Brake on Australia's addiction to property came just in time

Obviously, writing too many loans that people can not afford will eventually destroy value for shareholders, if all goes wrong. But a little bad sale here and there? A bit of pushing the limits of responsible lending to fuel the obsession with Australian homeownership? Safe.

Instead of a careful review of the financial accounts of the borrower, it was discovered that banks had loan approval processes that were based too much on "benchmarks" of living expenses. no attention to real household costs, or their overall debt profile.

As Wayne Byres, the Australian banking regulator, said in a speech last week, Australians are making poor financial historians. This is to be expected. Squeezing Aussies to estimate their own expenses when applying for a loan, it's a bit like asking a problem gambler to provide himself with a credit referral. Australians are essentially game junkies in housing. Given the chance, we will put everything on the property.

What we do not expect the banks themselves to be so poor questioners of their potential customers. The result is one of the highest debt ratios in the world and a skyrocketing price of real estate that has cost a lot of money out of the market.

So, are we moving towards a large property? This is unlikely. The whole system – from the structure of our tax system to the role of our regulators – is designed to support and even encourage our dependence.

Chargement en cours

As soon as prices start to turn, the authorities delay the rise in interest rates and / or relax the rules of loan. The banking regulator said last week "mission accomplished" on its measures to cool the excessive demand for investment and interest-only loans. Byres essentially admitted that the regulator had fallen asleep at the wheel initially, as competitive pressures among lenders were not manifested by lower prices or better products for consumers, but by lax lending standards [19659011].

It remains to be seen what the Royal Commission's recommendations will be when it makes its preliminary recommendations in two months

The commission will probably recommend higher standards for loans, including: more complete questioning of fees real household livelihoods. Banks will describe this as "red tape", but tighter loans will bring practices closer to what households might expect. Separately, new global credit reporting laws are being established to make it more difficult for banks to ignore – and clients not to disclose – total debts.

In a period of lower wage growth, many will be aware that they are indebted with debts that, with hindsight, will be difficult to insure.

House prices should not collapse, given the continued support of an aging population and migration.

Indeed, households can expect lower interest rates because every rate hike here will be stronger.

The end result for policymakers is that the task of bringing interest rates back to "normal" levels and reloading the barrel of monetary policy to cope with future economic shocks has been made 39, all the more difficult

. of particular concern at a time when the leader of the free world is unraveling the rule-based international system with intensified trade war.

Australia's property frenzy seems to have ended just in time. The real test for policy makers will be to prevent this from happening again