Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

Joel Robinson

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
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</section>

[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

Local Little Bay residents, along with buyers from premium postcodes across Sydney’s affluent Eastern Suburbs, have dominated purchases in developer-builder Urban Property Group’s first Eastern Suburbs apartment development, <a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a>.

The $250 million coastal project, one of the first new developments in the area in several years, has proven particularly popular with downsizers, especially those from Coogee and Bondi. One Double Bay downsizer paid $4.7 million for a four-bedroom penthouse, setting a new local apartment price record in the process.

Buyers have been attracted to the combination of coastal tranquillity, premium design and amenity-rich neighbourhood living. The walkable village setting, along with proximity to three of Sydney’s leading golf courses, New South Wales Golf Club, St Michael’s Golf Club and The Coast Golf Club, has also been a key drawcard.

[smartcode_project:default project_id=112343 project_image_fid=352689]

Built across two low-rise buildings designed by <a href="https://www.apartments.com.au/architects/hill-thalis-architecture-urban-projects-pty-ltd">Hill Thalis</a> and set along a lush, landscaped green spine, designed by leading landscape architect <a href="https://www.apartments.com.au/landscape-architect/arcadia-landscape-architecture">Arcadia</a>, ESTE Little Bay offers a collection of one, two, three and four-bedroom residences with interiors by Richards Stanisich.

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> Sales Director, Tom McIvor said the response to ESTE has been "nothing short of extraordinary."

“Buyers have been quick to recognise ESTE as a rare opportunity to invest in a coastal sanctuary that offers both seclusion and connectivity to the heart of Sydney,” McIvor said.

[smartcode_project:default project_id=112343 project_image_fid=352687]

<a href="https://www.apartments.com.au/project-marketer/srm-residential">SRM Residential</a> Senior Director, <a href="https://www.apartments.com.au/project-marketer/srm-residential">Clayton Ross</a> said the local market has responded incredibly well, driven by ESTE’s exceptional location and the rarity it offers.

“We’ve seen strong interest from a variety of buyer groups, all of whom are drawn to the exclusivity and quality of the build and construction by the 4.5-star iCIRT-rated builder / developer, Urban Property Group. There’s truly nothing else like it along Sydney’s coastline.”

[smartcode_project:default project_id=112343 project_image_fid=352690]

The project also includes robust buyer protections, including Resilience Insurance’s Latent Defects Insurance, providing 10 years of structural cover, and an independent iCIRT-rating of the developer.

“The iCIRT-rating adds another layer of confidence,” Ross added. “Buyers see it as a safeguard for their investment and their lifestyle.” A highlight of ESTE’s offering is its exclusive wellness amenities, including a heated rooftop infinity pool and outdoor heated spa, a state-of-the-art Technogym fitness centre, and a sauna.

<a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a> is topped out and is on track to complete towards the end of 2026, with residents moving in before Christmas.

[smartcode_project_cta:default project_id=112343]

Eastern Suburbs buyers snap up ESTE Little Bay apartments

Household Debt

jrobinson-rf4aSBido9

The evolution of household sector risks: RBA's Michele Bullock

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<div>EXPERT OBSERVATION</div>
<div> </div>
<div>There was a flurry of excitement back in January when previously reported 2017 figures implied that Australia's household debt pile had temporarily nudged against twice disposable income. </div>
<div> </div>
<div>However, the headline number was subsequently revised down.</div>
<div> </div>
<div>The latest ratios from the Reserve Bank of Australia (RBA) show household debt now sitting at at 1.9x disposable income.</div>
<div> </div>
<div>Or 190.13 per cent as at March 2018, to use a bit of false precision, up from 183.51 per cent a year earlier. </div>
<div> </div>
<div>Click here <a href="https://4.bp.blogspot.com/-Jg6DW-0Q4mU/WzqepI3WnUI/AAAAAAAAq2g/IgMCJx3uRN4KTafsk-RgZdhKL9lqNlKiACLcBGAs/s640/RBA1.jpg" target="_blank">to enlarge.</a>
</div>
<div> </div>
<div class="separator"><img src="https://4.bp.blogspot.com/-Jg6DW-0Q4mU/WzqepI3WnUI/AAAAAAAAq2g/IgMCJx3uRN4KTafsk-RgZdhKL9lqNlKiACLcBGAs/s640/RBA1.jpg" width="640" height="392" data-original-height="803" data-original-width="1310"></div>
<div> </div>
<div>There's a lot of debate about what this debt ratio should or shouldn't be.</div>
<div> </div>
<div>It will probably remain higher than was previously normal given the structure of Australia's population and immigration profile, with policy generally taking a keener regard of interest payments and serviceability. </div>
<div> </div>
<div>Although this is a revised series high, the rate of increase has slowed somewhat (while the gross figure also doesn't account for the record mortgage buffers and use of offset accounts racked up through this cycle).</div>
<div> </div>
<div>Moreover, given the precipitous drop in both the stock and flow of interest-only mortgages the ratio is likely to peak relatively soon as income growth also moves beyond the nadir. </div>
<div> </div>
<div>Anecdotally lenders are making it very difficult for brokers and borrowers to see loans written at the present time, which I believe will see the seasonally adjusted monthly value of investment loans pushed down to around $10 billion by the middle of the year, from nearly $15 billion at the 2015 peak.</div>
<div> </div>
<div>Money growth is now at its lowest level in 26 years, and investor credit growth is at a record low of just 2 per cent, even before accounting for headcount growth and inflation. </div>
<div> </div>
<div>
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.
</div>
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pwargent-M4siyDbqQY

