A love affair with property and high household debt

Melissa Jenkins
(Australian Associated Press)

A love affair with property and a lack of access to cash leaves Aussies more at risk of financial stress than people in other advanced economies should house prices take a sudden fall, ratings agency Moody’s warns.

Australia’s household debt level, relative to liquid household assets excluding superannuation, is similar to that in Ireland in 2007, just before its housing market crashed, Moody’s said.

“This suggests that, in the event of a negative income shock, the scope for Australian households to draw down parts of their financial assets to maintain debt service and overall spending is more limited than elsewhere,” the agency said in a report.

Moody’s found Australia, New Zealand, Canada and Sweden are the advanced nations most vulnerable to a housing downturn, due to strong house price growth in the last three years.

“The degree of exposure to housing risk channels is lower in Australia and Canada, with less stressed housing affordability, resilient banking systems, and fewer signs of transient demand factors exacerbating imbalances in the housing market,” Moody’s said.

“Canada, however, has become more reliant on residential investment, while Australian households stand out for lower financial buffers and higher leverage.”

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