new mortgages, including having a high proportion of interest-only lending.

Quite right on all counts. The range of negatives facing the bubble today is formidable:

  • macroprudential tightening and the interest-only reset;
  • RC inspired tighter lending standards;
  • spiking bank funding costs;
  • household indebtedness;
  • negative gearing and SMSF reform;
  • sputtering economic drivers;
  • monetary policy out of ammunition;
  • fiscal policy constrained;
  • immigration policy under sever strain,
  • and an aging business cycle plus structurally slowing China with worse ahead for national income.

Liquidate property now.

Comments

  1. Ah Paul. Always lacked the creativity and ticker required to keep kicking the can down the road.

    If he were any smarter we wouldn’t have had the recession we had to have and would’ve had another boom instead.

    What an embarrassing man he is.

    • His daughter Katherine lived near me for a while, lovely girl…. until she married some ald bloke, likely reus

    • Anyone who thinks there is genuine political will to drop prices or lack of disposable tools to keep the whole thing afloat is seriously deluded.

      We can still boost immigration – the migrant council thinks we can take in more after all :P.

      • GeordieMEMBER

        Until we’re back-loading iron ore, coal and wheat bulk carriers with people, we’re not growing fast enough!!!

      • SupernovaMEMBER

        Don’t tell me the Basel rules don’t apply to Chinese shadow banks (errrr printing machines).

    • You don’t give the man enough credit. Keating was the architect of Negative Gearing, CBA privatisation, HECS, free trade with Asia.

      More likely “the recession we had to have” was a means to an end. Perhaps giving members of parliament the chance to take property of the hands of peasants before the next big boom.

      • Yes, the neoliberal rot all started with keating

        He was the architect of all of this

        I don’t know why anyone listens to this fukhead

  2. reusachtigeMEMBER

    LOLOLOLOL! Another sick bear who is gonna have egg juice spirted all over his face… like they all do… always!

  3. “The salad days of bank lending are passing, so the banks have to get a bit smarter.”

    More financial engineering coming?

    • CycleSeasoning

      He can’t really say it because of his directorships, but banks actually need to get a bit dumber. They have been acting too smart for their own good for decades. Now is the time to keep it simple, old fashioned stuff the neolib corporate cowboys won’t find sexy enough.

  4. StephenMEMBER

    Admin fees, EFTpos fees, ccard fees, application fees, guarantee fees, overdraft fees, late payment fees, interest rates, redundancies, and on and on….and no genuine competition…

      • No, think they cut off his internet as he couldn’t pay the bill (minor temporary oversight; everything’s fine; invest in Mt Druitt town houses; please come to my seminar to learn how to be a property millionaire like me).

      • In one of his recent videos, he stated that interest rates are heading negative here in Australia like many other countries. No mention of interest rates going up in the US.
        He also mentioned that his plan is to become a billionaire by 40…yes that’s “B”illionaire through property investing.

      • @Left4NZ

        Compare the Pair! 🙂 – what a mathemagician!

        I do love the dystopian 12 monkeys-esque movie skips! 😀

      • DarkMatterMEMBER

        Well, it is true that saving your money is pretty much pointless. That 100k -> 120K is also taxed, so very bad deal.

        What our Nathan does not address is where the Louise Windfall actually comes from. Buying a couple of dumps out west and renting them out is hardly very productive – so the real question is what is the source of this unearned wealth? In fact, it is the elephant in the room that nobody talks about.

        I guess the unpleasant truth is that if you throw your lot in with the banks, then the Big Sell Off of Australia via the immigration ponzi is delivering profits to the Banking Collaborators. It is really the only explanation for the unearned wealth of the RE speculators. It is a good think that most people can put this out of their minds and just feel like winners.

    • azxylonMEMBER

      Ah yes. The Mr Keating of Italian suits fame. I understand that some time back he missed a great opportunity to promote local value adding by way of supporting an Australian suit manufacturing industry using Tasmanian-grown super fine wool. Oh well, if you want an good quality Australian made suit there is a small firm in Newie (established 1830) that will do the job for you for $500 or thereabouts. A bit less than what you would pay for an Italian Zootsuit, so probably would not go down all that well with City types.