Household debt higher over 12 months to March

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EXPERT OBSERVATION
The ANZ/Roy Morgan weekly consumer sentiment jumped 6.5 points (5.6%) to 21-week high of 123.0 points.
The Westpac/Melbourne Institute survey of consumer sentiment index rose by 0.3% to 102.1 in June. The index is above its long-term average of 101.5. A reading above 100 denotes optimism.
In the latest quarterly survey 22.5% of respondents thought the ‘wisest use of savings’ was to pay down debt.
In the Reserve Bank Governor speech entitled “Productivity, wages and prosperity” the Governor highlighted evidence of a growing “skills shortage” in Australia.
The consumer confidence figures have implications for retailers, and other consumer-focussed businesses.
What does it all mean?
When you weigh all the ‘big picture’ influences, Aussie consumers have little to be despondent about. The economy has completed 26 years of uninterrupted economic growth and the pace of annual growth now tops 3%. But inflation is contained, interest rates are at generational lows, unemployment is below the long-term average and sharemarket returns are up more than 10% on a year ago. The main worry is the high price of petrol and the fact that Aussie consumers and travellers would probably like the Aussie dollar a little higher than where it is currently.
Rising home prices didn’t drive consumer sentiment higher in the past few years and the rebalancing probably won’t lead to weaker consumer confidence. Overall, consumers tend to keep everything in perspective. In most capital cities, home prices have posted solid gains over the past five years.
Roy Morgan believes that the early start to winter clearance sales by department stores and chains may have also been a factor in lifting confidence last week.
While consumers are confident, they also remain conservative. Almost a quarter of consumers surveyed thought the wisest use of new savings was to pay down debt – the second highest response behind leaving the money in the bank. Almost 12% thought real estate was the best investment with around 9% opting for shares.
The Reserve Bank Governor has continued to indicate that the next move in interest rates will be up, but the move is “still looks to be some time away”. There needs to be a lift in inflation and wages before the Board is confident to lift rates.
The Reserve Bank Governor has highlighted growing evidence of a “skills shortage” in Australia. Governor Lowe believes this adds to the case that higher wages and prices are in prospect. However he stresses that this will be a gradual process.
The Reserve Bank Governor said the design of the tax system was important for future productivity. He didn’t elaborate on the point – perhaps he should have.
What do the figures show?
Weekly consumer confidence
The ANZ/Roy Morgan weekly consumer sentiment jumped 6.5 points (5.6%) to 21-week high of 123.0 points. All five components rose in the latest week.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/consumer1.jpg" target="_blank">Click here to enlarge.</a>
<a href="https://www.propertyobserver.com.au/images/2018/6/13/consumer1.jpg" target="_blank"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/13/consumer1.jpg" alt=""> </a>
Monthly consumer confidence
The Westpac/Melbourne Institute survey of consumer sentiment index rose by 0.3% to 102.1 in June. The index is above its long-term average of 101.5. A reading above 100 denotes optimism. The survey was conducted from June 4-10.
The current conditions index rose by 2.4%, but the expectations index fell by 1.0%.
Three of the five the components of the index increased in March:
- The estimate of family finances compared with a year ago rose by 4.5%;
- The estimate of family finances over the next year rose by 2.8%;
- Economic conditions over the next 12 months fell by 1.0%;
- Economic conditions over the next 5 years fell by 3.1%;
- The measure on whether it was a good time to buy a major household item rose by 1.0%.
Housing outlook: A good time to buy a dwelling? The index rose by 4.5% in June is up by 16.3% from a year ago. And house price expectations fell by 7.3% and is down by 10.2% on a year ago.
Unemployment expectations: Unemployment expectations rose by 5.7% in June, but are down by 9.6% over the year.
Wisest place for savings: On the question of the ‘wisest place for savings’, banks (27.7%) led the way from paying down debt (22.5%). Only 11.6% of respondents selected real estate and 8.6% nominated shares. The proportion of consumers opting to put money in superannuation (6.8%) was the second highest in a decade. Only 4.6% of people said they would prefer to spend any extra savings. Interestingly the proportion of consumers favouring cash management trusts (3.3%) was at a 12-year high.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/debt3.jpg" target="_blank">Click here to enlarge.</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/13/debt3.jpg" alt=""> 
Reserve Bank Governor Speech
“The national accounts provided confirmation that the Australian economy is moving in the right direction. If this continues to be the case, it is likely that the next move in interest rates will be up, not down. It is, however, important to remember that the environment in which interest rates are increasing is also likely to be one in which people's incomes are growing more quickly than they are now. This will help.”
“One area that we continue to watch carefully is consumption growth. Over the year, household consumption rose by 2.9%. This is a reasonable outcome, although growth in the March quarter was on the soft side.”....”we are paying close attention to household finances.”
“While we can't be definitive about what constitutes full employment, most conventional estimates for Australia are that it means an unemployment rate of around 5%....It is possible, though, that we could do better than this, especially if we approach the 5% mark at a steady pace, rather than too quickly.”
The Governor has identified lower wage growth in the mining sector, increase in labour force participation, labour force underutilisation, and the fact that benefits of new technologies are accruing unevenly across the community as some of the factors explaining lower growth of wages.
<a href="https://www.propertyobserver.com.au/images/2018/6/13/wage-growth.jpg" target="_blank">Click here to enlarge.</a>
 <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/6/13/wage-growth.jpg" alt="">
“some pick-up in wages growth would be a welcome development. It would help deliver a rate of inflation consistent with the target, it would help with the debt situation and it would add to our sense of shared prosperity.... In my judgement, a return, over time, to a world where wage increases started with a 3 rather than a 2 is both possible and desirable.”
What is the importance of the economic data?
Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
What are the implications for interest rates and investors?
Aussies remain optimistic. When you weigh up all the influences, it is easy to see why. More confident consumers are more likely to spend – positive for retailers. Rising employment, improved job security and stable interest rates represent a heady mix, giving shoppers the ammunition to embrace the mid-year sales.
CommSec doesn’t expect a change in official interest rates until early 2019. But the area to watch is the job market and especially survey evidence of skills shortages, leading to higher wages.
Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>. 
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cjames-5S2v74qSNK

