New research by Digital Finance Analytics reveals that almost 20...

New research by Digital Finance Analytics reveals that almost 20 per cent of first-home owners in Australia are within months of default. And even those who have owned a home for longer or bought subsequent homes are struggling to maintain their mortgages.

Professor Steve Keen warned of this situation and its risk to Australian banks:

“Australia’s mortgage debt to GDP and income ratios exceeds the USA’s at the peak of their housing bubble. Real estate loans are a higher proportion of bank assets in Australia than they ever were in the USA. So Australian banks would fare worse from a sustained fall in house prices than their US counterparts.

Impaired assets on Australian banks balance sheets have reached 25% of Tier 1 capital — and this has occurred while house prices were still rising. Despite the pressure that full-recourse lending puts on borrowers, this is comparable to the level of impaired assets in US banks before house prices collapsed when the SubPrime Boom turned into the SubPrime Crisis.

Since real estate loans are worth roughly 7 times bank Tier 1 capital — up from only 2 times in 1990 — it wouldn’t take much of an increase in non-performing housing loans to push Australian banks to the level of impairment experienced by American banks in 2007 and 2008.

Bank lending drove house prices sky high, and the profits banks made from this Ponzi Scheme dragged their share prices up with the bubble. The debt deleveraging that occurred in other nations when their housing bubbles deflated has yet to occur here in Australia. But the increase in non-performing housing loans is a leading indicator that the house price and debt deflation is now finally underway in Australia.”