Amid the slump in consumer sentiment and the apparent tanking of retail sales over Christmas, Robert Gottliebsen (“Gotti”) has hit the panic button. From The Australian:
In the years leading up to the second half of 2018 we went through a period where banks hosed money at people seeking a resident or investor home loans, causing them to bid up at actions. Expense levels were fudged, and no one worried too much if investors took out more than one interest-only loan. House prices went through the roof and those higher values boosted consumer spending.
…too many Australian have borrowed too much money. Their incomes are not rising and in some areas of small business they were falling. But employment was high partly driven by housing construction and government jobs.
Then came the banking and finance royal commission and the unprecedented credit squeeze on the banks… APRA over reacted…
Australians went into their banks seeking housing, business and credit card loans and saw fear in the eyes if the ordinary branch bankers. The clamps and penalties for investors were hideous… A person who could have borrowed one hundred units at the start of the year was lucky to get 70 units — a 30 per cent reduction… And the looming Royal Commission report in March would make it worse…
The first step in solving a problem is to understand the problem. I hope the above gives the politicians and regulators a chance to take that first step.
By Gotti’s own admission, “banks hosed money at people seeking a resident or investor home loans” and “expense levels were fudged”. So, in other words, it was a debt-fuelled housing bubble.
Regulators have done the right thing taking away the punch ball, albeit too late. This is the correction Australia has to have.
