Moody's: Australian House Prices Are Not Overvalued

Getty/ John Moore

It’s not a housing bubble yet, according to credit rating agency Moody’s Investor Services, who yesterday released a report saying that “rising house prices (are) not yet a concern for Australian banks”.

Ilya Serov, a Moody’s vice president and senior credit officer, said: “Although Australian house prices are elevated, the extent of overvaluation appears to be limited.”

Rather “statistical studies suggest that house prices are near fair value at current low interest rates, but they remain vulnerable to rising interest rates and potential volatility in economic performance at the state or regional level as the resources investment boom slows.”

Importantly for the housing bubble doomsayers, Moody’s says “recent house price appreciation has not been fueled by excessive credit growth or a broad-based loosening of lending standards.”

Even though some takes on the report have been that the banks are at risk and that rising house prices threaten bank credit profiles, the reality is that this is a very positive scorecard of where the Australian housing market and the banks’ credit profile is here and now.

Indeed, Moody’s highlights that notwithstanding recent concerns about high Loan-to-Valuation ratios (LVR – value of the loan as a percentage of the value of the property), LVRs on bank mortgage lending books are “at a historical low.”

As is the way of credit rating agencies, there must be a warning somewhere and Moody’s did highlight it sees the “risks skewed to the downside” in the Australian housing market.

They warned that they wouldn’t want to see a further acceleration in house price growth, that the banks must not loosen lending standards, and that it is worried about regional economies making the economic adjustment.

So while Moody’s see risks to the market “within 12 months” overall, this is a positive scorecard for Australian housing.

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