    • matthew hoodMEMBER

      So true. When the Labor party drops the ‘how great was Hawke/Keating ‘ and goes with Curtin/Chiefly they might be worth voting for. Pity we didn’t get another decade out of that partnership.

  5. azxylonMEMBER

    Richard Werner’s views on how the banks should be made to operate have been alluded to on this blog previously. He argues that small banks lending to small businesses locally will minimise the boom-bust cycle. And his take on how banks create money out of thin air are imo well worth taking note of.

    https://www.youtube.com/watch?v=EC0G7pY4wRE

  6. Hardly insightful of Keating. Even Nathan T-shirt can see that.
    Only Reusa is in denial.

  7. My situation.. The pressure to buy a house has been increasing expoentially over the last year or 2. I have been holding out but recently i have been ready to capitulate as ScoMo and other politicians have made it clear that they will do what ever it takes to keep this bubble going,they want the immigration floodgates go stay open and us to keep quiet about it. Lately i have been seeing a few articals against mass mimmigration but i fear it is just to appease us before we open the floodgates wider.
    I see MB confidence of a downturn increasing lately, i agree that it should happen but am wondering what our government will throw at it next, a developer levy to help those poor unfortunate guys like harry to continue doing gods work?
    Id love to see some analysis on how MB sees this playing out, how quickly are prices likely to drop, what could the govs last ditch effort be to keep it afloat and how effective are they likely to be.
    Im srill holding out for now, but will probably cave in before the bottom. I hope i can last long enough to get a bargain

    • Expect the kitchen sink to be thrown at it and to ultimately fail. That will mean price ebbs and flows as stimulus flows but a downward trend.

      Even if immigration is sustained the outcome will be more people crammed together not rising prices.

      There are no more booms coming. The last one was built on pure corruption and has been exposed.

      I never recommend not buying to owner occupiers. It’s all so fucked up that I suggest you see your home as just that and plan to lose on it.

      • CharlieChaplinMEMBER

        “I never recommend not buying to owner occupiers. It’s all so fucked up that I suggest you see your home as just that and plan to lose on it.”

        Simply and succinctly put! Sensible advise.

        IMO, I’m in the same position. Thought of buying around 2012, was disgusted then…waited and waited against my wife advise. In my naivety I under-estimated the nature of bubbles, their capacity to draw in every last drop of greater fools and the vested interests that keep them going. The role of foreign buyers has also grown. Five rental properties later and a justifiably frustrated and angry wife with a duly humbled and frustrated me, we are searching the market. Houses are even more unaffordable. Somehow…after 12 months, we just can’t seem to bring ourselves to buy. The sellers expectations are so high and people just seem willing to go into so much more debt then us. There seems to be no fair value in the market and people are not restrained from being reckless.

        There has been a change. The bubble, debt and the banks are being talked about much more. There has been a slow down…but there have been false lights before. Perhaps the end will come from an external shock, or people outside Australia’s self interested housing-political complex no longer willing to risk funding it. How expensive can houses go before it implodes…I thought the bubble would have imploded long before now.

        My mistake was to see life as some kind of morality tail. That the greedy and reckless will be burnt and the righteous patient and judicious will be rewarded. I now see what a foolish notion this was. When I think what this country had and how we lost it through greed and poor management, it makes me angry.

      • “In my naivety I under-estimated the nature of bubbles, their capacity to draw in every last drop of greater fools and the vested interests that keep them going. The role of foreign buyers has also grown”

        That’s exactly what one would expect for a bubble to perform – achieve its maximum growth potential by exhausting all possible avenues for growth before an epic bust.

        “My mistake was to see life as some kind of morality tail.”

        Looks like the only mistake you made is not being cynical enough. I am telling you, cynicism wins because it always does. And guess what, Donald Trump and I have one thing in common – we both hate losing.

        Embrace cynicism and you will be fine.

      • SupernovaMEMBER

        Charlie all markets have significantly powerful “dead-cat-bounces” that occur at different times in downturns; they occur to rake in the naive and desperate (retailers buy whilst institutions or developers are selling). At this stage in our RE cycle any decline in interest rates from 1.5% to 1.0% will become short lived and insignificant to the trend…..and the trend is down for property across the globe….why or how would a small open economy saturated with household debt to income of 189% buck this trend? Patience my friend.

