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I’ve recently returned from the USA, where I attended two conferences – one a high-brow housing finance ‘think tank’ and the other the national convention of a broker association. To say they were polar opposites of each other would be masterful understatement.
“This time it’s different” are four of the most dangerous words in housing finance. Most issues are cyclical, not structural, and what goes around usually comes around.
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Yet the consensus from the two conferences was that this time it just might be different – housing finance after ‘the great recession’ (it’s so not cool to call it the ‘GFC’ anymore) may be structurally different.
The two vastly different conference groups intended to approach these structural changes in radically different ways.
Noteworthy items from the think tank were that there has been a massive loss of trust in the entire housing finance system due to a lack of transparency, shoddy practices and ongoing misdeeds. The old chestnut that financial literacy is the cure-all was trotted out, without any consideration of just how to make the masses more literate.
Of course, a good crisis is never wasted by legislators and regulators, and the US now has some of the most draconian (and long!) consumer protection legislation on the planet. Most people in the industry are sleeping with the light on.
It was also pointed out that consumer protection legislation that promised ‘nothing bad will happen to you’ had the unintended consequence of reducing financial literacy levels as people put their faith in the state. Interesting.
The mood was downbeat with no clear consensus of what’s next, other than to call for the return to dominance of the government-supported housing finance entities. The state will save you!
The Brokers? Well, with more than 2,000 brokers over a long weekend in Las Vegas, there was very little chance of a downbeat mood, even if the sky was falling. Some concluded that it actually had during the great recession, but with a fallen sky, heck, you’re going to need shelter and brokers even more!
It was acknowledged that brokers had had a near death experience; however, the broker community has largely taken the structural changes on the chin by restructuring, re-sizing and re-educating. The view is that people still have to live somewhere, and until someone figures out how to connect borrowers with investors, brokers as capital transfer agents will still have a role. The state barely got a mention; instead, the attitude was ‘if it is to be, it’s up to me’. Broker flexibility is seen as a major attribute ensuring survivability.
A definite push to restore trust by embracing transparency was a key theme – hiding behind complexity won’t cut it this time. There is not one born every minute.
Both groups recognised that there are unique structural challenges. A big elephant in the room is the level of student loan debt. Those potential borrowers in the 30-39 age cohort – in which most household formation occurs – are saddled with massive amounts of student loan debt, severely impacting their disposable income and their ability to borrow. This could be something our governments need to keep an eye on as regards HECS debt thwarting housing policy.
Another huge factor is that fully 35 per cent of house purchases are for cash! Cashed-up boomers are grabbing available stock to the detriment of millennials. With net rental yields around six per cent and term deposit interest rates near zero, you can understand why this is happening. There was some think tank talk about putting controls around the number of investment properties that individuals may own, however this is unlikely to happen. Once you distort market forces, looting occurs.
There was also deep scepticism around social media – the first wave of quick gains has hit the beach. The term ‘social mediots’ got a run from the podium. What happens in Vegas goes on Twitter, but unless you focus really carefully on your strategy it may not translate into more loans.
So the state of the housing nation in the USA is mixed, with some challenges having parallels to our own market. One conference glass was half empty, the other half full. I’ve always liked my glass as full as possible.
