One of the troubles with blunt policy instruments like regulatory changes is that they can sometimes be too effective and cause the very thing they are trying to avoid.
That’s the situation Australia’s banking regulator APRA faces with its new rules on investment lending and bank capital requirements. Already we have seen banks raise the rate that investors pay on housing loans and in one case we’ve seen a lender withdraw from the investment market for a number of months.
The message from APRA, and the RBA, has been clear. They are worried about the move in house prices, they don’t believe they are sustainable and bubble conditions exist.
Indeed, the secretary of the Treasury, John Fraser, said Sydney was in an unequivocal bubble, while the head of the RBA’s financial stability department recently implied it’s a good thing that first home buyers haven’t been allowed to be sucked into the currently frothy Sydney and Melbourne housing markets.
But in a clear sign of be careful what you wish for, the ANZ economics team today highlighted a chart, and a relationship, between Sydney house price rises and answers from NSW in the “time to buy a dwelling” section of the Westpac Consumer sentiment survey.
The ANZ said:
“…looking at indicators of domestic buyer demand, Sydney house price growth looks set to slow over the next eighteen months. For example, ‘time to buy a dwelling in New South Wales’ fell to its lowest level since 1989 in August, likely reflecting affordability concerns (Figure 2). Combined with macro-prudential measures to limit investor housing credit growth, we expect Sydney house price growth to slow to 7% y/y in 2016, from 18% y/y in 2015.”
They added that “given Sydney house prices are already overvalued (by 5-10% on our calculations), continuing soft income growth will be a headwind to Sydney house price growth in coming years”.