Possible house price drop a risk for Australia’s banks: Moody’s

first_imgMoody’s says house prices and household debt have risen to unprecedented levels in Australia. Photo: Ramin Talaie/Bloomberg.“We have recently taken rating actions on banks in these systems to reflect this risk, although they remain among our most highly rated banks globally,” the report noted. “While our base case is that house price growth will slow in Canada and Australia, the market may already be turning in Sweden. “We believe that a more substantial correction would lead only to limited losses on mortgages, as the banks benefit from a range of safeguards. More from newsParks and wildlife the new lust-haves post coronavirus23 hours agoNoosa’s best beachfront penthouse is about to hit the market23 hours ago“However, the banks would be exposed to second order effects, as falling house prices would likely weigh on consumer sentiment, amplifying the economic slowdown and pushing up losses on corporate and consumer loans.” HOMES MADE FOR CRICKET LOVERS MATCH MADE IN HEAVEN NO HOUSING SHORTAGE IN QLD: ANU The credit rating agency expects the economic slowdown that would likely accompany any substantial house price correction would lead to higher losses on consumer loans, commercial real estate loans, and loans to consumer-exposed corporates.“We expect banks in these systems to absorb loan losses through earnings in most scenarios,” the report said. “Any impact on their capital levels, which we currently assess as strong to adequate, would likely be limited.” Picture: Alex Wisser.In Australia, it estimates loan losses could increase to 1.8 per cent from 0.2 per cent before banks’ capital were affected.But at least one economist isn’t too worried.AMP Capital chief economist Shane Oliver expects home prices in Sydney and Melbourne to fall by 5 to 10 per cent over the next two years, but said a crash was unlikely unless unemployment increased significantly, the RBA raised rates aggressively or the current unit supply surge continued for several more years.Mr Oliver also argues that Australia’s banks have only experienced a modest deterioration in lending standards, with interest-only and high loan to valuation loans falling in recent months. Credit rating agency Moody’s has warned of a possible house price drop hurting Australia’s banks.HOUSE prices and household debt have risen to unprecedented levels in Australia, increasing the risk for the nation’s banks, a global credit rating agency has warned.Analysts at Moody’s Investor Services fear a house price slump could lead to higher loan losses for Australia’s banks, as well as those in Canada and Sweden.Between 2000 and 2016, house prices rose by 113 per cent in Australia, according to the Moody’s report. At the same time, it notes household indebtedness has risen sharply, with mortgages accounting for 63 per cent of the Australian banking system’s loan book. GET THE LATEST REAL ESTATE NEWS DIRECT TO YOUR INBOX HERE last_img

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