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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 11 July 2018

Byres prepares for rainy day (but outlook remains clear)

Lenders gonna lend

There were nervous onlookers aplenty as APRA Chairman Wayne Byres prepared to speak in Sydney today on prudential lending standards and sound lending practices.

They needn't have been quite so fearful, in the event, as Byres reassured markets that while heightened scrutiny had uncovered some displeasing practices, most of the heavy lifting has already been done with regards to tighter lending standards.

For subscribers to our market reports, a number of familiar themes raised: tightening standards have been applied incrementally over a period of several years (rather than overnight as often assumed), a new focus on comprehensive credit reporting to better capture pre-existing debt commitments of borrowers, and some very useful analysis of lower loan-to-value ratios and the decline of interest-only loans. 

While much has been made of a potential 'credit crunch' - mainly by interests hoping to see a credit crunch, it must be said - Byres reiterated how in aggregate annual credit growth has continued to track at 'very healthy' levels, especially for owner-occupiers at about 8 per cent.

Of course, there are many unknowns about how this will all play out from here. Some parts of the housing market will fare well where demand from homebuyers is high, and others will struggle where the opposite holds true.

Caveat emptor.

Computer says no credit crunch

As Byres was busy adjusting his tie pre-speech in Sydney, financial markets were digesting the latest housing finance figures for the month of May.

Supporting what Byres would go on to say in his speech, there was a seasonally adjusted increase in the number of mortgages written across all loan categories, defying market expectations, and a corresponding increase in the total value of lending.

The 'trend' figures are still shaping lower, but at $31.9 billion the seasonally adjusted housing finance figures were pointing to anything but a credit crunch, especially for the homebuyer cohort.


The average loan size for both first homebuyers ($344,600) and non-first homebuyers ($412,000) also hit a record high in May - both in monthly and rolling annual terms - so it appears that those borrowers able to commit to a loan have not seen borrowing capacity trimmed as much as feared, at least in aggregate. 


Where to from here?

Clearly no credit crunch in these figures, then, but my sense is that everyone would feel a bit happier with the world if the household debt to disposable income ratio was seen to be no longer rising from its present level of 1.9x

APRA has played its part in tightening lending standards for investors, rapidly reducing the stock and flow of interest-only loans (meaning more Aussies paying are now down their debt), and ensuring that new borrowers are stress-tested with what are very significant mortgage rate buffers. 

It's interesting to consider momentarily how so much market commentary has become morbidly fixated on a bad news narrative, almost wilfully overlooking a string of upbeat data over recent months.

Westpac reported this morning that its consumer confidence index had surged to the highest level since all the way back in 2013, mirroring Aig's index showing the services sector expanding at the fastest pace on record, and jobs vacancies firing to their highest ever level.

So much for it all being doom and gloom!

Meanwhile the unemployment rate is easing back towards the lowest level in years, exports are tracking at record highs, and the rolling annual Budget deficit is in the best nick in a decade.

All sanguine observers are quite clear on the missing piece of the puzzle, though: wages growth!