a.
The Australian banking industry resembles an oligopoly with a few players playing a key part. This is evident from the share of top 5 banks in total housing loans standing at almost 73%, and it has risen over time from 60%. This shows that loans are more concentrated with top 5 banks now.
The global financial crisis has led to a more concentrated market with lesser competition , lesser number of banks with housing loans and a consequent increase in share of total housing loans with the top 5 banks mentioned in the article.
Experts point out that, ‘The pricing power of the four major banks reflects the strength of their brands and their dominant market positions. The big banks charge more for loans and less for deposits than smaller banks, hence their average interest margin is 2.2 per cent, compared with the 1.8 per cent margin of the regional banks.’
More evidence comes from a PWC report that states that’ concentration levels have increased since the onset of GFC’. The rise in HHI is proof of rising oligopolistic tendencies in this sector after 2008. b. A cartel is an example of collusive oligopoly- OPEC is a real life example. collusion will imply that all firms operate as a monopoly, leading to a price of Po and quantity Qo as shown. This is found where MR= MC. Firms make abnormal profits that are sustainable in long run.
As compared to perfect competition Qc > Qo and price is lower at Pc.
Competition reduces the deadweight loss or loss of economic
During the early 2000 's, the United States housing market experienced growth at an unprecedented rate, leading to historical highs in home ownership. This surge in home buying was the result of multiple illusory financial circumstances which reduced the apparent risk of both lending and receiving loans. However, in 2007, when the upward trend in home values could no longer continue and began to reverse itself, homeowners found themselves owing more than the value of their properties, a trend which lent itself to increased defaults and foreclosures, further reducing the value of homes in a vicious, self-perpetuating cycle. The 2008 crash of the near-$7-billion housing industry dragged down the entire U.S. economy, and by extension, the global economy, with it, therefore having a large part in triggering the global recession of 2008-2012.
The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.
Post-housing/financial crisis of 2007-2009, the housing market seems to be showing signs of improvement after great downturn. With the downturn in housing prices, many homeowners did not have enough equity to avoid taking a loss on the sale of their homes so they are sitting with home loans based off of higher-than-current mortgages. However, in November the National Association of Home Builders’ sentiment index jumped to 20, which is the highest reading in over a year. Demand for mortgages has also seemed to pick up a bit according to the Fed’s 4th quarter loan survey. Construction remains at historically low levels but has increased as of late, and the number of
In the year 2000, the stock market crashed whichshifted thepeople’s money away from the stock market and into the housing market. Many people were buying homes, which led to banks offering more loans, including subprimed loans. Most loans, specifically, subprimed loans began going into default once the credit markets froze in the summer 2007. Things began to deteriorate rapidly. The offering of subprimed loans stopped completely and interest rates for other types of borrowing such as corporate loans and consumer loans rose dramatically. Since the interest rates of loans were so high, home owners were not able to afford to make payments, which caused them to be evicted from their homes. In 2013, the government introduced new laws and
When the housing bubble came tumbling down, there were high defaults rates on the electorate and this led to the emergence of high risk borrowers (Bianco, 2008). These were people with a questionable financial history and may have lacked the sufficient means to sustain their mortgage payments and hence, went under. This occasioned massive loses to all the players in the housing sector. The worst hit was the lenders and the various investors.
“Growing income inequality in the United States stemming from unequal access to quality education led to political pressure for more housing credit. This pressure created a serious fault line that led to distorted lending in the financial sector.” (Rajan,2010, P.54)
Lending institutions also saw a change. In the 1990s, the federal government desired more people to own homes in the United States and lenders were urged to make home loans more attainable for a wider consumer base (Melicher & Norton, 2014, p. 168).
The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were
Market power in banking, for example, may, to a degree, be beneficial for access to financing. With too much competition, banks may be less inclined to invest in relationship lending .At the same time, because of hold-up problems, too little competition may tie borrowers too much to an individual institution, making the borrower less willing to enter a relationship (Claessens, 2009). More competition can then, even with relationship lending, lead to more access. Financial managers must be aware of its firm's competition and ensure a proper balance for financial
It is necessary to first explain what Thomas Sowell an economics scholar says “The cast of characters” (Sowell 2). The nature of the housing market makeup is much more than just a bank issuing loans. The importance is to understand what lies behind the scene and from there comprehend the causes of the housing crisis. The Federal Reserve System in general regulates banks across the county. The Federal Reserve also has power to “take action which affect interest rates and the money supply” (Sowell 2). The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are “two government-created, but privately owned, profit-making enterprises that buy mortgages from banks” (Sowell 3). The Federal National Mortgage Association is also known as Fannie Mae, and the Federal Home Loan Mortgage Corporation is also known as Freddie Mac. These Associations as stated above buy loans from banks, which ultimately eliminates the banks wait for 30 years of monthly payments. According to book The Housing Boom and Bust “Fannie Mae and Freddie Mac purchased more than one-third of all the mortgages in the nation that were resold by the original lenders.” The U.S. Department of Housing and Urban Development is another major entity in the real estate housing market. The U.S. Department of Housing and Urban Development is also known as (HUD) and “exercises authority over Fannie Mae and Freddie Mac,
The availability of affordable housing stock may, therefore, be an issue. Furthermore, there is also the thorny issue of credit availability to consider. According to the Mortgage Banker’s Credit Availability Index, access to mortgage finance reputedly became more difficult in June for the eighth successive month, despite conventional mortgage rates remaining low. Meanwhile, the strength of new home sales in the high-end segment comes against a backdrop of a growing spread between jumbo (in excess of $417K) and conventional mortgages to their widest level since March 2011. Despite continued falling mortgage rates, the behaviour of this spread suggests risk aversion prevails amongst lenders.
In 2005, the market was flooded with a vast array of homes that were all selling at a low price, and this allowed people to buy and sell homes with minimal effort. Banks were being reckless with their lending, not giving enough attention to who they were giving mortgages to, as virtually anybody with a decent credit score could go to a bank and get a mortgage, sometimes without even going to see if the land and ability for development was there. This created a housing bubble in 2006, and would inevitably come back to hurt a wide range of industries, but few were as damaged as the new construction industry.
Strategic information system is the information system, which are developed for the business initiative of any organization (Cassidy 2016). The strategic information management or SIM is the most important feature in the field of information technology. This strategic information management helps the organizations or companies in storing, categorizing, processing and transferring the information or data that are received or created (Cresswell and Sheikh 2013). Moreover, it offers several techniques for applying analytical tools to the information repositories, which allow them in recognition of the opportunities for growth and improvement of the efficiency in operations.
Housing prices in the United States rose steadily after the World War II. Although some research indicated that the financial crisis started in the US housing market, the main cause of the financial crisis between 2007 and 2009 was actually the combination of housing bubble and credit boom. The banks created so much loan that pushed the housing price to the peak. As the bank lend out a huge amount of money, the level of individual debt also rose along with the housing price. Since the debt rose faster than people’s income, people were unable to repay their loan and bank found themselves were in danger. As this showed a signal for people, people withdrew money from the banks they considered as “safe” before, and increased the “haircuts” on repos and difficulties experienced by commercial paper issuers. This caused the short term funding market in the shadow banking system appeared a
The financial sector is the largest contributor to Australia’s national output, around 11 per cent of Australian output or A$135 billion of real gross value added in 2010.1 Australia ranked fifth amongst the world’s leading financial systems and capital markets in the 2010 World Economic Forum Financial Development report. Total assets of Australia’s banks, defined as Authorised Deposittaking Institutions (ADIs)2, were A$2.7 trillion. Australia has four large domestic banks (the “four pillars”) that provide full service retail and commercial lending to the Australian economy; Australia and New Zealand Bank (ANZ), Commonwealth Bank of Australia (CBA),