A common danger for forecasters is to simply extrapolate whatever has been happening. For example, when the Australian dollar is falling, you’ll see heaps of forecasts that it will fall another few cents. When it’s rising, there are heaps of forecasts that it will gain more ground.
And so it seems to be with some of the dire forecasts going around about banks tightening up on credit because of the royal commission. That in turn is used as an excuse for predict further housing price falls – always a headline winner.
Such housing credit forecasts have come late to the party. It already happened. Particularly where residential real estate investors are concerned, the relevant regulator has ruled its tightening phase over.
And, given the tone of Commissioner Hayne’s interim report, there’s a good chance we’re already coming out the other side of the credit squeeze.
Independent property analyst Pete Wargent says the banks are already out of the blocks in search of more investor clients with Westpac reintroducing cash rebates for people refinancing.
The rally in bank stocks on Friday afternoon reflected relief that Mr Hayne didn’t indicate a leaning towards another, harsher level of credit legislation. Instead, he pointed towards simplification and enforcement.
“Much more often than not, the conduct now condemned was contrary to law. Passing some new law to say, again, ‘Do not do that’, would add an extra layer of legal complexity to an already complex regulatory regime. What would that gain?”
That’s a theme Treasurer Josh Frydenberg quickly warmed to. The Australian Financial Review reported Mr Frydenberg – a banker before entering Parliament – “revealed he will not rush to impose heavy-handed regulation on financial companies despite the royal commission’s scathing assessment that greed in the sector had failed consumers, because ill-considered rules could constrict lending and hurt the economy”.
“My focus in responding to the final report will be on doing what is necessary to avoid the conduct in question happening again and ensuring that there is accountability for what has been uncovered,” Mr Frydenberg said.
“While at the same time making sure whatever steps are ultimately recommended, they are implemented in a manner that does not undermine consumer and business access to financial services and credit, stability of the financial system, competition or economic growth.”
Yet the same AFR article goes on to say its survey of economists “finds that stricter lending requirements are set to push Australian house prices down through to the end of next year as lending conditions tighten”.
Unlike Mr Wargent looking to what happens next, the economists appear to be extrapolating what has happened.
And what has happened has been devastating for property investors, as Mr Wargent’s blog summarises: “The crackdown on investor credit growth has been ruthlessly effective since 2015, the 12-month growth rate falling from 10.8 per cent to the lowest level on record in August 2018, according to the latest Reserve Bank financial aggregates.
“With the Royal Commission Interim Report finally and conveniently landing just before the long weekend, the major banks will be relieved to see that there’ll be no heavy-handed regulation coming their way, and Treasury quite clearly keen to avoid any further tightening of household credit.
“Since the 10 per cent cap on investor credit growth is now removed, there’s plenty of headroom for investment lending to pick up from here.”
Mr Wargent takes aim at the “fake news” circulating on social media last week and repeated in a national newspaper that Westpac was “calling in” investor loans via a letter that nobody seemed able to reproduce and Westpac officially denied.
“If anything, the major banks will now be looking to attract new business from housing market investors,” he writes.
“Don’t take my word for it. Instead, take Westpac itself as an example since we’re on the subject, who won’t waste any time in hitting up the investor market now the Interim RC Report has been issued by immediately bringing back its refinance rebate, effective today.
“In fact, as soon as everyone’s had a chance to recover from the grand final double-header weekend, brokers will kick off this week by swamping customer inboxes with a refinance rebate blitz.”
Westpac is offering $1250 for every standalone property loan refinanced both for investors and owner-occupiers. Westpac also is giving 500,000 Velocity reward points for loans above $1 million and 200,000 points for loans of more than $250,000.
Yes, folks, reports of the mortgage banking’s death have been exaggerated.
What’s interesting to observe, courtesy of Mr Wargent’s colourful graph, is how the big four banks have played the APRA-driven investor loan tightening phase differently.
For example, Westpac went hard and fast in shrinking its investor loan exposure in 2016, with the CBA being negative over the past year. Westpac’s early action seemed to give it more room to move on the upside over the past year.
“The temporary benchmark on investor loan growth has served its purpose. Lending growth has moderated, standards have been lifted and oversight has improved,” APRA chairman Wayne Byres said.
There is another problem though for banks chasing investor business. Investors might now have credit extended to them, but as previously suggested here, punters are likely to be in no rush while the consensus remains that prices will remain soft for a while yet and rental yields are so low.