More Stress Testing . . .

The Australian Banking Regulator has given Australian banks one week to stress test their resilience to the unemployment rate rising sharply to 12 percent, a 30 percent decline in residential house prices, a 40 percent decline in commercial property values and a contraction of GDP.

It is believed APRA want to study what would happen to the Australian banking sector should we experience a debt crisis brought on by a deterioration of Europe.

This comes days after ratings agency Moody’s warned Australia’s housing prices are not sustainable and placed Australia’s mortgage insurance industry on a negative watch.

» Australia Banks Ordered To Run Stress Test – Report – Dow Jones Newswires, 16th December 2011.


  1. The true figure for the current unemployment rate (especially when you factor in under-employment) is already closer to 10% that is why people aren’t spending. When you have a figure that considers a person “employed” if they have 1 hour of paid work in a week then you have a lie. For the previous 2 Christmases (post GFC) the firm where I am currently “employed” as a casual recruited temp staff to cope with festive season. This year they haven’t and instead are offering overtime to their day staff to work back. If the ABS and government wanted to be “honest” (yes I know its an oxymoron) then rather than take a survey and extrapolate the figures why not start with concrete figures and get the super funds to report on how many advices of contributions being ceased that they are receiving from their members employers. They can then also report when employer contributions recommence and then for the majority of workers we would have a solid accurate figure.

  2. Roy Morgan Research has November’s unemployment at 8.6% (1.04 million – the highest since January 2002) and underemployment at 7.7% (938,000).

    It is also interesting to note from the research – “The latest Roy Morgan unemployment estimate is 3.4% above the 5.2% currently quoted by the ABS for October 2011

  3. Roy Morgan is saying unemployment & under-employment is 16%! I believe it. Australia is bordering on a Depression. Google Douglas Parker Astrologer for predictions USA, China, Germany, Japan, Australia

  4. Agreed, WOFTAM and probably just a PR exercise by the Government to restore confidence when they tell us all is great. Has there been any such process anywhere (incl US, EU) where the stress tests have given an answer no one wanted?

    Anyway, NAB just paid 130 bps above the BBSW for its latest debt rollover (just over 6%), so not surprised the smoke and mirrors are now being used. The number of sales falling through due ‘finance’ has to be pushing all time records.

  5. Now lets put this in perspective, say the banks suddening found themselves in the shit. What do you think the Wayne and Juliar combo would do? That’s right, screw the taxpayer and bail the banksters out.
    So stress tests are like the government saying they will be no Carbon Tax . I pity those that believe the propaganda we are fed through the idiot box. Just turn it off !
    Ho Ho Ho

  6. Suley, that may be correct in that it doesn’t take into account any % of home ownership or percentage of people who own their home outright.

    What you might have here is a real example of the ponzi scheme that is the Australian housing market. People have upgraded into higher levels of housing over the last 10 years rather than pay off the one house that they live in. Example, buy, sell to upgrade house, buy, sell, etc. If I bought a 100 000 home 10 years ago, sold it for 200 000, bought a newer home for 300 000, sold if for 400 000, bought a newer one for 500 000, I’ve still only had a 100 000 home loan, and am earning more money now than when I took out the loan, so I have more disposable income for something that hasn’t cost me as much as what it appears it would have cost me to buy it in todays terms, Ie that 500 000 house has been financed by the 400 000 sale of the other houses plus the initial 100 000 bank loan. All good and proper if you were in the market back then and a great way to skew the figures presented in that article, but it doesn’t hide the fact that there is an underlying lack of affordable property in Australia particularly for people wanting to enter the market.

    Plenty of land is released where i live and has been up for sale for quite some time, but the developers are asking way too much for anyone to consider building except investors under the governmental low income rental scheme. Yet no one is building there to live. Why? Its a boom suburb and has been for the last 25 years, with very big plans for the future. I’m stumped why they haven’t sold.

  7. Romsey, I read that article and laughed. These spruikers just keep it coming. I cant wait for the whole thing to go down the tubes.


    Suley – This is an interesting article, I need to spend some time at the ABS to get a solid grip on it. Couple of ideas to help explain would be:

    a) “Household” disposable income is a measure of the total disposable income in a house. I hazard a guess that less wives worked (Or earned high incomes) in 1985. Single income households were the norm. Plus, most couples would have had children young – therefore resulting in a higher non-disposable ratio.

    b) The county now has significantly more apartments included in the total housing equation and so “median” prices are distorted lower because the housing spruikers expect that families should shut up and buy a two bed apartment. “Lower your expectations” they say.

    In the housing debate, boom vs. bust, using marco economics can easily be presented to support both sides of the argument and neither is conclusive… I offer a better alternative.

    I believe that the reality of housing affordability is better represented at the micro level and not a highly distorted macro level. I sat down recently with a colleague and created a simple spreadsheet. The metrics were:

    $600K 4-bedroom, house in northern Sydney suburbs. $60K (10%) Deposit.
    Bank mortgage rates 7%, Combined (duel) income of $150K, 25yr loan.

    A couple would need to spend 32% of their combined after-tax income to support the mortgage.
    If you assume that 30% of after-tax income is used on non-discretionary items like food, electricity, water, gas, clothes, medical, school, day-care, etc. Then the ratio of disposable income allocated to housing becomes 45% – Much higher than the historical average.

    I agree with the many spruikers that housing prices are “mostly” sustainable at these levels, but imo they have absolutely zero blue sky left in them. Housing prices cannot materially increase unless wages dramatically increase. With negative rental return and no capital return, there will be far fewer buyers. No buyers always results in decreasing prices.

    Conversely, the perfect price (and most sustainable) based on the same parameters used above: $400K for a family home is the sweet spot.

    Another interesting conclusion I gathered from my analysis showed the outcome of the famous “House prices double every 10 years”. If inflation and wage growth remains consistent, and housing does in fact double every 10 years, by 2040 average house prices will be $6Million, household incomes $470K and mortgages will need to be 50-years to support the long-term historic ratios.

    But aside from the numbers – which to me are clear – the stress that two full-time working parents must endure is also unsustainable.

    I had a very candid chat with real-estate agent only last weekend, he told me that 50% of his companies upper north-shore business was created through divorce. He said that it is was frightening to see the significant impact high “Interest rates” were having on families with mortgages. The horrible reality is that mortgage rates are very reasonable, it’s the enormous debt that causes issue and is completely unsustainable.

    I wouldn’t invest in Australian housing – even if I were using your money 🙂

  9. It’s never friggin stops does it.

    The media doing whatever it can to distort the truth.

    Quoting private firm saying House values, have wait for it,
    increased in 2012. (with no comments to rebuke how convenient! )

    But go look at The State Revenue Office data (each State has its equivalent).

    The actual sales result for each settled property settlement is there shown.

    This takes normally 3 to 6 months to show. They’re shocking truths.

    So, any figures relied upon are just that, unreliable and out-of-date.

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