Australian house prices not sustainable, says Moody's by: By Stephen McMahon From: Herald Sun December 14, 2011 7:39am
Moody's says it has Australia's mortgage insurance industry on "negative" watch. Picture: AP
The ratings agency says there are "meaningful uncertainties" for Australian housing and mortgage delinquency rates are likely to increase. Picture: File
GLOBAL ratings agency Moody's has warned it has serious misgivings about Australia's housing market amid fears the property bubble will burst if Europe's debt crisis is not contained.
In a new report, Moody's says it has Australia's mortgage insurance industry on "negative" watch and current prices for Australian houses are "not sustainable" despite recent falls.
The ratings agency warns it remains concerned about the medium-term outlook for the housing sector, as the eurozone crisis represents a "material" threat and Australia may face a re-run of the property crash in the US and Europe in recent years.
Another agency, Fitch, said in a report yesterday that the proportion of home loan customers running late with repayments had improved in recent months despite growing weakness in the housing market.
But Moody's says there are "meaningful uncertainties" for Australian housing and mortgage delinquency rates are likely to increase over the next decade.
Related Coverage Mini property moguls vulnerable The Australian, 1 hour ago We'll be flexible, says Westpac Perth Now, 1 hour ago Confidence in city house prices The Australian, 1 hour ago Westpac confident in Aus housing market Perth Now, 6 hours ago Europe alarm slams stocks Courier Mail, 19 hours ago
"Capital city house prices have more than quadrupled and household debt has tripled since 1990. Simple metrics indicate that the current price levels are not sustainable," Moody's lead analyst Ilya Serov said. "The sensitivity of the mortgage insurers' portfolios to a serious economic downturn has yet to be tested at current house prices and levels of indebtedness."
Mortgage insurers such as Genworth and QBE cover banks for losses on home loans - generally those where borrowers own less than 20 per cent of their properties.
ANZ is less negative on the medium-term outlook but in research published yesterday, the bank's analysts said they expected house prices to drop further in 2012.
They expect Victoria to be hardest hit as the state's economy slows.
Latest Real Estate Institute of Victoria figures show Melbourne's median house price, at $551,000, is already down $50,000 from its peak a year ago.
Moody's said that despite its concerns, Australian mortgage insurers were well capitalised and the outlook was unlikely to affect the short-term ratings of banks.
The warning comes as official figures show housing starts in Australia tumbled 9.4 per cent in the year to September - the fourth fall in five quarters.
CommSec economist Savanth Sebastian said the housing sector was going "nowhere" as potential buyers sat on their hands.
Most economists are tipping the Reserve Bank will lower rates to 4 per cent in February to further insulate the Australian economy from the global downturn.
"(A) resurgence in housing activity will be needed to support broader economic growth over the coming year," Mr Sebastian said.
