Credit Rating Agency to Stress Test Australian Banks after Sustainability Doubts

Global rating agency Finch Ratings has announced it will start stress testing Australian Banks after a flood of inquiries questioning the sustainability of Australia’s housing bubble.

Ben McCarthy, Finch Rating’s Australian Managing Director said “Over the last few months, Fitch has received numerous enquiries as to the sustainability of Australian residential property prices and the possible impacts of a correction,”

With Australian Banks “well” capitalised with residential property, estimated to be as much as 60 percent, there is just concern about what the impacts will be when the bubble pops.

“A housing bubble is the one overhang of the Australian economy, with proponents arguing that with Australian banks having 60 per cent of their loan books secured by residential property, the entire Australian economy is very highly leveraged to a domestic asset bubble,” said CMC Markets international equities dealer David Barrett-Lennard.

ยป Housing stress test spooks market – Sydney Morning Herald, 29th September 2010.


  1. There is no housing bubble in Australia.

    Unfortunately there are some US based hedge funds who see the world from an American perspective and have taken large short positions in Aussie banks in the mistaken belief that there is a housing bubble. They are the ones who are asking fitch to determine the effect of bursting that non existent bubble. They are just beginning to realise there is no bubble and the only way to get out of their positions without losing big time is to try and scare the market into selling off the banks :>)

  2. >Malcolm Moore
    Oh, so it’s all just a hedge fund conspiracy? Nonsense.
    It’s entirely appropriate for Fitch to stress test the Australian banks given their huge mortgage loan books.
    How anybody can argue Australian housing is not a bubble is beyond me.
    It’s simply impossible for house prices to continue rising faster than people’s incomes. At some point the level of debt will become insupportable.
    Consider the following headlines simply from a quick scan of today’s newspaper:
    – Immigration Slumps, Population Growth Plunges
    – New Home Sales Drop for Fourth Month
    – Tread Wearily on Rates: IMF
    Which of these is good news for the housing market?

  3. “We’re different in Australia”

    Even in Adelaide you will need a minimum of $350-400K for your 1st house. $400-450K+ for something a little nicer and closer to the city.

    Servicing a mortgage of that size plus all the incidentals with owning should see you outlaying 750+ a week….is that sustainable? What is the average household income AFTER tax? What will another 1% on rates do…..

    I’ve been closely watching the sub 500K, 10-15km radius category and over the past 12 months it has shifted to majority investor purchases(coming back on market for rental). What happens when capital gains are flat and investors are outlaying huge sums to only see approx 50c in the dollar back through NG?

    Next 12 months will be interesting when this hits home..

  4. Well I must agree with Malcolm there is no bubble in Sydney and Melbourne, the Ponzi Market looks like the real market.

    House Prices relative to income became irrelevant many yrs ago. Why worry when you have a tenant to pay your mortgage and fat tax refund from the governement.

  5. So, 1st time buyers have become irrelevant, is it all about ‘investors’ and upgrading owners?

    Are investors now going to purchase the majority of homes from upgrading existing owners?

    The attached below is an example of the calibre of investors entering the market now:

    This is a semi-detached down the road from my house and I’ve watched through from purchase at auction, renovation as it was a shell of a place(no kitchen, bathroom, ceiling, original wiring etc), to now being on the market for rent.

    For starters he paid about $100k too much for it(500K), didn’t lift a finger on the reno’s as he had it all done for him and in the end spent about 150k pimping it out with things it didn’t need.

    Now he wants $750 pw and will probably be lucky to get $450 pw absolute tops.

    If this is the type of investor now getting into the market, I have now doubt this house of cards will soon tumble.

  6. The only thing thats real is that people are holding too much debt in housing and its starting to tank! Melbourne is on the way down and no amount of crap talk by people with vested intrests is going to be able to stop it.

  7. No housing bubble in Australia!!! What an absurd statement. With average returns in around 1-2% and hose prices in comparsion to average incomes, Australia has one the biggest housing bubble in the world. The vested interest groups pushing marketing hype are varied ranging from Estate Agents, Governments, the media to “investors” who stand to gain. But the boom is unsustainable and dangerous

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