    • Buy something you like and can afford – deposit enough to avoid LMI, payment no more than 25% of take home pay on a 15 year P&I, fix for as long as you can. Then the market can then soar and crash till its heart is content, but your family is protected.

      • Ahah ahaha! Yeah, great rules – I hope you enjoy living in that 1-Bedder in a suburb 65km from the CBD. Because that’s what you’d be limited to!

      • Well keep saving, move somewhere you can afford, or get into debt up to your eyeballs.

      • It is not that simple when people cannot afford a house within commuting distance. The only other option is poorly built apartments which could very easily send people broke with the additional costs for cladding replacement, concrete cancer, cracked walls, etc. There is also the strata fee scam where it is now impossible to vote out strata managers due to too many foreign investors, so developers install themselves as strata managers and keep jacking up strata fees.

        The only solution is to pay rent and save for a house another city. That is if you actually earn enough to be able to save.

      • Charlie Chaplin; If you’re worried about missing out on buying four brick walls and a roof, try Spain, for an instance, if you are really desperate to get one straight away. In fact, Spain (60% the area of NSW with 46m people) has all the houses and flats you ever wanted to own, absolutely free, buddy. Unless you want to wait for the nature to take its course on the south east coast of Australia – won’t be long now, just be a little patient!
        https://www.youtube.com/results?search_query=empty+houses+in+spain

    • Once the tide turns, what the government will do next is immaterial – it will be utterly powerless to stop what will come next.

      Just remember that a bull market climbs the wall of worry and a bear market slide the slope of hope. There will be a number of cyclical bull markets within a secular bear which will suck in those waiting in the sidelines until it can no longer.

      For the Palpatine version of my answer, see below.

      • “For the Palpatine version of my answer, see below.”

        Can you please put these disclaimers right upfront, so I don’t waste my time reading the non-Palpatine version?

    • If you live over in the eastern states and looking at median house prices of $600,000 to $800,000 and need to borrow say 90% of the money, then I’d rather be renting.
      I think prices have peaked, wages are stagnant and houses are expensive even for the majority of the immigrant flood
      So you should be ok to rent, however if you are an eastern stater house prices in other parts of Australia are relatively more affordable eg, $400,000 will get you reasonable home in Perth.

      But i wouldn’t want large portions of Sydney and Melbourne uprooting to other parts of Australia because it would relieve the population pressures and the government will increase immigration further.

    • HnH’s other piece of sage advice is “paying too much for a house is still cheaper than a divorce”.

      Take note.

  8. My situation.. The pressure to buy a house has been increasing exponentially over the last year or 2. I have been holding out but recently i have been ready to capitulate as ScoMo and other politicians have made it clear that they will do what ever it takes to keep this bubble going,they want the immigration floodgates go stay open and us to keep quiet about it. Lately i have been seeing a few articals against mass mimmigration but i fear it is just to appease us before we open the floodgates wider.
    I see MB confidence of a downturn increasing lately, i agree that it should happen but am wondering what our government will throw at it next, a developer levy to help those poor unfortunate guys like harry to continue doing gods work?
    Id love to see some analysis on how MB sees this playing out, how quickly are prices likely to drop, what could the govs last ditch effort be to keep it afloat and how effective are they likely to be.
    Im srill holding out for now, but will probably cave in before the bottom. I hope i can last long enough to get a bargain

    • Give yourself to the Moron Side. It is the only way you can save your portfolio.

      It is inevitable. It is your destiny.

      • So true. If i do switch sides then i will go all in. I will become the number 1 spruiker

      • Welcome young Imissedout. I have been expecting you….. I am looking forward to completing your training. In time you will call me Master.

    • The Kouks 3rd Chin

      Your options are: Rent a house, buy a small apartment within budget or move way way out and commute.

      Buying Eastern state houses at these prices will put your whole family equilibrium at stake. I dont agree with HnH on this one. It may be cheaper than a divorce but a housing crash when your holding a house sized bag is markedly worse outcome. Divorces often follow acute financial stress.

      Move interstate if you live in Syd or Mel if you have no other option. Emigrate if you have the chance.

