House Price Boom Must End, Says David Gonski

ANZ chairman David Gonski has warned Australia's booming housing prices cannot go on forever and the market will eventually experience a correction.

The former Future Fund chairman said ANZ and all the big banks were "very aware of history" when it came to financial lending in the residential mortgage market.

"There will come a time when there will be a correction," he told the Australian British Chamber of Commerce.

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"The fact is, anyone who believes prices always go up is, I think, a fool."

Mr Gonski's comments come as the housing market heats up as spring approaches. Capital city markets had their strongest winter since before the lead up to the financial crisis, according to figures released on Monday by RP Data.

Sydney and Melbourne house prices lifted 5 per cent and 6.4 per cent respectively over the three months to the end of August. The surge represents year-on-year growth of more than 16 per cent in Sydney and almost 12 per cent in Melbourne.

Brisbane, which was one of the weaker-performing cities, recorded a 1.3 per cent property value increase in the three months to the end of August.

The Reserve Bank warned in its submission to the Financial System Inquiry that moves to boost competition in the home loan sector could increase risk in the financial system.

Regional banks, credit unions and building societies have urged the federal government to change regulations that give the big banks a significant cost advantage when making home loans.

Mr Gonski also backed ANZ's Asian strategy, questioning why some in the market consider ANZ to be "riskier" than its peers because it is in Asia.

"I believe it's quite odd, I have to say, that we are regarded as a riskier investment because we have investments outside Australia.

"I could very well argue that a good investor has some money in Australia and some money overseas. That's exactly what the ANZ has done."

Home Owners Forced to Take Super - Australia Mortgage

HOME owners have raided their superannuation funds of a record $100 million in last-ditch bids to avoid foreclosure, new government figures have shown.

The surge in mortgage-holders seeking emergency access to their savings has alarmed housing and social welfare groups, who warn many families are still struggling to meet loan repayments despite steep cuts in the interest rate

With distressed owners receiving an average of $15,250 each, there are also concerns some super accounts could be drained of more than a third of their value. The number of households in serious financial trouble has worsened despite mortgage lending rates falling about 1 per cent in the past six months and nearly 3 per cent since their peak in mid-2008.

Figures obtained by The Sun-Herald showed 6500 home owners were given emergency access to their super last financial year to prevent an imminent foreclosure.

A Commonwealth Department of Human Services report found $99.38 million was released, up 25 per cent on 2010-11 and well above the disbursements in the aftermath of the global financial crisis.
It also marks the third year in a row that the number of people applying for, and being granted access to, their nest-egg has increased.

A campaign manager for Australians for Affordable Housing, Sarah Toohey, said years of house price growth had seen debt balloon and forced households to devote an unsustainable amount of income to meeting mortgage repayments.

''It's alarming and it shows that housing affordability is about more than just interest rates,'' she said.
''The sheer size of what people have to borrow to get into the housing market now really puts household finances under strain.'

Chinese Buyers Pick Up Property in Australia

Foreign developers made up about 30 per cent of the Australian market last year, and China took up 9 per cent of that – an increase over previous years.

The China Daily News reported that more than 1,200 apartmentswere either planned, being marketed or were under construction by Chinese companies in Australia in the fourth quarter of 2011, according to real estate firm CBRE. The Chinese mainland was only led by Singapore (37 per cent), Hong Kong (20 per cent) and Malaysia (12 percent ).

They did not offer comparison numbers for 2010.

Chinese investment is being driven by rising Chinese wealth, a desire for secure investment, and freehold laws. “Unlike in China, once a buyer purchases property in Australia, it’s theirs forever and can be passed down from one generation to another”, Melbourne real estate agent Chris Bevan told China News Daily.

Bevan said his recent sales to buyers from Shanghai ranged from two-bedroom apartments priced at $300,000 to a luxury beach-front home for $18 million around Melbourne.

He said JPDixon, the company he represents, has attended property shows in Shanghai for the last three years. “(This)helps keep our real estate and economy growing,” he said. Another factor driving investment is the Australian education system: There are some 160,000 Chinese students in Australia, and many Chinese families who can afford it would prefer to buy an apartment nearby.

Big Four Tighten Grip on Market With Mortgages up $175bn

THE big four banks have further entrenched their dominance in the Australian market, growing by tens of billions of dollars despite Labor reforms to increase competition in the retail banking sector.

Exclusive analysis of APRA data by The Weekend Australian indicates that in the three years from when the global financial crisis hit in 2008, the big four have grown their mortgage books for owner-occupier housing by more than $175 billion, eclipsing smaller lenders.

'Predatory' lenders seek ASIC approval June 30, 2010 (Austrlia Mortgage)

Australian LENDERS named in a landmark predatory lending case have registered as consumer credit providers under the Australian Securities and Investments Commission's new national licensing program.

ASIC is taking over regulation of all consumer lending, including credit cards, store cards and mortgages tomorrow, replacing the state-by-state approach.

Bleier Mortgage Corporation, in Double Bay, and Permanent Mortgages, in Traralgon, Victoria, have registered to become credit providers. The registrations, the first step in gaining consumer credit licences, have been made although both lenders were named in a 2006 ruling in the NSW Supreme Court about predatory lending.

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Length of Reserve Bank's interest rate pause will depend on inflation

HOW long the Reserve Bank pauses on interest rate hikes hinges on the next Consumer Price Index release due late next month.
If the June quarter CPI shows underlying inflation falling into the RBA's 2-3 per cent target zone, Glenn Stevens will be encouraged to keep interest rates at neutral for most of this year, as he seeks to manage Australia's two-speed economy.

If it doesn't, the RBA will have to again increase its public inflation forecasts to the top of, or even above, its target zone. The RBA governor surely knows this would threaten the central bank's hard-won low-inflation credibility and force him to into a restrictive monetary policy mode.

This could result in rate hikes resuming from the scheduled August 3 board meeting.

The changed form of Stevens' report from Tuesday's monthly board meeting clearly underlines the new, neutral phase of monetary policy.

His statement was one-third shorter than usual, and by avoiding the usual discussion of the domestic economy it suggests the RBA is not searching for a trigger to raise interest rates soon.

Between October last year and May this year, the RBA lifted its cash rate from 3 per cent to 4.5 per cent in six 25-basis point steps.

Stevens this week called it a "significant adjustment" from the "very expansionary settings" in response to the global financial crisis.

Neutral monetary policy now is "appropriate for the near term".

While the timing is deliberately vague, the RBA's favoured choreography is to pause for six months or so after adjusting monetary policy in a series of quick, small steps.

Stevens's statement focuses on an additional reason for the RBA to stay on the sidelines for a bit. When he lifted the cash rate to 4.5 per cent in early May, Stevens suggested the Greek sovereign debt crisis had produced "very little contagion" outside Europe.

Almost immediately, however, the Greek crisis spread dramatically to global financial markets. Further bouts of market instability are likely.

Stevens now says the new sovereign debt crisis "will need to remain under review".

But he still expects the global economy to post trend growth this year, with budget tightening weighing on soft European economies, the US recovery becoming more established and China-based Asia expanding, perhaps too vigorously.

That underpins the Reserve Bank's central scenario that high iron ore, coal and other commodity prices will fuel national income and spending, and push the economy toward its trend growth rate of 3.25 per cent or so over the coming year.

Yesterday's national accounts suggest the economy is heading back to trend growth, expanding 0.5 per cent in the March quarter and 2.7 per cent over the year. But growth remains uneven as last year's budget stimulus gives way to a new wave of mining development. Retailers are complaining about soft consumer spending.

Stevens no doubt would love to keep the Goldilocks combination of trend economic growth, neutral interest rates and target zone inflation going as long as possible.

But, while the heat is coming out of housing prices, it's not clear that CPI inflation is becoming re-anchored inside the 2-3 per cent target.

In part, this reflects double-digit price increases for electricity, gas and water required to pay for a catch-up of infrastructure investment.

The shallow downturn means the economy is operating with less spare capacity than expected. The higher dollar has pushed down import prices and allowed retailers to discount heavily.

This is unlikely to keep giving and, with unemployment forecast to edge below 5 per cent, catch-up wage demands could start pushing up labour costs. In May last year, the Reserve Bank forecast that a sharp economic downturn would push underlying inflation to 1.5 per cent, comfortably below target, by mid-2011. But the inflation outlook has worsened in every quarterly forecast since then.

A mildly disappointing March quarter CPI result forced the RBA economists to tip that prices growth would edge down only slightly to 2.75 per cent this year and next before nudging back up to 3 per cent in 2012.

That prompted the RBA's May board meeting to increase the cash rate when a pause had been on the cards.

The issue is whether the June quarter CPI, slated for July 28, will again disappoint. To maintain the credibility of its low inflation regime, the central bank can't do nothing if inflation threatens to move above target again.

The Reserve Bank's mantra is that it had to go through the deep recession of the early 1990s to break the back of high inflation.

It had to work hard after that to establish the policy independence and credibility that has underwritten nearly two decades of low-inflation economic expansion.

It may have to do the unpopular thing again to keep that credibility intact.

Source: The Australian