Powered by MOMENTUM MEDIA
subscribe to our newsletter

Increasing house value can expose owners to “economic shocks”

An increase in house value is associated with an increase in household debt among property owners, “exposing homeowners to economic shocks”, new research has found.

The University of Sydney used a Household Income and Labour Dynamics in Australia (HILDA) dataset for 2001 to 2012 to explore the relationship between house prices, household debt and the labour market.

The research team found that increases in Australian house prices and wealth leads many households to adjust their labour supply, refinance existing mortgages or reallocate their current debt arrangement.

Australian households were therefore found to be “taking on extra debt in response to rising house prices” and that in particular, young partnered men and women reduced their hours of work in response to increases in housing wealth to spend time pursuing leisurely activities, while older, single women used the additional housing wealth to retire early.

The report noted that “the responsiveness of household debt to house prices is greater among households with higher levels of indebtedness” and that this increasing debt has “widespread implications for the Australian economy”.

Advertisement
Advertisement

PROMOTED CONTENT


“The take-up of extra mortgage debt among highly-leveraged households exposes them to the risk of significant loss if prices fall or if interest rates rise. This, in turn, poses a systemic risk for the macroeconomy,” said co-author Dr Kadir Atalay.

“An economic shock may lead to widespread faults that would cause the shock to spread across markets and threaten the performance of Australia’s economy.”

[Related: High household debt risky for banks: Moody’s]

Increasing house value can expose owners to “economic shocks”
mortgagebusiness

Are you a new-to-industry broker in the process of growing your business? Then there’s some great news: The Adviser’s New Broker Academy is back in 2021 and will provide you with essential insights into cutting-edge tools, strategies and processes to fast-track to success. Don’t miss your chance to attend. To secure your FREE place, visit newbroker.com.au now!

Latest News

Reverse mortgage lenders have accessed a small fraction of the potential retiree housing market in Australia, according to Deloitte. ...

Pepper Money has priced its second I-Prime deal for the year, upsizing the figure to $850 million. ...

The LMI provider has announced a new CFO following the resignation of its current CFO, effective 24 September. ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.