This article is from the Australian Property Journal archive
AUSTRALIA’S banks and mortgage insurers will be able to cope with a house price crash of 40%, according to Fitch Ratings.
Fitch’s stress test, conducted by financial institutions directors John Miles and John Birch, looked at three scenarios:
· mild distress where mortgage defaults are 2.5% and prices fell 20%;
· medium distress with 6% defaults and 30% decline in house prices;
· and severe stress with 8% defaults and where prices plummet 40%
The stress test fond in the event of a severe mortgage distress, banks would be exposed to $10 billion in losses in the third year and mortgage insurers will take a hit of $7 billion.
So Miles said in the event of a severe mortgage distress, losses are manageable. He added that Australia’s stringent lending criteria and improving loss ratios for insurers after premium increases, would help them handle losses.
Fitch’s stress test comes after a mix bag of forecasts from different experts.
Earlier this month, the International Monetary Fund said Australian house prices might be overvalued but stop short of saying there is a probably bubble.
However earlier this week, mortgage risk manager QBE LMI’s Australian Housing Outlook report, researched by BIS Shrapnel, predicts house prices will jump by 20% in the next three years, due to a deficiency in new dwellings.
QBE LMI CEO Ian Graham said future median house price rises will be underpinned by a deficiency of dwelling stock across most capital cities, which in turn will lead to tight vacancy rates and solid rental growth, flowing through to investor demand.
Sydney’s median house price is expected to increase to $750,000, representing total growth of 20%, or an average of 6.3% per annum.
Adelaide’s prices will also rise by just under 20% to $490,000, reflecting average growth of 6% per annum.
Perth prices will rise by 21% to $590,000 at June 2013.
The report forecast Brisbane prices will grow by 4% per annum to $530,000; Darwin will see an average rise of 4% per annum to $620,000, followed by Canberra with a 3.4% to $580,000.
Melbourne is forecast to experience the smallest increase amongst the capitals at rate of 3% per annum, this would lift the median value to $610,000 by June 2013. However, in real terms, the median house price is actually estimated to decline by less than 1% in total from 2009/10 to 2012/13.
Australian Property Journal
