U.K. moves to cool property market
The Bank of England says U.K. house price inflation is accelerating and spreading out from London.
Governor Mark Carney said it was important to act now on house prices to avoid more dramatic intervention later. He wants to prevent risks to financial stability that may grow if there are further substantial and rapid increases in house prices and a further build-up of household indebtedness. (Sounds just like the RBNZ recent comments).
The USA too
Dallas Fed President Richard Fisher said "I'm beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble," said.
Fisher warned that the Fed's easy money policies, which have kept mortgages rates ultra low, could be driving house prices “too high too soon.”
Many fear that bubbles are brewing within China's housing market. In September, prices rose at the fastest pace in almost three years, according to the latest housing data released in November. In Beijing, prices rose by 16%, Shanghai 17%, and Shenzhen 20% from a year earlier.
The RBNZ and the government in NZ are worried too. Last year the NZ government showed some resolve by removing tax deductions for depreciation on rental properties. The RBNZ often use “jawboning” to get the outcome they want, but have now acted much more decisively by requiring minimum deposits of 20%.
This is new official resolve that we have not seen before in NZ.
Noble Prize winning economist Robert Shiller has warned Brazilian home prices have entered bubble market territory. In Brazil's biggest cities, Sao Paulo and Rio de Janeiro, home prices have risen 188% and 230%, respectively, since January.
Mortgage debt as a percentage of disposable household income has climbed to a record 15%.
Sydney average home prices rose by 13% so far this year to a record $718,122. That's higher than London, where the average is $536,236 and close to New York, where the average is $806,000.
The IMF urged regulators to keep a closer eye on property investments to ensure banks maintain strict lending standards. In September, Australian central bank officials warned lenders against being too eager to offer mortgages to customers.
The regulators really fear another global financial crisis (GFC)
The GFC was at least partly caused by some US leaders wanting everyone to be a home owner and so (before 2007) made it possible for just about anyone to borrow 100% to get a home. A lofty goal, but one that could not possibly work.
This created a huge property bubble, and attracted all sorts of undesirable market participants. Inevitably lots of borrowers could not repay, and it all turned to custard - the GFC.
We all know the resulting pain the GFC caused, with millions of people losing their jobs, homes, businesses and savings. And of course the innocent suffer most – older folk and in children in particular.
Understandably politicians and regulators around the world are absolutely determined to avoid another GFC, at least as much as they can.
Super edgy regulators are now watching housing markets like hawks, and the possible end result of a property boom “too soon” after the GFC could see;
- regulators act more and more to cool prices
-lower capital gains in property
If the regulators fail, another big bust is entirely possible, and millions of innocent people will suffer as a result - again ! Let’s hope , indeed pray, that they succeed.
Next week - a resilient investment portfolio for property lovers
Supplied by Alan Clarke, financial & retirement adviser, & author. His second book is virtually complete, & he also writes regular articles for the media & on line – see www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.