This week we saw visiting economist Jonathan Tepper predict we’re in a lending and property bubble and it’s all doom and gloom for the future.
While Tepper used economic data and trends that are all true, he only told half the story. Here’s what some Australian economic experts have to say.
Average home loan payments look manageable
Westpac senior economist Matthew Hassan points out that as a proportion of household income, the cost of paying off a typical mortgage for an existing home owner or someone looking to buy is well below previous peaks.
“Both figures highlight that the burden is not really high, but there’s a sensitivity around future interest rates,” Hassan says.
Mortgage ‘buffers’ keep growing
Households with home loans are paying off their loans ahead of schedule.
No one disputes household debt is high in Australia, but many borrowers have a “buffer” that could help protect them if they were, for example, to lose their job. The total value of these buffers is equal to 16 per cent of all loan balances, or more than two years of scheduled loan repayments.
Credit growth is not extreme
Economists say a tell-tale sign of a bubble brewing is rapid credit growth.
Housing credit has definitely picked up, but it is still a long way from previous highs. In 2007 housing credit growth was 23% and last year growth was sitting at 9%.
Home loan arrears are low
If there is a housing crisis coming, the banks have not yet seen a lot of evidence of borrowers falling behind on their home loans.
At the moment about 1% of home loan customers are more than 30 days behind on their loan, compared to over 2% a few years ago. Of course, that would probably change if interest rates or unemployment rose sharply.
‘Low-doc’ lending has fallen
A key reason for the meltdown in the United States housing market that precipitated the global financial crisis was rapid growth in lending to risky borrowers.
While the banks’ lending standards have been criticised, the value of low-documentation (“low-doc”) mortgage lending in Australia has been falling for several years.
Click link for graphs that explain further: SMH Article
Click link for doom and gloom from Johnathan Tepper: Doom and Gloom Article