    • I’m still seeing lots of houses in Victoria go under offer quickly. I’ve been looking down Seaford, Frankston way, but also Preston, Reservoir areas predominantly. I guess they are to some extent the last bastions of affordability under $1M. What I’m not sure about is how much prices are moving down for them to go under offer. I suspect houses are selling but at lower prices than before and that will send a signal to the market.

      I too have wanted to capitulate, it’s now the missus who is refusing to buy crap houses at obscene prices. She wants to keep waiting. I see things getting worse not better, so happy to see how things are looking at Christmas time, unless I find a place around $700-$800k that I think I’ll be happy with before then.

      • They are still holding auctions after all. It will be a good indicator of the market finally turning when the sellers stop holding auctions and fully switch to private sales.

    • darklydrawlMEMBER

      Predicting the future economy 12 years out based on todays knowledge is fraught with risk. Not saying he is wrong, but there are likely many other valid options as well. Time will tell.

      • What options?

        The Boston Dynamics robot started off by doing things that most humans can do (lift a box) and now it can do things most humans can not do (backflips). Soon it will probably be able to run at 60 km/h.

        SYD is getting driverless trains in 2019.

        SpaceX has rockets that land themselves.

        Mines are increasingly automated. The ports are increasingly automated. Combine harvesters will probably be driverless if they are not already.

        A tsunami of job losses are coming and unlike Japan, a lot of jobs in Australia depend on the ponzi – town planner, civil engineer, truck driver, etc.

  9. michael francis

    Expect 80% property falls in 2 years if McGrath Real Estate share price is anything to go by. Price to income or price to rent expect 60% falls.
    Anyway I might continue my argument on the Property Investors blog and see how many death threats I can rack up.
    Might even tweet Nathan Birch and ask him to check my maths.

    • There’s no F in mafths! 😛

      Also, if that comes to pass – that “black russian” cod piece from Black Adder will be nothing compared to what I’ll be sporting. I think it will be difficult for a while to do anything, what with the todger poking you in the ribs, having to pee from outside the house through the toilet window into the bowl… all that will be difficult, but it’s a sacrifice I am willing to make! 😀

    • The timing of the shift in the national sentiment around the Big Australia policy is interesting. It seems that the effect of future immigration cuts will be felt at a time a plausible scapegoat for the forthcoming housing bust will be in high demand…….

      Then the likely “official lessons” to be learned will be (1) high rates of immigration are essential for the nation’s prosperity and hence must not be questioned again and (2) caving into the demand of ignorant racist masses is costly and hence should never be repeated again.

    • In a properly functioning country / education system, you would think how Australia had handled the last housing / mining boom will become an Exhibit A of every future economics textbook as a prime example of precisely what Not to do so that posterity can avoid repeating the same mistake.

      But alas, I suspect that will not be the case in the real dumb world and the same or a similar mistake will keep being made in perpetuity.

      • ThePensumMEMBER

        To be fair, the WA State Government outdid the other states (Qld?) and the Commonwealth Government in their stupidity of ending up with a large deficit after the biggest boom in a generation, forecasting iron at 150++ or whatever for the next few decades or whatever it was.
        And Barnett lectured economics at Murdoch University if I’m not mistaken.

    • The Economist said “The most efficient way to spend money on the homeless might be to give it to them”.

      The Greens probably think the homeless need a speech on skin colour instead.

  10. CycleSeasoning

    Liquidate property ? But to whom ?

    The time for that is long gone, anyway.

    2018 will be one of the worst years the property sector has had in the last decade. No point selling into a buyers’ market unless you absolutely have to.

    • Your arrogance blinds you, Master 2big2fail. Now, you will experience the full power of the Moron Side!!

      • 2big2failMEMBER

        ?? Care to elaborate? your response is out of context.. to say the least.. unless you’re high on something.. or a moron..

      • Don’t take Palpatine lines seriously.

        If you were implying that the recent development in Toronto would dampen the insatiable appetite for the local housing lust or have any positive effect on the local housing market then you would be shocked to experience the full power of the Moron Side of the Force here in Straya.

      • No need to apologize. It is sometimes difficult to stretch a Palpatine quote. George Lucas did a good job of distilling the lines short and compact.