Add Category%20April%2025%2C%202017%20(500%20x%20333).jpg)
The regulators and analysts have carefully assessed the state of the Australian housing market—and their verdict is far from comforting.
In the southeastern capitals, house prices have continued their unprecedented ascent. Last week, median home values hit a record $1.15m in Sydney and $826,000 in Melbourne, rising by 13.1% and 7.6%, respectively, in the first three months of the year.
The frenzied growth in the eastern seaboard has prompted a series of warnings that highlight the widening gulf between inflated house prices and the stagnant or declining incomes of people affected by the slump in manufacturing and mining.
Moody’s recently warned that the Australian housing market was among the four in the world most susceptible to a crash in the event of an economic shock or renewed downturn. The international ratings agency also drew attention to the considerable amount of debt upon which the property bubble had been built.
Moody’s analysis of Australia’s debt-to-liquid ratios was equally pessimistic. “[I]n the event of a negative income shock, the scope for Australian households to draw down parts of their financial assets to maintain debt service and overall spending is more limited than elsewhere.”
Deloitte Access Economics likewise drew attention to the dangerous build-up of debt in Australian households, noting that household debt-to-income ratios are the second highest in the world after Sweden. National household debt currently stands at 185% of annual disposable income, up from about 70% in the early 1990s.
Deloitte estimates that house prices are roughly 30% overvalued compared to national income, the highest margin in over three decades.
Just as worryingly, Martin North, principal of Digital Finance Analytics, has drawn parallels between the current state of the Aussie housing market and the US subprime mortgage crisis. The latter played a key role in precipitating the global financial crisis. North listed declining incomes, rapidly overheating house prices, and significant growth in mortgage stress as common denominators.
The resulting housing affordability crisis is also fraying the social fabric, prompting warnings of a rise in mortgage arrears and defaults. In the April edition of its twice-yearly Financial Stability Review, the Reserve Bank has called attention to the dire situation faced by many low-income and high-debt households.
“Available data [suggests] that around one-third of borrowers have either no accrued buffer or a buffer of less than one month’s repayment,” the review said.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan