(Australian Associated Press)
The financial industry regulator’s moves to crack down on home loans won’t be enough to punch a hole in soaring household debt, a leading ratings agency says.
Australia’s household debt is the largest of any advanced economy, excluding Switzerland, and represents more than 120 per cent of gross domestic product.
Moody’s Investor Service has warned moves by the Australian Prudential Regulation Authority to cap interest-only mortgages at 30 per cent, and retaining its 10 per cent limit on housing investment loans, will have a minimal impact on household debt.
“The new measures will likely weigh on demand for property only at the margins,” the ratings agency said in a report.
“Household debt should continue to rise in aggregate, as low interest rates and expectations of continuing rises in house prices encourage purchases.”
The agency also warned highly leveraged households will likely close their wallets should the economy tank.
“While household debt does not pose a direct or immediate risk to the government’s balance sheet, in the event of an economic downturn, highly leveraged households would likely cut back on consumption spending more sharply than less leveraged borrowers, crimping economic growth and fiscal revenues.”
Moody’s has also released a separate report with property analytics firm CoreLogic, suggesting rising interest rates and housing supply will likely pull home prices lower in 2018, and they won’t rise again until 2021.
Moody’s expects Sydney apartment and house prices to stagnate until 2020.
Melbourne prices are tipped to fall, but house prices are likely to slide more than apartment values.
Auction activity last week was the busiest it has been all year, in the lead up to Easter.
Some 3,424 homes went under the hammer in the week to April 9, with more than three quarters of auctions successful.
CAPITAL CITY MEDIAN HOUSING PRICES
Sydney – $980,000
Melbourne – $707,500
Canberra – $637,500
Darwin – $565,000
Brisbane – $510,000
Perth – $490,000
Adelaide – $444,000
Hobart – $381,200
Sydney – $740,000
Melbourne – $522,000
Perth – $408,000
Canberra – $383,564
Brisbane – $395,000
Darwin – $372,501
Adelaide – $323,250
Hobart – $302,000
Source: CoreLogic Property Market Indicator Summary week ending April 9, 2017.