RBA: Housing bubble over

From the Q&A yesterday with Phil Lowe:

“There has been a significant tightening in lending standards. In some respects, it seems some institutions have become excessively risk averse.

Many people in the community feel they have already borrowed too much and now they are in a period of consolidating the balance sheet rather than going out to take on more debt, even if there are low interest rates.

The supply of credit and the demand for credit is less than it was  a few years ago.

There will be a modest pick-up in borrowing but because of reduced credit supply and reduced demand from households I don’t see it likely to go into a period of rapid leveraging.

If we did then we would have to rethink.

The primary concern is an extended period of rapid credit growth in an environment where households are already leveraged and we don’t see that as particularly likely.

…We still have scope to respond with monetary policy. We have a flexible exchange rate which has in years past been a stabilising force for the economy.

If we do get hit by an external shock we still have options.”

A prudent monetary manager would be assuming the best and preparing for the worst as he cut rates to record lows. Where is the Council of Financial Regulators on the next wave of macroprudential tightening? Why wasn’t it mentioned as an option if borrowing does rebound excessively? Especially so given global central banks are into a new easing cycle and round of competitive devaluation.

Failing to plan this time around would be to repeat the same mistake that the RBA and APRA made from 2011 to 2016.

For that matter, why didn’t somebody ask this basic question, the only one that matters?

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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