Housing Bubble

Malcolm Turnbull warns borrowers of interest rate rises — but will borrowers listen?

www.first2move.com.au 

Sometimes the key to successful communication is not the message but the messenger.

And there's no more high-profile messenger in Australia than the Prime Minister.
So, even though countless policymakers, economists and commentators have been warning about household debt for years, Thursday's blunt message from the PM may cut through where they have failed.
"Monetary policy remains accommodative and will stay that way for a while yet, but it means that rates are more likely to go up than down," Malcolm Turnbull told an economic conference in Melbourne.
That's not news — certainly not to economists and traders, most of whom have long abandoned thoughts of another interest rate cut and are now generally expecting a move up by the RBA sometime next year.
But they weren't Mr Turnbull's target audience.

Why the RBA can't move

His primary target was revealed by another pointed comment.
"Asset prices can move in two directions — down as well as up," he warned.
At the moment, when an Australian politician or policymaker refers to asset prices there's only one market they're generally thinking of — real estate.
And it was property owners, particularly investors, that Mr Turnbull was clearly addressing on Thursday.
"It is important to be prudent. The banks and the Prudential Regulation Authority are doing their best to make sure of that," he added.
Of course he's referring to the actions that bank regulator APRA has been taking since the end of 2014 to try and limit excessive and risky borrowing, especially for housing investment.
APRA has introduced stricter income-testing benchmarks for banks (arguably ones they should have always been forced to follow), it then moved to place limits on lending to property investors (read speculators) and has now belatedly clamped down on interest-only loans that allow people to borrow more than they can really afford by deferring their principal repayments.
Those moves have sent mortgage rates higher over the past year or so, especially for investors and interest-only borrowers.
They appear to have taken some froth off the peak of the Sydney and Melbourne markets. But both those cities are still recording double-digit property price growth, way above record low wage growth and meagre household income gains.

(Source: Australian Broadcasting Corporation )