Wayne Byres, head of APRA says it will "keep its caps on loans to property investors in place until household debt levels stabilise."
Since the house price bubble mirrows the mortgage debt bubble, this declaration by APRA in effect is a declaration of determination to stop Australian house prices rising. And since, we know from history, that bubbles do not just peak and then stabilise, almost by definition this will bring an end to the house price bubble. That is, it will bring on the house price crash. Speculators in residential property, seeing no more capital gains potential when house prices level out, will start selling down their residential property portfolios, bringing on the house price crash.
A few more quotes from this article:
Australian Prudential Regulation Authority chairman Wayne Byres said that while lending restrictions in interest-only and investor loans were working, it won't step back until it sees household debt levels stabilise and lending standards increase. "For those of you who chafe at the constraint, their removal will require us to be comfortable that the industry's serviceability standards have been sufficiently improved and – crucially – will be sustained,"
"We will also want to see that borrower debt-to-income levels are being appropriately constrained in anticipation of, eventually, rising interest rates."
Mr Byres said he expected that in a period of high house prices, low interest rates, weak income growth and rising household debt levels, bankers would respond by tightening lending standards, which had "absent regulatory intervention, been drifting the other way". The, banks, Mr Byres said, have favoured increased market share over prudence. "That temptation has, unfortunately, been widespread and not limited to a few isolated institutions – the competitive market pushes towards the lowest common denominator."
In a separate report published on Monday, credit rating agency Moody's Investors Service said Australia's high household debt levels remained a "long-term threat to financial stability". A sharp rise in property values had pushed household debt-to-income levels to a historic high of 190 per cent, and while unemployment was low, underemployment was on the rise. "Highly indebted households experiencing only moderate income growth are vulnerable to a rise in interest rates or a deterioration of their finances, which could lead to a housing market downturn and larger losses for banks," Moody's said.