CBA: APRA won’t tighten mortgage screws in 2021

Today’s credit aggregates data from the Reserve Bank of Australia reported an acceleration of mortgage growth; although it remained soft on a historical basis.

CBA’s head of Australian economics, Gareth Aird, expects housing credit to remain low, eliminating the need for the Australian Prudential Regulatory Authority (APRA) to tighten macro-prudential curbs on mortgages:

We expect to see a modest lift in housing credit of ~5% in 2021. Such an outcome would not concern the Australian Prudential Regulation Authority (APRA) or the RBA.

It is worth noting that housing credit does not include offset balances. There has been strong growth in offset balances over the past year (see chart opposite). Households have built up large cash buffers over the COVID-19 period.

All up, a print today that lines up with our view that macro-prudential polices are unlikely to be implemented in 2021 despite a red-hot housing market and strong growth in new lending expected to continue over the year.

I wholeheartedly agree. Another factor working against macro-prudential is that mortgage growth is being driven by owner-occupiers, rather than investors:

This is the polar opposite to New Zealand, where mortgage demand is being driven primarily by investors, which recently prompted the Reserve Bank of New Zealand to tighten loan-to-value-ratio requirements on “speculative” investor mortgages:

“There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.

“A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid ‘fire sales’ that potentially amplify any downturn”.

These conditions are not present in Australia. Hence, we do not see Australian authorities following in any hurry whatsoever, in part because investor mortgage flows are so subdued.

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Comments

      • Jumping jack flash

        This.

        Phil wisely fixed it by changing the wording on the inflation feedback mechanism to basically use an average over an amount of time rather than the instantaneous figure (like it was prior to the GFC)

        CPI is the missing link between debt growth and wage growth. It seems counterproductive to then raise interest rates at the first whiff of CPI. Besides breaking everything, the last 10 years shows what happens when you actively suppress CPI – the economy ends up where it was in 2019.

        in a nutshell, you can’t have a properly functioning economy comprised solely of debt growth, using services to pay for it, without a decent amount of CPI to feed back into wage inflation, and you can’t have a decent amount of CPI if everyone suppresses it using wage theft.

      • The origin of stupid idea of using interest rates to cure rising inflation will never be known.
        In reality the “inflation” that is measured is generally consumer hoods/services inflation.
        Interest rates have a more profound impact on the “asset inflation” .
        Using interest rate to try and cure consumer goods inflation by killing asset inflation is like saying you are going bear hunting and then you shoot a chicken.
        In a low interest rate environment there is a lot of capital chasing a marginal return. In such an environment any hint of consumer information will result in capital spending easily funded by low interest rate borrowing. The increase in capital spending will increase the supply of manufactured goods.
        That is why consumer inflation has been so tame (dead) for most goods produced for most of the past 15 years.
        If you want higher consumer inflation, then increase interest rates enough to kill productive borrowing for capital spending.
        If you want to curb asset inflation, then increase interest rates. In fact it is probably best to fix official interest rates around 3% forever and just regulate the amount of lending instead, but this is probably too hard for governments to figure out. This would see residential interest rates around 5% and commercial rates in the same range depending on risk adjustments.

  1. Display NameMEMBER

    Surely real estate yields in NZ are poor to non existent? I am assuming the rush is just for capital gain. What could possibly go wrong?

  2. As HISA rates drop under 1%, new mortgage products with 100% offset are de-rigueur according to our Mortgage Broker. As I said in another thread, housing in Australia is now somewhere to park your savings.

    • Oh, HISA.

      Ubank bonus is still 1.1
      Volt 1
      Macquarie 0.95

      Dizzying! Where’s unhappy valley with his routinised comment about xxx savers.

      Haven’t 100% offset been a thing for ages?

      • According to broker friend, 100% offset facilities have not traditionally been available to new loans with over 80% LVR. There are now more products on the market at >80-90% LVR with 100% offset.

        • Jumping jack flash

          Can confirm 90% LVR mortgage products with offset ability.

          With regards to somewhere to park your savings, I believe crypto may also be the park du jour.
          I have been discussing this with a work colleague, and we agree that it will be interesting to see the effect of 2 trillion US stimulus dollars on crypto.

          • Goldstandard1MEMBER

            LOL, “Crypto the best place to ‘Park’ your savings”…….

            Ef me that could be the biggest oxyMORON ever stated! LOLOL

      • happy valleyMEMBER

        I am here but have basically given up complaining and have bought bulk supplies of KY jelly for when the RBA happy clappies next go up my an.s, in the context of have a go get a go.

  3. happy valleyMEMBER

    “Hence, we do not see Australian authorities following in any hurry whatsoever, in part because investor mortgage flows are so subdued.”

    Absolutely in no hurry from the RBA and APRA as they are only focusing on goosing their IP specufestor gains.

  4. Jumping jack flash

    If they did tighten screws then RBA would simply subsidise the banks some more. After a bit of bellyaching.

  5. pfh007.comMEMBER

    Phew what a relief.

    Now we can stop worrying about APRA doing something.

    Of course a few cranks might argue that APRA should do something and impose restrictions and limits on bank lending when the security is existing housing and reduce restrictions on credit ‘creation’ when the security for the loan is new housing construction.

    But this is Australia and inflating asset prices is much more important than expanding the productive capacity of the economy (i.e. lots of new housing that lowers the price of housing as a input cost).

    What is puzzling is how so many people who should know better are applauding APRA’s inaction.

    Any wonder many call it MP-LOLOLOLOLOLOLOL

    • Jumping jack flash

      All it would take would be to consider another measure of risk, say, LTI.

      It is actually very simple to derail the whole debt economy, but these derailments have been thwarted, possibly on purpose, or possibly through the natural progression towards an unchecked bankers’ utopia.

    • Even StevenMEMBER

      If one examines the roles of each player, it all makes sense:
      APRA to ensure financial institutions don’t fail (= indifferent to house prices)
      RBA to target full employment / stable currency / stable inflation (= slightly wants higher house prices, wealth effect)
      Government to set policy and stay in office (= definitely wants higher house prices, more votes)

      The problem is we don’t have an advocate for LOWER house prices. It should be the government. But you’d like our august institutions to do this. Agree, it would be nice if they did. But I expect public servants don’t generally like to kamikaze themselves.