Confident consumers still keen to pay down debt: CommSec

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EXPERT OBSERVATION
While the global economy is seeing its fastest growth in years and the US Federal Reserve has increased rates five times since December 2015 and is on track for more hikes this year, the Reserve Bank of Australia (RBA) has now left interest rates on hold for a record 21 months in a row.
The Australian economy is in a very different position to the US. While the RBA continues to expect that the next move in rates is most likely to be up, and we tend to agree, we now don’t see a hike until sometime in 2020. And the next move being a cut cannot be ruled out. This note looks at the reasons and what it means for mortgage rates, the $A and investors.
Five reasons why rates will be on hold into 2020
We have been looking for a rate hike in early 2019, but have now pushed that out to 2020 for the following reasons:
• First, growth is likely to remain below RBA expectations. A bunch of factors will help keep the economy growing: the drag on growth from falling mining investment is largely over; non-mining investment is rising; infrastructure investment is booming; and net exports should add to growth helped by strong global conditions.
However, against this housing construction is slowing and consumer spending is constrained with downside risks around slow wages growth, high debt levels and falling house prices in Sydney and Melbourne.
Personal tax cuts likely to be tabled in the Budget will help keep the consumer going but are unlikely to offset all the drags. So while growth will likely improve from the 2.4% pace seen last year, it is likely to be to between 2.5% and 3%, below RBA expectations for a pick up to 3.25%.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/3/AMP%201.jpg" alt="">
• Second, wages growth and inflation are likely to remain low as growth is unlikely to be strong enough to eat into significant spare capacity in the Australian economy.
Some say Australian rates just follow those in the US but there has been a big divergence in recent years.
In 2009 while the Fed left rates near zero the RBA started raising rates only to start cutting them from 2011. And while the Fed started hiking rates in 2015 we continued cutting them in 2016.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/3/AMP%202.jpg" alt="">
There is good reason for the RBA to lag the Fed. Labour market underutilisation (see next chart) at 8% in the US is about as low as it ever gets whereas in Australia its around 14%.
If wages growth is only just starting to pick up in the US despite a much tighter labour market it’s no surprise that it will take much longer in Australia.
Continuing weak wages growth along with excess capacity and high levels of competition in goods markets will keep underlying inflation around the low end of the RBA’s 2-3% target for a lengthy period yet.
• Third, bank lending standards are going through yet another round of tightening as the household debt boom comes to an end, doing the RBA’s work for it.
Now it relates to policies and practices around borrowers’ income, expenses and total debt levels.
This has been driven by APRA which is shifting away from blunter constraints on lending to certain categories of borrowers (such as the 10% speed limit on credit growth to property investors) and is receiving added impetus now.
This will particularly hit lower income borrowers and high home price to income markets like Sydney and Melbourne.
Tougher checking of income and expenses and constraints in terms of the amount of loans going to high total debt to income borrowers will likely lead to a slowing in credit growth in the months ahead.
While a credit crunch is unlikely its hard to reliably predict the impact of tighter lending standards.
• Finally, house prices are slowing led by falling prices in Sydney and Melbourne with more weakness likely. APRA measures to constrain investor and interest only borrowers have worked.
These measures, combined with poor affordability, rising unit supply, falling expectations for price growth and the end of FOMO (fear of missing out) are pushing prices down.
The latest round of tighter lending standards will add to this, as will any move to lower immigration levels (and curtail negative gearing and the capital gains tax discount were there to be change in government).
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/3/AMP%203.jpg" alt="">
Capital cities other than Sydney and Melbourne face a much better outlook as they did not see the same boom in recent years.
However, we see prices in Sydney and Melbourne falling another 5% this year, another 5% next year and with further slight falls in 2020.
We are running around levels for price growth and auction clearance rates that in the past have been associated with the start of interest rate cutting cycles (in September 2008 and November 2011 – see the previous chart), not rate hikes!
The risks of a sharper fall in prices if investors lose faith, homeowners decide to reduce high debt levels and if the shift from interest only to principle and interest for many borrowers over the next few years creates problems needs to be allowed for. Raising rates when prices are falling will accentuate these risks.
As a result of these considerations, we have pushed our timing regarding the start of interest rate increases into 2020.
Of course, the risk here is that by 2020 the US economy may be weakening making it hard for the RBA to then start considering rate hikes. And of course, if the declines in home prices turn out to be deeper the next move could end up being a cut.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/3/AMP%204.jpg" alt=""> Won’t mortgage rates rise anyway?
Since the time of the GFC “out of cycle” changes in bank mortgage rates have been common.
However, the main driver of significant changes in mortgage rates remains what the RBA does with the cash rate – see the next chart.
It cut from 2008 and mortgage rates fell. It hiked from October 2009 and mortgage rates rose. It cut from November 2011 and so mortgage rates fell.
This makes sense as the banks get around 65% of their funding from bank deposits the main driver of which is the cash rate.
However, the remaining 35% can cause some variation as will regulatory changes which saw higher rates for investors and interest only borrowers recently.
There are two main pressures at present. The first is a rise in money market funding costs in the US and Australia of around 0.3 to 0.4%.
Given that only 10-15% of bank funding comes from this source its unlikely to have much impact. And the banks are unlikely to pass on the extra costs to owner occupiers on traditional loans given the Royal Commission, but banks could raise rates for investors and interest only borrowers.
Higher US bond yields could also place some pressure on bank funding costs but again this is likely to be modest, and probably unlikely to result in higher rates for owner occupiers on traditional loans.
The main thing for traditional borrowers to watch is the cash rate. If we are right, such borrowers will see pretty stable mortgage rates out to 2020.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/5/3/AMP%205.jpg" alt=""> What about the Australian dollar?
With the RBA likely on hold and the Fed set to keep hiking the interest rate gap between Australia and the US will go further into negative territory.
Historically, this means a fall in the value of the Australian dollar. The $A appears to be starting to break below the rising trend channel that’s been in place since 2015 and we see more downside to around $US0.70. A fall to below $US0.50 as we saw in 2001 is unlikely as commodity prices are likely to remain much stronger than they were then.
Implications for investors
First, bank deposits are likely to continue providing poor returns for investors for a while yet.
Second, as a result assets that are well diversified and provide decent income flow remain worthy of consideration. This includes unlisted commercial property and infrastructure along with Australian shares which continue to offer much higher income yields compared to bank deposits.
Third, Australian bonds are likely to outperform global bonds which are dominated by the US as US bond yields rise (on the back of Fed tightening) relative to Australian yields (which will be constrained by on hold RBA cash rates).
Finally, with the $A likely to fall further there is reason to keep a decent exposure to global assets on an unhedged basis.
Shane Oliver is Head of Investment Strategy and Chief Economist at AMP Capital.
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soliver-smf6LQXgW9

