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Fitch stress tests Aussie market

Mounting concerns that Australia's housing market could nosedive has prompted Fitch Ratings to conduct stress tests on the nation's loan market.

The ratings agency will examine various levels of property price declines to assess the impact of rising mortgage defaults on Fitch's Australian RMBS portfolio, banks, and mortgage insurers.

"Over the last few months, Fitch has received numerous enquiries as to the sustainability of Australian residential property prices and the possible impacts of a correction," Ben McCarthy, managing director for Australia, said in the statement. "While over the short-to-medium term, a downturn is not Fitch's central expectation, the agency is performing its stress test exercise on ratings impact under the hypothesis of an imminent housing market correction."

While house prices have grown substantially in the last decade, recent market reports indicate home price growth has slowed. And according to the latest statistics from the Housing Industry Association, sales of newly built homes fell 2.6% in August from July.

"Weighted average established house prices for Australia's eight major cities rose by 18.4 per cent in the year to June 2010 according to the Australian Bureau of Statistics, and are now 41 per cent higher than they were in June 2006," Fitch said in a statement.

"This continued rise in Australia is in contrast with property prices in the US, which have fallen 28 per cent since June 2006... Fitch believes investors are keen to understand the implications for ratings should such a sharp correction occur."

Results of the testing will be completed by the middle of the fourth quarter.

Once complete The Lending Shop will publish these results.

By Broker News | 30 Sep 2010