An Australian economist has warned that Australian lenders are making the same mistakes US lenders made prior to the market crash 10 years ago. One warning sign is the high number of risky loans that are being made. He cited a statistic claiming that 35.4% of home loans were interest only. He also pointed out that Australian home buyers were receiving 25% more cash as part of their loans than their American counterparts with the same income level.
Current trends are alarmingly similar to what the US market experienced. Whether or not there is a housing bubble in Australia still isn’t clear. But, we do know that current trends are creating a climate where a crash is much more likely.
- The cause of the US housing crash 10 years ago was closely linked to risky lending.
- Australia’s lenders are repeating all of the same mistakes according to one economist.
- It’s likely that a crash is just around the corner for the Australian housing market given the current climate.
AUSTRALIA’S lending industry has not learned from the “meltdown” in the US property market a decade ago and is repeating many of America’ mistakes, an economics professor at UNSW Business School has warned.
In a recent opinion piece on the university website, Professor Richard Holden said there were “very troubling markers” of imprudent lending and borrowing activity reminiscent of what preceded the US housing market crash. “I worry that bankers, borrowers and regulators seem not to have learned the lessons of that very painful piece of economic history,” Mr Holden said.
One of the biggest areas of concern was that Australian banks were lending property buyers significant amounts of money relative to their incomes, he said. He noted in the article that Aussie buyers were getting about 25 per cent more money than what major US banks were now lending buyers on the same income level (adjusted for tax and exchange rates).
View more of the original article at News.com.au