Interest rates on hold until 2020: Shane Oliver

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EXPERT OBSERVATION
There's so much more commentary around than there used to be that I should probably direct a bit more attention to trying to blog about things that don't get a whole lot of coverage elsewhere.
Here are a four things that sprang to mind last week. 
Narrative change
Firstly, it looks to be as though household debt might feasibly peak at around 1.9x annual household disposable income. 
It was a front page splash a little while back when UBS reported that Australia's household debt to disposable income ratio was shockingly high at 2x and projected that it would balloon all the way out to 2.05x.
Then again it seems almost everything UBS reports about Australian housing is front page news these days.
In the event it turned out that not only was this not to be the case, the actual ratio was in fact just 1.88x.
The Australian Bureau of Statistics (ABS) confirmed a misaollocation of household debt in its data, which in turns flows through to the derived ratios. 
Interest-only mortgage lending also really began to plummet in the September 2017 quarter and continued to do so thereafter, so in my best estimates the debt ratio won't get anywhere near 2x. 
You'd think this might get a bit more airtime than it has after all the preceding hullabaloo, but debt being revised lower isn't much of an attention-grabbing headline. 
<a href="https://3.bp.blogspot.com/-Tw2MA69_Ygc/WsIXCBirZ0I/AAAAAAAApOY/T9fT3kwqhy4Rj4eLSMklIbNELYHVz-hiwCLcBGAs/s1600/HW4.jpg"><img src="https://3.bp.blogspot.com/-Tw2MA69_Ygc/WsIXCBirZ0I/AAAAAAAApOY/T9fT3kwqhy4Rj4eLSMklIbNELYHVz-hiwCLcBGAs/s640/HW4.jpg" width="640" height="404" data-original-height="831" data-original-width="1316"></a>
Secondly, last week the ABS reported its Household Finance &amp; Wealth statistics for the December 2017 quarter, which showed household wealth soaring to $10.2 trillion (this did get some great coverage from Commsec, with its outstanding daily analysis as always). 
<a href="https://3.bp.blogspot.com/-dRYJJnwyNVs/WsIPr4m0F8I/AAAAAAAApN0/Z-vC01Eda78oiEvfhIZ41wCMmPgav0f_ACLcBGAs/s1600/HW2.jpg"><img src="https://3.bp.blogspot.com/-dRYJJnwyNVs/WsIPr4m0F8I/AAAAAAAApN0/Z-vC01Eda78oiEvfhIZ41wCMmPgav0f_ACLcBGAs/s640/HW2.jpg" width="640" height="388" data-original-height="818" data-original-width="1348"></a>
This put Australia's estimated average net worth per capita at more than $411,000, representing a new high with average wealth up by about $16,000 in 2017, though global stock markets perhaps look set to take a hit in early 2018. 
Many commentators believe Australia is lacking in potential drivers of growth, yet we're sitting on a greater average household wealth than any other country in the world bar Switzerland, so a few tweaks on the right policy levers could potentially unlock plenty of consumption. 
<a href="https://4.bp.blogspot.com/-tpGxTSHm-Eo/WsIPr2Lvh2I/AAAAAAAApNw/g6-EKwlRy78Klopxagazv0ALnfkmeTc9gCLcBGAs/s1600/HW3.jpg"><img src="https://4.bp.blogspot.com/-tpGxTSHm-Eo/WsIPr2Lvh2I/AAAAAAAApNw/g6-EKwlRy78Klopxagazv0ALnfkmeTc9gCLcBGAs/s640/HW3.jpg" width="640" height="386" data-original-height="830" data-original-width="1370"></a>
Debt now being repaid
Through 2017 there was a huge shift in interest-only lending from 37.5% of new housing loans at the end of 2016 to just 15.2% by the final quarter of 2017. 
While you have to make a few assumptions to work out exactly what might happen next, it seems quite possible that the household debt ratio could soon begin to fall, from the already-revised lower level. 
