January 2019 Newsletter

APRA MOVE A SHOT IN THE ARM FOR HOUSING MARKET?

Welcome to the New Year – and we’re sure there’s going to continue to be plenty written about Sydney’s (and Australia’s) housing market this year!

Our financial regulator, the Australian Prudential Regulation Authority (APRA), certainly started the ball rolling at the end of 2018 with the announcement it was lifting restrictions on interest-only residential lending, effective from January 1. The restrictions were imposed by APRA in March 2017 to force lenders to limit new interest-only lending to 30 per cent of home loans that they issue. The recent move by APRA is an attempt to stabilise Australia’s weaker housing market.

This is the second lending restriction eased by APRA. In April last year it removed a regulation imposed on lenders since 2014, whereby they had to keep investor credit growth below 10 per cent each year.

“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary,” APRA chairman Wayne Byres said. “Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.”

But there is debate about whether APRA’s decisions will boost the housing market. Cameron Kusher, CoreLogic’s head of research told ABC News that he doesn’t know if the changes “are really that monumental”, particularly as lending to interest-only borrowers is already sitting at 16.5 per cent, when the cap is 30 per cent.

“What it might do is make it easier for people who are coming to the end of their interest-only mortgages – or are getting into financial hardship – to refinance with a normal lender, without going to the non-bank sector,” Mr Kusher said.

As with everything, time will tell how things play out for the housing market this year.

RESERVE BANK WATCHING CAREFULLY

What the pundits are also wondering is if there’ll be a cut in the official cash rate in 2019. While the RBA isn’t in panic mode, it’s obviously maintaining a watching brief on the market.

In 2018 house prices in Sydney fell an estimated 10 per cent, with some economists predicting a similar fall in 2019. It’s been reported that a 15 per cent drop in house prices would cut around $1 trillion dollars from the housing stock value.

Following its December Board meeting, the RBA warned of the key risks that could disrupt household spending – i.e. low growth in household income, high debt levels and declining house prices.

Morgan Stanley strategist Daniel Blake told smh.com.au that: “Since 2016, the RBA’s focus on financial stability has held them back from further rate cuts as they wait for wages and inflation to recover. In 2019, we see their focus turning to monitoring the negative wealth effects from a housing market adjustment.”

Despite the fall in house prices, the economy is still growing and the jobless rate, at 5 per cent, is the lowest it has been in more than six years. RBA governor, Phillip Lowe said he suspects unemployment could fall to 4.5 per cent without seeing rapid wage growth. With inflation low, the economy is in quite a healthy position.

“This is to some extent uncharted territory to see this sort of dynamic play out in an environment where – as of now at least – the macro economy is travelling at a reasonable place,” said the RBA’s deputy governor, Guy Debelle.

Dr Debelle said in a speech that the jury was still out on how much debt and leverage was too much. “We still don’t really have a great handle on what level of leverage is dangerously excessive for governments, households, banks and corporates,” he said. “Leverage significantly magnifies the effect of any shock that hits the economy; it might not start the fire but it will pour petrol on a burning platform.”

Mr Debelle also said that an anticipated rate rise is “some way off”, and that if conditions deteriorate between “now and then” the RBA is willing to cut the cash rate and resort to monetary stimulus if necessary.

The official cash rate has remained unchanged since August 2016, when the former RBA governor, Glenn Stevens reduced it to a record low of 1.5 per cent.

ETHICS UNIT FOR PLANNING DEPARTMENT

New South Wales’ planning system is set to receive a health check, with an ethics unit being set up inside the NSW Department of Planning and Environment. It follows the receipt of a report by former deputy police commissioner Nick Kaldas into the governance of the system.

The purpose of the ethics unit would be to provide pre-emptive advice about corruption risks within the state’s complex planning system. Mr Kaldas also recommended mandatory checks for all members of NSW’s independent hearing and assessment panels, and an audit of infrastructure contributions.

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