Matt Simpson, CFTe, MSTA
CityIndex
With the talk of a housing bubble in Australia becoming a frequent topic of interest, here is a snapshot summary of the housing section within today's Financial Stability report.
- The composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing’s share of the housing stock. B
- Risks associated with this lending behaviour are likely to be macroeconomic in nature rather than direct risks to the stability of financial institutions.
- A broader risk remains that additional speculative demand can amplify the property price cycle and increase the potential for prices to fall later.
Housing loan characteristics
- Historically low interest rates and rising house prices may cause some to take lonas they cannot service if rates rise
- APRA emphasise that banks should apply a interest-rate add-on to the mortgage rate when asesing capacity to service the loan
- Some institutions are lending high loan-to-income ratios, seeing the average loan size rise
- Only a small group of these are both high loan-value ratios (LVR) and high loan-to-income. A rise of this group is undersirable and will be closely monitored
- The interest-only share of bank lending has increased for both investors and home owners, so will require close monitoring
- Of these two groups, investors paying interest-only are substantially higher than home owners
- However this doesn't necessariy mean they cannot service this debt, but may be building buffers in different accounts.
Loan performance and other indicators of household financial stress
- Aggregate indicators suggest that household financial stress is generally low
- The share of banks’ housing loans that are non-performing has declined for both owner-occupiers and investors since 2011 peak
- Victoria however has seen a rise in areas of higher unemployment, such as North Melbourne and Outer-West
- The large volume of supply coming in the Melbourne inner-city apartment market increases the risk of further deterioration in loan performance in Victoria.
CFD and forex trading are leveraged products and can result in losses that exceed your deposits. They may not be suitable for everyone. Ensure you fully understand the risks. From time to time, City Index Limited’s (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material. As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed
Recommended Content
Editors’ Picks
EUR/USD hovers around 1.0750 with a negative sentiment amid hawkish Fed
EUR/USD could extend its losses for the third successive session, trading around 1.0750 during the Asian session on Thursday. The US Dollar appreciates amid expectations of the Federal Reserve’s maintaining higher interest rates.
GBP/USD holds below 1.2500 ahead of BoE rate decision
GBP/USD extends its losing streak for the third successive session, trading around 1.2490 during the Asian session on Thursday. Thursday brings the Bank of England interest rate decision, with expectations of maintaining interest rate at 5.25%.
Gold price gains ground, investors await US data, Fedspeak for fresh catalyst
Gold price trades with a positive bias on Thursday amid the absence of top-tier economic data releases at mid-week. However, multiple headwinds, such as the firmer US Dollar and the hawkish comments from the US Federal Reserve are likely to cap the upside of the precious metal in the near term.
President Biden threatens crypto with possible veto of Bitcoin custody among trusted custodians
Joe Biden could veto legislation that would allow regulated financial institutions to custody Bitcoin and crypto. Biden administration’s stance would disrupt US SEC’s work to protect crypto market investors and efforts to safeguard broader financial system.
Dollar still trying to hold on
There have been some doubts from some Fed officials as to whether policy is restrictive enough, and given things have been otherwise rather quiet, these doubts along with a healthy upward revision to the Atlanta Fed GDP model have forced some reconsideration of Fed bets, albeit mild, back in the hawkish direction.