New credit crackdown in sight amid RBA-fuelled rebound

In a new analysis of trends underlying Australia’s housing market, ING Economics’ chief economist and head of research, Asia Pacific, Robert Carnell, has noted the shift in market conditions since the Reserve Bank of Australia (RBA) commenced its monetary policy easing strategy in June 2019.  

Mr Carnell observed that while monetary policy “looks to have lost some of its ability to stimulate the economy”, the housing market “remains sensitive” to interest rates and has been revived by the RBA’s cuts in June, July and October.

According to the latest data from property research group CoreLogic, national home values have now risen by 4 per cent in the three months ending December 2019, driven by Sydney and Melbourne, where values increased by 6.2 per cent and 6.1 per cent, respectively, over the same period.

Mr Carnell acknowledged growing concerns that the housing recovery may be showing early signs of a new boom.

“Most regional property markets are now seeing prices rise rather than fall – so much so that there is mounting concern that the RBA’s actions may have unleashed the next property price bubble,” he said.

The ING economist dismissed such concerns, noting that price growth remains in “low single-digit ranges, consistent with nominal GDP growth, even if a bit faster than nominal wages growth”.

However, Mr Carnell added that while the housing recovery is unlikely to dissuade the RBA from its current easing strategy, it may prompt the Australian Prudential Regulation Authority (APRA) to introduce new macro-prudential lending curbs.  

“Unless we see some acceleration in the quarterly annualised growth rates, then there should be no need for this to present any constraint to further RBA easing, though it will be worth watching, and could require some action from APRA in terms of bank lending restrictions for property purchases,” Mr Carnell said.

Mr Carnell joins a number of other analysts, including CoreLogic head of research Tim Lawless and AMP chief economist Shane Oliver, in touting the possibility of a new wave of credit curbs.

APRA introduced a range of reforms that commenced in 2014, designed to improve credit quality, with such reforms including a cap on investor and interest-only lending, and the introduction of a 7 per cent interest rate floor for mortgage serviceability assessments.

The prudential regulator has since scrapped the curbs, a move in which analysts have partly attributed to the bounce in housing sentiment.

However, according to Mr Lawless, prospective lending curbs would not resemble APRA’s previous measures but could instead come in the form of lending caps for borrowers with high debt-to-income ratios.

“Limiting lending to borrowers on high debt-to-income ratios could be one option, or introducing hard limits on high LVR lending could be another mechanism that would reduce the risk of a further build-up in household debt whilst at the same time allow borrowers to access housing credit and take advantage [of] such low interest rates,” Mr Lawless said.

APRA chair Wayne Byres previously stated that the regulator would carefully monitor developments in the market in light of the recent rebound in activity.

“[The] housing market remains an area we are watching closely, particularly given record-low interest rates, already high household debt and signs of some revival in borrowing for speculative purposes,” Mr Byres said.

[Related: FHBs undeterred by property price rally]