Fitch: RMBS investors spooked by housing crash

Via Fitch today:

Housing Downturn Fears Escalate:Within the space of a year, falling house prices have risen to be the most serious threat to Australian credit markets, according to Australian fixed-income investors. Fitch Ratings’ 2Q19 survey reveals that 70% of investors rank a domestic housing-market downturn as the top risk to Australian credit markets over the next 12 months. When we asked the same question a year ago as part of our 2Q18 survey, only 29% of investors rated a housing downturn as a high risk.

Weak House-Price Outlook: The vast majority (95%) of investors expect house prices to keep falling over the next 12 months –15% foresee falls of greater than 10%, while not one investor believes prices will rise. In light of this, it is no surprise that investors assess property market exposure to be the greatest risk to Australian banks’ credit quality over the next 12 months.

Steady Unemployment Expectations: Unemployment will stay below 6% over the next 12 months, according to all respondents to our 2Q19 survey. This should provide some support to the property market at a time when house prices are falling, considering the link between unemployment and mortgage defaults. Investors also see no prospect of a rise in the official cash rate over the next 12 months, with 60% expecting a potential cut of up to 50bp and the remaining 40% believing that rates will remain on hold.

Weaker Capex Intentions: The proportion of investors expecting corporates to use cash for capex over the next 12 months has slumped to 38%, after peaking at 67% in our 4Q17 survey. This has resulted in capex again being the least likely use of corporates’ cash over the next 12 months. Shareholder oriented activities remain the most likely use of cash, consistent with the previous 10 surveys.

Clever folks. Full survey.

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