Interesting statements from the REIA today, highlighting the risks, in their eyes, to the economy if regulators tighten credit on home lending.
Here is the problem, do nothing, and home prices will continue to spiral higher with households ever more exposed, leading to a bigger future correction, and so economic damage, as rates rise or other events wash over us; or tighten investment lending controls now to cool the market, perhaps leading to reduced demand, home price correction, and so economic damage.
I am not sure there is now a middle way – all roads take us to a crunch, its just a matter of timing – a correction we have to have?
From The Real Estate Conversation.
Malcolm Gunning, president of the REIA, has warned that the combined actions of APRA, ASIC and the banks could decrease demand for new properties to such an extent that housing supply dwindles and the construction sector weakens.
The Real Estate Institute of Australia has urged regulators and banks to take caution when restricting bank lending to dampen investor demand for property in Sydney and Melbourne.
“Whilst warnings about interest-only loans and over committed borrowers might be justified in some circumstances, it does not mean all interest only loan borrowers should be penalised and outlawed,” REIA president Malcolm Gunning said.
He warned that the combined actions of APRA, ASIC and the banks could decrease demand for new properties to such an extent that supply dwindles, worsening housing affordability, and the construction sector weakens, damaging the overall strength of the economy.
“The cumulative impact of the collective action of APRA, ASIC and individual banks could well be sledgehammer, when only some fine tuning was required,” he said.
“We need to be careful that we don’t constrain the building and construction sector that has kept the Australian economy growing following the decline in the mining sector.”
Gunning said that talk of weakness and lack of confidence on the future strength of the economy, can become a self-fulfilling prophecy.
Being exposed to negative “expert opinions” daily can quickly become a “doomsday prophecy”, warned Gunning.
Gunning said agents working at the coal face are already seeing signs of a slow down.
“Market information from our Sydney and Melbourne member agents suggests that there are signs of a slow down. The leading indicators tell a very different story to the lagged historical data,” cautioned Gunning.
“We need to be careful that an overreaction to the investor led Sydney and Melbourne property markets doesn’t threaten the health of the national economy”, he concluded.
