Housing Crash

Housing wealth is uncertain, but mortgage debt is very real
www.first2move.com.au
Perhaps unsurprisingly, little attention was paid to what the boss of Australia's biggest bank had to say about its latest results beyond the money laundering scandal it's embroiled in.
But a thoughtful response by Ian Narev to the final question in last week's analyst briefing raises an issue far more important to Australia's financial system in the long-term than dirty money.
That issue is Australia's immense household debt.
The question was almost a Dorothy Dixer, with the analyst effectively asking whether concern about Australia's record levels of household debt was overblown.
Ian Narev didn't give the answer the analyst was probably expecting.
"It should cause questions, because this is an outlying chart relative to global experience," he responded.
"The first question we've got to ask ourselves is what's underlying it and are we comfortable with it."

Embed: Australia's household debt-to-assets ratio is relatively stable but debt-to-income is at record highs


As you'd expect from the head of Australia's biggest mortgage lender, he said he remained relatively comfortable.
Mr Narev said taking into account household wealth makes Australia's almost uniquely high debt burden appear less concerning.
However, he also noted that Australia's household wealth is not as certain as many people assume.
"Underneath the effective wealth of the household is a whole lot of mark-to-market of what's my property worth and what are my assets worth, whereas the debt is debt," Mr Narev warned.

"So you've just got to be very careful about the role of asset values in that."
Basically, the head of Australia's biggest bank is warning that a large part of your wealth can evaporate quickly if property prices fall, but your debts will remain the same.

(Source: Australian Broadcasting Corporation )