Despite widespread reports about mounting mortgage stress in Australia and growing fears that household debt could precipitate the long-dreaded housing market crash, noted TV presenter and journalist David Koch has dismissed such fears as “scaremongering”.
“A classic case in point was last week’s episode of the Four Corner’s TV program, which dealt with the issue of the supposedly burgeoning number of people under mortgage stress which will cause an inevitable crash in the housing market,” Koch said. “The claims in the program just don’t match the facts and the assumptions of an impending crisis are just not realistic.”
Koch went on to explain why the country’s home loan borrowers are in a good place, which makes the likelihood of a housing market crash unlikely:
1. Despite high levels of debt, Australia’s economy is still thriving.
Koch claims that data gathered by the Reserve Bank and the Australian Bureau of Statistics (ABS) show that household debt (primarily mortgages), has reached record levels of 180% of household earnings.
“It’s worth about two years after tax salary. Against this, the net wealth of Australians is worth 700 per cent of after tax income or about seven years of salary,” he said.
This means that assets can cover three times the debt burden.
“Now an argument can be made that if house prices crash the value of those assets will fall as well,” he added. “However three times cover is regarded as very solid and conservative.”
2. Borrowers are often able to repay their loans faster than they were before.
Over 20% of home-loan borrowers have at least four years’ notice on their payments. Only 37% are more then a year behind schedule. Koch reported that less than 1 percent of borrowers are in arrears for more than one month.
“History shows Australians are highly focused on paying off their mortgage and it has been this way for decades. In fact, average Aussies are among the lowest risk home loan borrowers in the world,” he said.
3. Repayments aren’t higher than average.
“We often hear about how high loan repayments are for today’s first-home borrowers compared with previous generations. The facts are … they’re not,” Koch said. “The current repayments on new home loans as a percentage of disposable household income is around 24 per cent … that’s below the 10 years average of 26 per cent but around the average for the last 35 years.”
Based on the data, it appears that today’s young adults are making the same home loan repayments (as a percentage of household disposable income) as their parents were making.
4. Stress levels are near record lows for people who experience it.
The Reserve Bank of Australia, Australian Prudential Regulation Authority and Australian Prudential Regulation Authority report that mortgage stress remains at an all-time low. It is now less than 0.5% for all loans.
“As you can see the facts around the home loan market is that there is no need to panic,” Koch concluded.