A slowdown in China’s economic growth could have serious implications for the housing market in Australia. Standard & Poor’s expects China to experience a soft landing in 2012, with forecast GDP growth of 8%. Based on this scenario, we expect the Australian economy to continue its moderate growth path and that the performance of the Australian housing market will soften further. In this scenario, we expect the impact on both mortgage defaults and loss-given default to be muted and remain at relatively low levels, as we expect the unemployment rate to increase marginally and property price decline to continue its recent softness. In the event of the less-likely scenario, under which China’s economy slows to 5% GDP growth, Australia could be sent into recession and experience a flow-on effect of higher unemployment and a sharper decline in Australian house prices of greater than 20%.
While Australian residential property prices declined in 2008 to 2009 and again during the past 12 months, nominal property prices overall are higher than before the global financial crisis. This asset appreciation–fueled by lower interest rates and higher disposable income–has afforded homeowners improved equity positions and, depending on when they purchased their property, enabled loan to valuations to fall, thus reducing the likelihood that they will default on their home loans. In addition, recovery prospects are also likely to be higher should a borrower default.
To see the report, “China Soft Landing Would Moderately Impact Australia’s Housing Market”, click here.