Australian housing market crash unlikely: Credit Suisse
Australian houses are not overvalued, according to a report into the current state of housing and mortgages by investment bank Credit Suisse.
The report questions the likelihood of a house price crash and says households can manage their debt obligations.
Australian houses appear to be fully priced according to the authors of the report, analysts Jarrod Martin and James Ellis along with Omkar Joshi.
They base this view “on a range of usual metrics for assessing house price levels”, including house prices to income, house prices to rents, house prices to GDP, per capita value of the housing stock to household income
The report notes that housing affordability has deteriorated.
However it questions the argument that an improvement in the ratio of income to house prices will be achieved through a “a sharp and disorderly retracement of house prices” (a house price crash) rather than a “slow re-balancing of this ratio through real house price erosion or flat nominal house prices combined with on-going growth in household income”.Click to enlarge
Source: Credit Suisse
According to Credit Suisse, Australian household leverage is relatively high in both an Australian historical and in an international context – above that of both the
Source: Credit Suisse
However, it notes that as the RBA has previously stated household debt in
While the report says there is a risk that the relative resilience of Australian house prices will not be sustained in the future, it says there are “numerous arguments” cited as to why Australian house prices “are (and presumably should be) relatively high by international standards”.
Some of these include:
Due to Australian banks being so heavily exposed to the residential lending market (59% of bank loans are residential mortgages), Credit Suisse says there is a strong connection between house prices and financial stability, noting “house prices have the scope to create financial system instability, and financial crises have scope to exacerbate house price declines”.
But it says factors in favour of a stable mortgage and housing market include the overall strength of the macro economy and an apparently “increased consideration of house price inflation in RBA monetary policy deliberations in the wake of the financial crisis” and the extent to which “mortgage interest rate changes are being undertaken outside of cash rate changes”.
It also notes the stable rates of home ownership in recent years in
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