From the AFR today:
I am worried about Australia’s housing market. Very worried… and here, I am talking months, not years.
…The RBA’s rate cuts have gone too far. And if they stay this low for too long, there is a real chance Australia could, belatedly, have an acute housing crash with real consequences for the economy.
While this is not my current central case, several factors give me pause.
…The first is that households have not really deleveraged despite much spruiking about our “cautious consumers”.
This highly leveraged consumer is an artefact of Australia’s even more leveraged banking system. The major banks are leveraged about 80 times across their $1 trillion home loan books. Put differently, they are only holding about $1.25 of true loss-absorbing capital against every $100 – as opposed to the “risk-weighted” value – of their assets.
A third issue is that the banking system is under tremendous pressure to maintain its internationally lofty returns on equity.
…A stunning 33 per cent of new home loans are today being advanced with LVRs greater than 80 per cent. In some countries they don’t even allow banks to lend at these levels, period.
…A final concern is Australia’s housing supply challenge. We do need to build many more homes to accommodate the circa 15 million additional residents that will live here within 35 years.
Welcome to the dark side, Chris Joye and keep up the good work.
