Housing Market

Tuesday, May 24 2011

The Australian banks were weak yesterday with concerns revolving around the Australian housing market.  We run through the key negatives and positives below.  We have been quite negative on the housing market in Australia and remain so, however we fail to make a case for a significant deterioration in bad loans.


  • Australian house prices have fallen in the past quarter and the market looks soggy.  Queensland in particular has been hit by natural disasters.
  • Affordability remains constrained and the possibility of further rate hikes could make matters worse.  The RBA seems intent on placing pressure on the consumer to allow room in the economy for the resource sector.
  • Clearance rates are down.


  • Australia has been under-building for the past few years.  There is no oversupply as there was in the US.  Rental market is increasing at 4.5% pa.  Over time this will improve affordability.   The underlying demand and under building is noted on the chart below.

  • While employment remains strong it is difficult to make a case for a sustained rise in home loan bad loans.   It is a different story if China was to fall over.
  • The bank loss rates in mortgage remain very loan.  Westpac had only $34m in losses for the half.  The loan to value ratio for Westpac’s mortgage book sits at 45% (quite conservative) and mortgage insurance exists where the loan to value ratio is above 85%.   The % of home loans which were overdue by more than 90 days is noted below.  There was a small pick up for the Australian banks (partially as a result of the natural disasters in Qld) and it is now back to levels seen in the mid to late 90’s.  You can clearly see the difference between Australia and Canada and the US and Europe.



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