SYDNEY, April 11 Australia was the most
vulnerable of four top-rated economies to any shocks stemming
from a housing downturn, ratings agency Moody's Investors
Service said on Tuesday, citing the country's high and rising
household debt as a risk factor.
The Moody's report titled 'Credit Profiles Resilient to
Rising Household Debt and Stretched Housing Affordability'
focused on Australia, Canada, New Zealand and Sweden - all AAA
rated countries where home prices and household debt have soared
in the last three years.
The four countries were exposed to potential housing market
correction, Moody's said, but any reversal in home prices was
unlikely to undermine the sovereigns' credit profile, "unless
accompanied by other long-lasting negative shocks."
"Given its elevated level of household debt relative to
disposable income and liquid household assets, Australia faces
the risk that households would be forced to deleverage abruptly
in an economic or housing downturn," Moody's noted.
"By contrast, large liquid financial assets in Canada and
New Zealand would provide some financial cushion to economic
shocks and reduce the risk of a sharp retrenchment in
Over the last three years, home values in New Zealand and
Sweden have surged 30 percent in real terms and by about 20
percent in Canada and Australia, according to Moody's.
Of the four, household leverage has increased at the fastest
pace in Australia, at more than 10 percent. However, that is
still much slower than nearly 50 percent in Ireland before the
global financial crisis, and 40 percent in Spain.
Australian regulators, waking up to the risks, have recently
tightened the screws on bank lending to speculative home
investors and have threatened a lot of "monitoring",
"scrutinising" and "observing."
Earlier this month, RBA governor Philip Lowe said regulators
stood ready to take tougher action against rising debt, if
Record high household debt to disposable income ratio is one
reason the Reserve Bank of Australia (RBA) has held interest
rates at a record low 1.5 percent after last cutting in August.
Besides, housing affordability is the new political buzzword
in Australia with incessant local media coverage about
skyrocketing home prices. The government has promised measures
to boost supply at its federal budget on May 4.
(Reporting by Swati Pandey; Editing by Shri Navaratnam)