Australian Property Report - April 10

Much talk of housing ‘bubble’ - but fundamentals sound
– Record population gains & inadequate supply growth
– Critical housing shortage worsening/demand momentum strong
– FHB replaced by investors, upgraders & offshore buyers
– Conservative lending/low delinquencies/no sub-prime/full recourse loans

Household sector well placed
– Economy & labour market solid, unemployment falling – no forced sales
- Low delinquencies reflect comfortable debt servicing
- Solid gains in real household incomes
- Growing skilled labour shortages/upward wages pressure

Financial system solid
– On balance sheet lending raises incentives re. sustainable serviceability
– Conservative lending = low delinquencies
– Full recourse lending cf. US = less incentive to default

Risks
– Rising interest rates/deteriorating affordability could cap price gains
– Policy reversal of 2009 FIRB changes?
– Change in immigration policy?
– Rising unemployment/recession?

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