A recent stock market release from the Commonwealth Bank of Australia (ASX: CBA) noted that more than a quarter of its interest-only loans will roll off this year, with some existing borrowers voluntarily opting to switch to principal and interest mortgages for the cheaper rates. 
Thirdly, then, while there has been a lot of focus on BBSW rates this week, partly of a result of switching to cheaper mortgage rates the derived household interest payable to income ratio was actually lower than a year earlier by the end of 2017 at just 10.2%. 
<a href="https://3.bp.blogspot.com/-fKWVWJnwm4M/WsIPrxlvEmI/AAAAAAAApNs/FTRSLbDXC_AB6QvMXO_oDSzrklTIcYu4gCLcBGAs/s1600/HW1.jpg"><img src="https://3.bp.blogspot.com/-fKWVWJnwm4M/WsIPrxlvEmI/AAAAAAAApNs/FTRSLbDXC_AB6QvMXO_oDSzrklTIcYu4gCLcBGAs/s640/HW1.jpg" width="640" height="388" data-original-height="834" data-original-width="1370"></a>&lt;
Another factor which might help to push the household debt to income ratio lower by the end of this year is that average earnings are now <a href="http://petewargent.blogspot.com.au/2018/02/best-earnings-growth-since-2014-led-by" target="_blank">rising again at the fastest pace since 2014</a>.
Greater Sydney, which now has an <a href="http://petewargent.blogspot.com.au/2018/03/sydney-unemployment-rate-continues-to" target="_blank">annual average unemployment rate of just 4.5%</a>, is leading the way in terms of the earnings recovery. 
The cost of living has an impact on the ability of households to pay down debt and consume, of course, but today's monthly inflation gauge recorded a very modest +0.1% increase, and that followed a -0.1% decrease in the preceding month. 
There's been plenty of talk about rising living costs as a result of supply shocks, but as more households shift their focus to paying down debt it seems mighty hard to visualise core inflation getting anywhere near to the top of the target 2-3% band over the next few years.
In any event, if the money supply is any worthwhile precursor at all to inflationary pressures, the growth in M3 hit its lowest levels in a quarter of a century at the last count. 
<a href="https://4.bp.blogspot.com/-mDTqh8AN0Y8/WsIcRA6AoaI/AAAAAAAApOo/PRn-x-w4K-QxTi-cPnvwB0YeADHonNfJgCLcBGAs/s1600/HW5.jpg"><img src="https://4.bp.blogspot.com/-mDTqh8AN0Y8/WsIcRA6AoaI/AAAAAAAApOo/PRn-x-w4K-QxTi-cPnvwB0YeADHonNfJgCLcBGAs/s640/HW5.jpg" width="640" height="388" data-original-height="832" data-original-width="1371"></a>
Another factor which might help to push the household debt to income ratio lower by the end of this year is that average earnings are now <a href="http://petewargent.blogspot.com.au/2018/02/best-earnings-growth-since-2014-led-by" target="_blank">rising again at the fastest pace since 2014</a>.
Greater Sydney, which now has an <a href="http://petewargent.blogspot.com.au/2018/03/sydney-unemployment-rate-continues-to" target="_blank">annual average unemployment rate of just 4.5%</a>, is leading the way in terms of the earnings recovery. 
The cost of living has an impact on the ability of households to pay down debt and consume, of course, but today's monthly inflation gauge recorded a very modest +0.1% increase, and that followed a -0.1% decrease in the preceding month. 
There's been plenty of talk about rising living costs as a result of supply shocks, but as more households shift their focus to paying down debt it seems mighty hard to visualise core inflation getting anywhere near to the top of the target 2-3% band over the next few years.
In any event, if the money supply is any worthwhile precursor at all to inflationary pressures, the growth in M3 hit its lowest levels in a quarter of a century at the last count. 
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The narrative around household debt is changing: Pete Wargent

