160,000 Aussie households badly exposed to property bust

A group of academics have released research claiming that around 160,000 Aussie households are badly exposed to a property bust:

Our analysis highlights the risks for people who bought their first home at the peak of the boom. We estimate 24,000 households are at very high risk because they took out large loans that might soon exceed their home value and also work in sectors with high job losses. Another 135,200 are at high risk and 121,000 are at moderate risk…

Australian households that bought their houses at the peak of the boom and have now lost their jobs in the coronavirus pandemic are facing the highest risk.

These include 24,000 recent (2014-5 to 2017-18) first home buyers who borrowed over 80% of the value of their home and were employed in industries where jobs have now collapsed. Another 135,200 recent first home buyers with high loan-to-valuation ratios are also at risk of going “underwater”, with homes worth less than their debt. Many of them are also in precarious employment, irrespective of the pandemic. (These figures do not include first home buyers in 2018-19, for which data are not yet available.)

Whether these households end up in trouble depends on various factors, including:

• The extent to which the Australian economy recovers and unemployment declines;
• Whether emergency income support is extended beyond its late September deadline; and
• Whether the banks extend mortgage repayment relief.

There is the obvious danger that a significant chunk of these households will be forced to sell, placing additional downward pressure on property values.