Are banks responsible for the housing slump? Or should regulators and others share the blame?
Royal commissioner Kenneth Hayne QC is set to hand over today a report by the banking royal commission, to be released to the public on Monday.
It appears that the big banks are rejecting up to 50 per cent of home loan applications, and word is that there may be even more restrictions forthcoming.
According to Ray White deputy chairman Same White, the royal banking commission, while kicked off due to irresponsible lending, has itself created a great deal of uncertainty in the real estate market to the extent that even credit teams are unsure whether to approve or reject loan applications.
"There's no upside in saying yes, only downside, so it's easier to say no.
"For most of the major lenders - the big four banks - the decline rates would be above 40 per cent at the moment... Even in the GFC, it was nothing like this."
It seems likely that Mr Hayne's recommendations will make it even more difficult to get loans approved.
Lenders will have to more fully verify customers' income and real living expenses. Currently they tend to rely on expenditure benchmarks, which may not apply to a given individual.
The industry expects Mr Hayne to recommend broad reforms in the banking, financial services, and superannuation sectors, since the interim report from the commission blamed industry greed for widespread misconduct.
Domain's senior research analyst Dr. Nicola Powell said that previous downturns were caused by interest rate rises or economic changes, but the current slump is driven by restricted access to credit.
"The current slowdown is new territory for Australia's housing market.
"As banks pre-emptively tighten lending standards prior to the banking royal commission's final report... it is unlikely we will see any further dramatic changes to the lending landscape."
While other factors may be involved, others have placed blame on the banks as well.
Westpac chief exec Brian Hartzer recently proclaimed that banks "want to lend", but Chris Richardson, partner in Deloitte Access Economics, said regulators were too slow to spot the risks of record-low spending rates, as the banks went from lending too much to lending too little.
Mr Richardson also blamed the Reserve Bank of Australia and the banking regulator APRA for slow responses to earlier excesses in the housing market.
He said "lots of people and institutions are to blame."
"They [banks] were part of it, they went from lending too much to lending too little, but that sort of over-the-top reaction was evident in a range of things. Most notably, the Reserve Bank and regulators were too late to recognise the housing markets were overdoing it."
He also said, however, that the current decline is a "healthy correction" which was necessary after a sustained period of rapid growth.
"We've had pump-and-dump - prices went too high and are now returning to something more sensible."
Louis Christopher, property market economist, said Brian Hartzer's claim that banks were not to blame is "laughable". He said lenders' current heavy scrutiny of applicants' expenses is responsible.
"We know the banks have been changing their systems so that there is a heavy focus on individual expenses. They are being overzealous and going overboard."
He also said most people who opine about the subject are neglecting to acknowledge that regulators have means to respond to the market slowdown.
"They can cut interest rates, they can loosen credit lending, we know APRA has responded by taking restrictions off interest only lending.
"The federal government can do things like first home buyer grants. History shows the market responds in 3-4 months within those policy measures.
"Overreaction could risk housing prices falling faster than otherwise, but the main task of policy makers is to have the right regulatory structure going forward and to be more careful to ensure it's actually enforced and followed through."
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