The Australian banking system is heavily concentrated in housing. Most Australians have a large part of their wealth tied up in it and the value of the stock of housing dwarfs Australia’s not-insubstantial pool of superannuation.
But while most Australians concern themselves with how much their property is rising or how much the property they want to buy is rising, institutional investors are getting worried about the underlying fabric of the economy and its potential impact to and feedback from housing.
That’s the message from a survey or around 50 institutional investors, the people who manage our super and work in financial markets, released this week by Morgij Analytics.
The survey, conducted late last year, asked participants to rate 20 drivers of the Australian mortgage and housing market with an overall index level of -1 across the survey.
That’s not too bad according to Graham Andersen, chairman and founder of Morgij, who said the survey shows that in a status quo world “Australia is at risk but should do okay”.
But 2015 doesn’t feel like a status quo world and investors were already picking up on that late last year.
What’s important about this survey is that the respondents have the highest negative score for the big macro factors which no one usually thinks about when it comes to housing and mortgages.
With a score of -2.24 the survey showed respondents “were very concerned about the aftermath of the mining/gas investment boom and fall in prices and the impact this is going to have on government revenue, the budget deficit and unemployment”. All of that – particularly unemployment – feeds back into arrears, confidence and economic activity.
Likewise respondents are worried about the level of Australian household debt with a score of -2.14 in response to the question on “vulnerability for the system arising from this debt needing to be continually passed down to new buyers and home owners”.
Think about that for just a second and you can see the genesis of weak domestic growth, of saving, not spending, by households and of an RBA cutting rates and downgrading growth.
This survey looks through the cheering about house price rises and reflects real concerns that it is the high debt level holding Australia back.
Disclaimer: Greg McKenna is a consultant to Morgij Analytics on Mortgage Book Risk Management. He did not participate in this survey.