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GUEST OBSERVER
If Australia has an Achille’s heal it’s the high and still rising level of household debt that has gone hand in hand with the surge in house prices relative to incomes.
Whereas several comparable countries have seen their household debt to income ratios pull back a bit since the Global Financial Crisis (GFC), this has not been the case in Australia.
Some worry Australians are unsustainably stretched, and it is only a matter of time before it blows up, bringing the economy down at the same time. Particularly now that global interest rates are starting to rise. This note looks at the main issues. 
Australia - from the bottom to the top in debt stakes 
The chart below shows the level of household debt (mortgage, credit card and personal debt) relative to annual household disposable income for major countries. 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%201.jpg" alt="">
While rising household debt has been a global phenomenon, debt levels in Australia have gone from the bottom of the pack to near the top.
In 1990, there was on average $70 of household debt for every $100 of average household income after tax. Today, it is nearly $200 of debt (not allowing for offset accounts) for every $100 of after tax income. 
Why has debt gone up so much in Australia? 
The increase in debt reflects both economic and attitudinal changes. Memories of wars and economic depression have faded and with the last recession ending nearly 27 years ago, debt seems less risky. Furthermore, modern society encourages instant gratification as opposed to saving for what you want.
Lower interest rates have made debt seem more affordable and increased competition amongst financial providers has made it more available. So, each successive generation since the Baby Boomers through to Millennials have been progressively more relaxed about taking on debt than earlier generations. 
It’s not quite as bad as it looks 
There are several reasons why the rise in household debt may not be quite as bad as it looks: 
<ul>
<li>Firstly, higher debt partly reflects a rational adjustment to lower rates and greater credit availability via competition. </li>
<li>Secondly, household debt has been rising since credit was first invented. It is unclear what a “safe” level is. This is complicated because income is a flow and debt is a stock which is arguably best measured against the stock of assets or wealth. </li>
<li>The rise in the stock of debt levels has been matched by a rise in total household wealth in Australia. Thanks to a surge in the value of houses and a rise in financial wealth, we are far richer. Wealth rose 9.5% last year to a new record. The value of average household wealth has gone from five times average annual after tax household income in 1990 to 9.5 times today. <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%202.jpg" alt="" style="font-size: 12.16px;">
</li>
</ul>
So, while the average level of household debt for each man, woman and child in Australia has increased from $11,837 in 1990 to $93,943 now, this has been swamped by an increase in average wealth per person from $86,376 to $475,569. 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%203.jpg" alt="">
As a result, Australians’ household balance sheets, as measured by net wealth (assets less debt), are healthy.
Despite a fall in net wealth relative to income through and after the GFC as shares and home prices fell, net wealth has increased substantially over the last 30 years and is in the middle of the pack relative to comparable countries.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%204.jpg" alt=""> 
<ul>
<li>Fourthly, Australians are not having major problems servicing their loans. According to the Reserve Bankís Financial Stability Review non-performing loans are low and Census and Household Expenditure Survey data shows that mortgage stress has been falling. Of course, this may reflect low mortgage rates with interest costs as a share of income running a third below its 2008 high. </li>
</ul>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%205.jpg" alt="">
<ul>
<li>Fifthly, debt is concentrated in higher income households who have a higher capacity to service it. This is particularly the case for investment property loans.</li>
<li>Sixthly, a disproportionate share of the rise in housing debt over the last 20 years owes to investment property loans. As servicing investment loans is helped by tax breaks the debt burden is not even as onerous.</li>
<li>Finally, lending standards have not deteriorated to the same degree in Australia as they did in the US prior to the GFC where loans were given to NINJAs borrowers with no income, no job and no assets. </li>
</ul>
What are the risks? 
None of this is to say the rise in household debt is without risk. Not only has household debt relative to income in Australia risen to the top end of comparable countries but so too has the level gearing (ie the ratio of debt to wealth or assets). 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/2/14/HOUSEHOLD%206.jpg" alt="">
It certainly increases households’ vulnerability to changing economic conditions. There are several threats:
<ol>
<li>Higher interest rates – the rise in debt means moves in interest rates are three times as potent compared to say 25 years ago. Just a 2% rise in interest rates will take interest payments as a share of household income back to where they were just prior to the GFC (and which led to a fall in consumer spending). However, the RBA is well aware of the rise in sensitivities flowing from higher debt and so knows that when the time comes to eventually start raising rates (maybe later this year) it simply won’t have to raise rates anywhere near as much as in the past to have a given impact in say controlling spending and inflation. And so, it’s likely to be very cautious in raising rates (and is very unlikely to need to raise rates by anything like 2%). 
</li>
<li>Rising unemployment – high debt levels add to the risk that if the economy falls into recession, rising unemployment will create debt-servicing problems. However, it is hard to see unemployment rising sharply anytime soon.  
</li>
<li>Deflation – high debt levels could become a problem if the global and local economies slip into deflation. Falling prices increase the real value of debt, which could cause debtors to cut back spending and sell assets, risking a vicious spiral. However, the risk of deflation has been receding.  
</li>
<li>A sharp collapse in home prices – by undermining the collateral for much household debt – could cause severe damage. Fortunately, it is hard to see the trigger for a major collapse in house prices, ie, much higher interest rates or unemployment. And full recourse loans provide a disincentive to just walk away from the home and mortgage unlike in parts of the US during the GFC.  
</li>
<li>A change in attitudes against debt – households could take fright at their high debt levels (maybe after a bout of weakness in home prices or when rates start to rise) and seek to cut them by cutting their spending. Of course, if lots of people do this at same time it will just result in slower economic growth. At present the risk is low but its worth keeping an eye on with Sydney and Melbourne property prices now falling. But high household debt levels are likely to be a constraint on consumer spending. </li>
</ol>
Conclusion 
While the surge in household debt has left Australian households vulnerable to anything which threatens their ability to service their debts or significantly undermines the value of houses, the trigger for major problems remains hard to see. However, household discomfort at their high debt levels poses a degree of uncertainty over the outlook for consumer spending should households decide to reduce their debt levels. 
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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j.ballantyne1990-6AQqhLzZaK

