Australia safe from another GFC

With interest rates back up to average levels and government debt at much lower levels than any of our overseas counterparts, it seems that Australia remains in a strong position to withstand any talk of another Global Financial Crisis. Even when it comes to housing, the strength of the local market has been pleasantly surprising, even given the moderate price growth experienced over the last quarter.

Although Australian housing is expensive compared to other countries, the events that would lead to big price falls is unlikely to occur. After all, during the last GFC Australian property suffered only a 4-5% fall in prices. In the US, the 30% fall was driven by subprimehome lending, and the typical oversupply that accompanies high levels of speculation.

In Australia, however,  we have no subprime lending sector to talk about and a real undersupply of new housing.We have interest rates at levels higher compared with other international economies, so the Reserve Bank could respond to any overseas credit rationing by dropping interest rates again.

Even in the extreme event of another economic storm which  would force banks to withhold new lending, it is unlikely to lead to a wave of distressed selling.

Homeowners with a mortgage are in a strong position. A report from one of the big four banks, considered to be Australia’s largest home loan provider,  stated that its average home loan to home-value ratio is only 43 per cent and that 70 per cent of customers are paying their mortgage in advance, and are an average of nine payments ahead.

Australia has an undersupply of housing because of the natural increase in population and immigration.We have an economy where unemployment is approaching historic lows and incomes are set to rise strongly.

If we also take into account strong gross domestic product, retail sales and consumer sentiment indicators, and low mortgage arrears and delinquency rates, doomsayers will continue to be off the mark when it comes to predictions of house price collapses in Australia.

Summarised from Anthony Ishac’s article “Australia Would Buck another Global Downturn”