Episode Details

Is this the beginning of the end of the property boom?

If you've been following the property news lately you be forgiven for thinking so.

The Chiefs of two of the biggest banks have suggested that regulators should step in and introduce macro-prudential controls to slow down our booming housing markets.

In the closing statements of the 'Housing Market and Financial Stability' speech delivered by the RBA's Assistant Governor Michele Bullock on Wednesday, Bullock hinted at the possibility that the RBA could intervene in Australia's housing market.

The International Monetary Fund has issued warning about Australian house prices and Digital Finance Analytics principal Martin North gave a chilling forecast that home prices in Sydney and Melbourne outer suburbs could fall a staggering $200,000 while the crash could be even worse for apartments when lending rules were tightened.

So, should we be scared?

That's what I'm going to be chatting about with Australia's leading housing economist Dr. Andrew Wilson today.

And here's a spoiler alert – NO you don't need to worry!

Now if you have been a subscriber to this podcast for a while or followed my blogs or YouTube videos, you'd know for the last 3 years I have recorded a weekly Property Insiders video chat with Dr Andrew Wilson.

And his assessment of and forecasts for our economy and property markets have been remarkably accurate so whether you're a beginning property investor or an experienced I'm sure you'll benefit from my chat with Andrew today which is the audio of one of our recent Property Insider videos.

However, since we recorded this video Federal Treasurer Josh Frydenberg has given the green light to introducing macroprudential curbs to mortgage lending.

The last time lending restrictions were implemented in 2017, the focus was on dampening investor lending and the high percentage of interest-only mortgages.

However, this time around the main concern seems to be an increasing share of loans on a high debt-to-income ratio.

22 percent of new mortgage holders now have debt that exceeds their income by more than six times, up from 16 percent a year ago.

But, as you'll hear Andrew Wilson explain in our chat, regulators should be aware of unintended consequences. Their crackdown is likely to hit first home buyers rather than Australia's wealthy.

Targeting debt-to-income ratios will have a limited impact on higher-wealth households, who often have multiple streams of income. However, it will affect lower-income households and those purchasing property for the first time.

There are several reasons the debt-to-income ratios have risen over the past year.

Firstly, low interest rates by their nature allow people to service more debt as repayments fall.

And second, the share of lending to first-home buyers has increased significantly on the back of HomeBuilder, the federal government's First Home Loan Deposit Scheme, and individual state government incentives. First-home buyers tend to be more indebted as they stretch to get into the market.

Given improving homeownership rates is the goal of these government schemes, it seems counterproductive to limit first-home buyers by reducing their ability to borrow.

And another reason that debt to income ratios have increased is that many established homeowners have upgraded their homes over the last year or two, partly because of the low-cost borrowing, partly because the value of the home has increased considerably given them equity to upgrade and also because of the increased requirements for more space such as a zoom room, etc.

My Property Update Chat with Andrew Wilson

Looking back over the first 9 months of this year, our property markets have performed even more strongly than anyone ever expected, with the rates of house price growth at levels not seen for a number of decades.

In