Australian's love affair with household debt - how big is the risk? Shane Oliver

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Australian Prudential Regulation Authority chairman Wayne Byres told a Senate committee yesterday that he is worried some home loan borrowers have not properly considered the impact of rising interest rates.
He suggests these borrowers might be wrong to assume future wage growth will help retire their borrowings.
Low interest rates are "making high debt levels affordable and that won't always be the case, and that's at the heart of what we are thinking about," he advised.
He's urged bankers to exercise caution because there "a lot of things that seem at extremes".
"Household debt levels are very high relative to household income in particular…and is still on an upward trajectory," Mr Byres said.
"Interest rates are at historically low levels and household income growth is actually relatively subdued, so the idea that people will pay their debs off in the future just because their income will grow strongly is not an assumption you can necessarily make."
He told the senate committee APRA continued to work to reinforce sound lending standards.
"The measures we’ve taken appear to be having a positive impact with strengthened serviceability assessments, moderating investor loan growth and a reduction in high loan-to-valuation lending, and our most recent benchmark for interest only lending to remain below 30 per cent of total new lending looks like it has been comfortably achieved overall."
Mr Byres said on Monday the household debt-to-income ratio (DTI) would need to be "constrained" before lending limits on banks will be lifted.
He reiterated the DTI ratio was important because it shows the ability of a customer to pay back all their debts, not just a particular loan.
He suggested the DTI will be improved once banks adopt 'positive' credit reporting, overcoming a current "blindspot" of banks not being able to see their customers' full financial picture.
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Given bank blindspot, APRA's Wayne Byres again warns households on the prospect of rate rises

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Each quarter the Reserve Bank (RBA) publishes household finances data which look at the ratio of household debts and assets to disposable income. The latest data shows households are becoming more indebted at the same time as the value of their assets are increasing.
According to the RBA, the ratio of household debt to disposable income was recorded at 193.7% at the end of June 2017.  The ratio sits at a record high having increased by 2.0% over the quarter and by 3.9% over the year.  Unsurprisingly, most of this debt is housing related; the ratio of housing debt to disposable income is recorded at 136.4% having increased by 1.4% over the quarter and 3.9% over the year.  
The first chart highlights how much household and housing debt has increased over time relative to disposable incomes.  It is also noticeable that since the financial crisis the rate of escalation has slowed.  Further data from the RBA reveals that of the 136.4% ratio of housing debt to disposable income, 103.2% is held by owner occupiers with the remaining 33.2% held by investors.
<img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage1.png" alt="2017-10-09--ratioofhouseholdandhousingdebttodisposableincome" width="570" height="272">
The second chart details the ratio of household and housing assets to disposable income.  At the end of June 2017 the ratio of household assets to disposable income was recorded at 935.6% and the ratio of housing assets to disposable income was 516.5%, both of which were record highs.  Over the past year household assets and housing assets have increased by 6.6% and 7.8% respectively, well in excess of the increase in household and housing debt. 
<img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage2.png" alt="2017-10-09--ratioofhouseholdnadhousingassesttodisposableincome" width="570" height="281">
By comparing the ratios of assets and debt the RBA also produces ratios of household and housing debt to assets.  The data reiterates that although debt levels are high, at this stage that debt is well supported by assets which are valued substantially higher.  Over recent years the ratios of household and housing debt to assets has actually been falling.  In June 2017, the ratio of household debt to assets was recorded at 20.7% and the ratio of housing debt to assets sat at 26.4%.  
<img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage3.png" alt="2017-10-09--ratioofhouseholdandhousingdebttoassets" width="570" height="283">
A big contributor to the declining ratio of debt to assets over recent years has been the ongoing fall in interest rates to their current lows.  The RBA publishes ratios of interest payments to disposable income for household and housing debt.  The fourth chart highlights that households are paying significantly less interest currently than they were when interest rates were much higher.  At the end of June 2017 the ratio of household interest repayments to disposable income was 8.7% and for housing it was 7.1%.  Lower interest rates also mean that where there is a debt, debtors have the ability (if they choose) to maintain previous repayments which in turn means additional debt is repaid as interest rates fall.  
<img src="https://www.corelogic.com.au/sites/default/files/styles/article_image_570w_/public/2017-10/2017-10-09-ppimage4.png" alt="2017-10-09--ratioofhouseholdandhousinginteretrepaymentstodisposableincome" width="570" height="281">
The data highlights that Australian households are heavily indebted, largely due to housing.  While debt levels are high, the value of household and housing assets are, at this stage, considerably greater than the level of debt.  Of course, if household and housing asset values begin to fall in the future, the accompanying debt may not fall at the same rate and that remains the main concern with the ongoing increase in household and housing debt.  Although Australia survived the financial crisis with much less damage than most other countries, it is noticeable how there was a fairly sharp rise in the ratio of household and housing debts to assets over that period.  A more sustained downturn could potentially see a much greater increase in these ratios as asset values fall but the debt against these assets remain.  
Cameron Kusher is head of research for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
To read the original article <a href="https://www.corelogic.com.au/news/household-debts-and-assets-hit-record-highs#.Wd6d5xOCyuV" target="_blank">click here</a>.
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Household debt and assets reach record highs: Cameron Kusher

