Blame APRA not RBA for any property bubble reflation

UBS’ Jonathon Mott is freaking out a little declaring that RBA’s cure of rate cuts may be worse the housing correction “disease”:

With interest rates now ultra-low, the ability of the banks to generate a lending spread and return on equity is very challenged.

It is possible that RBA rate cuts could lead to a reflation of the housing market.

If the housing market does not bounce back quickly, this could put material pressure on the bank’s earning prospects over the medium term, implying that dividend yields investors are relying upon come into question once again.

That is inevitable. But leave the RBA out of it. It was always going to cut and will keep doing so as the secular stagnation and the mass immigration economic model destroy inflation.

The culprit behind any property price rebound is APRA. Just as it was APRA that was years too slow to install macroprudential tools in the last cycle and watched on calmly as lending standards collapsed.

APRA’s discredited chairman should have been sacked after the Hayne Royal Commission exposed as much. Instead he was re-appointed without debate and cut its interest rate buffer recently, as well as rolling back all of its macroprudential tools.

It’s obvious that the RBA won’t be able to hike rates to control house prices even if it needs to. Indeed it will have to cut no matter what. Yet APRA still has no clear macroeconomic mandate to make it accountable for the return of macroprudential tools. Nor is it studying what the next round should be.

APRA is now operating in an opaque soup of corruption controlled by banks, personally indebted to a housing obsessed government, and hopelessly lost in reluctantly deployed and half-arsed pseudo-reforms. It’s still busy employing ex-bankers to boot.

APRA is the smoking crater from which any house price phoenix will rise.

Latest posts by David Llewellyn-Smith (see all)

Comments are hidden for Membership Subscribers only.