High debt, bank exposure spell risk for Aussie housing

Adam Smith 30 September 2016

house of cards literalAustralia should heed New Zealand’s housing market warning, it has been claimed.

In its annual report released Thursday, the Reserve Bank of New Zealand (RBNZ) warned the country was in danger of a housing market price correction, the Australian Financial Review has reported. The RBNZ said a substantial decline in house prices could send severe aftershocks through the nation’s economy.

“The banks are heavily exposed to housing, with mortgages making up around 55% of their total assets. Household debt, at 163% of household disposable income, is at a record level,” the RBNZ said.

The AFR drew a comparison to Australia’s housing situation, suggesting it was riskier than New Zealand’s. Australia’s household debt to disposable income ratio is more than 180%, while mortgages make up around 62% of Australian banks’ total assets, the AFR said.

Nevertheless, economists interviewed by the AFR rubbished talk of a housing bubble. Market Economics’ Stephen Koukoulas said Australian property price dynamics were “sensible”.

“There might be frenzied buying to some extent, but buyers are not rushing for no reason,” he told the AFR.

And AMP Capital chief economist Shane Oliver argued that the existence of a property bubble did not necessarily portend a dramatic price correction.

“Just because Sydney is in a bubble does not mean that a crash is coming. Each one of these bubbly episodes was relieved slower .. it has been bubble on four occasions in the last 13 years but we haven’t had a crash,” Oliver told the AFR.

But economist Steve Keen, who has long been a proponent of the theory that Australia is headed for a housing crash, has predicted the property bubble will burst within the next three years.

“Is Sydney in a bubble? Absolutely. It is the most obvious bubble on the planet apart from China and Canada,” he told the AFR.

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