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Household finance data released by the Reserve Bank (RBA) each quarter looks at the ratios of household debts and assets to disposable income. The latest RBA update shows that while households debt is growing, asset wealth is simultaneously increasing. 
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According to the RBA, the ratio of household debt to disposable income was recorded at 193.7% at the end of June 2017 and now sits at a record-high having increased by 2.0% over the quarter and by 3.9% over the year.
According to CoreLogic research analyst Cameron Kusher it was not surprising to see that most of this debt is housing related; the ratio of housing debt to disposable income is recorded at 136.4% having increased by 1.4% over the quarter and 3.9% over the year.
Kusher said, “Clearly, household and housing debt has increased over time relative to disposable incomes. Of note is that since the financial crisis, the rate of escalation has slowed.”
Further data from the RBA reveals that of the 136.4% ratio of housing debt to disposable income, 103.2% is held by owner occupiers with the remaining 33.2% held by investors.
At the end of June 2017 the ratio of household assets to disposable income was recorded at 935.6% and the ratio of housing assets to disposable income was 516.5%, both of which were record highs. Over the past year household assets and housing assets have increased by 6.6% and 7.8% respectively, well in excess of the increase in household and housing debt.
<a href="https://www.propertyobserver.com.au/images/2017/10/05/Kusher1.png" target="_blank">Click to enlarge</a>
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By comparing the ratios of assets and debt the RBA also produces ratios of household and housing debt to assets. Mr Kusher said, “The data reiterates that although debt levels are high, at this stage debt is well supported by assets which are valued substantially higher.”
Over recent years the ratios of household and housing debt to assets has actually been falling. In June 2017, the ratio of household debt to assets was recorded at 20.7% and the ratio of housing debt to assets sat at 26.4%.
According to Kusher, a big contributor to the declining ratio of debt to assets over recent years has been the ongoing fall in interest rates to their current lows. At the end of June 2017 the ratio of household interest repayments to disposable income was 8.7% and for housing it was 7.1%. Lower interest rates also mean that where there is a debt, debtors have the ability (if they choose) to maintain previous repayments which in turn means additional debt is repaid as interest rates fall.
He said, “The latest household finance data from the RBA highlights that Australian households are heavily indebted, largely due to housing. While debt levels are high, the value of household and housing assets are, at this stage, considerably greater than the level of debt.”
“Of course, if household and housing asset values begin to fall in the future, the accompanying debt may not fall at the same rate and that remains the main concern with the ongoing increase in household and housing debt.
“Although Australia survived the financial crisis with much less damage than many other countries, of note was the fairly sharp rise in the ratio of household and housing debts to assets over that period. A more sustained downturn could potentially see a much greater increase in these ratios as asset values fall but the debt against these assets remain,” Mr Kusher said. 
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Household debt growing slower than asset wealth as both hit record highs

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Michele Bullock, the RBA assistant governor, says the central bank is carefully monitoring the high levels of household debt fuelled by by rising house prices and low interest rates and regulators are looking to mitigate some of that high-risk lending areas through prudent steps.
Speaking at "Where to from here?", a panel discussion hosted by Lander &amp; Rogers and Westpac, Bullock said the core focus of the RBA was financial stability.
She made her point by addressing the issue of the resilience of banks and the resilience of households.
Bullock said APRA's prudent steps such as putting a "speed limit" on lending to investors had a definite effect on prices but that the housing market had started to rise again this year and further measures had to be taken such as capping interest-only loans at 30 percent.
She spoke about the increased oversight of APRA in monitoring the risks that banks were taking on. The purpose of these measures was "to bolster the lending quality of the banks so that the assets they had in these mortgages were well secured and lending was prudent,” she said.
Earlier this year, Bullock had said that the RBA was "prepared to do more if needed,” to check any risk from the housing market to the economy.
Back in 2014, lending to property investors was rising “very sharply” and this was an environment where house prices were rising… in Sydney and Melbourne particular, prices were rising about 20 percent annually” which was viewed as a systemic risk by the regulatory bodies.
She said it was possibly exacerbating demand, particularly for new apartments, and “all banks were increasing their exposure to housing” which meant that “if the market turned down, all banks would be affected”.
She pointed out that a substantial portion of lending was interest-only loans which was “a riskier type of lending because peopler aren’t reducing their loan-to-value ratios”.
In such a scenario, regulators had to act and said that no more than 30 percent of bank loans could be IO loans.
“Investors might be introducing more risk by exacerbating cycles in house prices, so if investors are chasing capital gains, they might be spurred on by rising house prices and then if any slowdown occurred that could affect sentiment and they could do the same on the downside,” she said. 
“It’s not their home, so they’re not going to be desperate to hang on to it, so if house prices decline, they might just get rid of it.”
Bullock said the risk from a property market decline would not only affect investors, but also owner occupiers. For owner occupiers the risk was because many were sitting on high debt, if prices fell, the value of their debt would be higher than the value of their property.
“House price per se isn’t the issue, it’s rather what the house price growth might be reflecting in behaviours and introducing risks in the sorts of debt and sorts of behaviours that people are taking on," said Bullock.
She said many households may have stretched themselves to get on the property ladder, while at the same time incomes weren't rising quickly.
“So you’ve got rising debt, rising quite quickly because house prices are rising so people are having to take on more debt but their incomes aren’t rising as quickly, so the debt-to-income ratio is actually rising,” which was a source of worry for the RBA.
On the bright side, though debt servicing was being supported by low interest rates at the moment but the question was "what happens if interest rates start to rise in these circumstances?”
She said that improved lending standards introduced by APRA such as asking banks to put in interest rate buffers…"so banks are assessing serviceability not only on the current interest rate people are paying but with an interest rate with a buffer in it, so about 7 percent as opposed to about 4 percent" was a confidence-building measure in the system.
"This would mean that households would have an increased resilience to increase in interest rates."
 Bullock also said that lots of households have buffers, such as offset accounts, redraw facilities, so they’ve “got a little bit of flex over how much they’re paying”.
"Also, the fact though average debt is high, a lot of debt is held by high income households, so that also gives us a little bit of confidence," but at the same time, high levels of debt does leave households vulnerable to shocks.
Bullock said that when interest rates do rise in Australia, they’re likely to impact consumption in a different sort of way, so this is something that the RBA will have to take into account.
 
 
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