property market - interesting read

LONDON, April 15 (Fitch) - Fitch Ratings, the international rating agency,

said that Australian residential property prices are more exposed than ever to a

crash in the event of an economic downturn. House prices in some major cities

have risen by as much as 50% over the past two years and may be reaching

unsustainable levels.



In its report published today, "The Bigger They Are, The Harder They Fall",

Fitch examines the recent dynamics of the runaway property market in Australia.

The report focuses on the massive increase in household debt and the decreasing

affordability of housing. Fitch notes the availability of credit, from banks and

other lenders, has fuelled the property market price hike.



Australian household debt now stands at AUD540 billion, and the ratio of

household debt to income has doubled from 54% in 1993 to almost 110% in 2003 -

placing Australian consumer indebtedness on a level with the UK and US. The

report notes a similar increase in the multiple of average house prices to

average earnings from approximately 4.5x in 1993 to almost 6.8x in 2003. The

agency takes the view that the consequent debt-servicing strain on households

leaves the property market highly exposed in the event of rising unemployment or

interest rates.



The agency also looks at the impact of the boom in investment housing, and

notes that falling rental yields and increasing vacancy rates show that the

market in certain areas is over-supplied. Fitch notes that the recent

construction boom is bringing more new properties onto the market therefore

fundamental weakness in this sector could have a negative impact on the property

market.



The report concludes by outlining adjustments the agency is making to its

property market value decline assumptions, which are used in its criteria for

rating residential mortgage backed security transactions.



For further information please see the report, "The Bigger They Are, The

Harder They Fall - Australian Residential Property Prices" published on Fitch's

global website www.fitchratings.com and Australian website

www.fitchratings.com.au.