Australian property bubble burst could be a reality after credit ratings slide
Article by Roisin Kelly-Goldsmith
Sometimes all it takes is a drop in credit ratings along with slow auction clearance rates for the housing bubble debate to flare up again - and that’s exactly what’s circulating in the media as winter approaches.
The Sydney property market has been frosty this month, with not one weekend exceeding an auction clearance result above 80%, which according to Domain is a low point unseen since January. Adding to this, over May there was a 1.1% fall in property prices across Australia's five largest cities, including Sydney and Melbourne.
This news of a slowing Australian property market comes after the economists at Standard & Poor’s (S&P) Global Ratings agency reduced the credit ratings of 23 non major Aussie banks last week.
“To reflect the increased risk, we have lowered our assessment of the stand alone credit profiles of almost all financial institutions operating in Australia, and are lowering our long-term issuer credit ratings on 23 financial institutions in Australia by one notch each.”
S&P was also unimpressed with Australia’s economic standing and increased its Banking Industry Country Risk Assessment (BICRA) rating from two to three.
Although the country’s BICRA rating is still considerably lower than the riskiest score possible of ten, the downgrade hasn’t gone unnoticed.
For instance, the Chairman and Chief Investment Officer at Altair Asset Management liquidated millions of dollars worth of Aussie stock and returned the funds to clients on Monday.
"We think that there is too much risk in this market at the moment, we think it's crazy,” he said.
"Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that's after we've ticked them up over the past year.”
According to Mozo’s Product Data Manager, Peter Marshall, it’s only a matter of time before the property markets in Sydney and Melbourne finally collapse.
“I’d be surprised if October hit the calendar without some kind of economic event triggering the end of the property bubble,” he said.
Marshall encouraged Aussie borrowers paying off mortgages on high interest rates to refinance, so they can use the money saved to buffer themselves from potential rate rises in the future.