To be specific, on the stress testing, I am surprised at a modeled 47% drop in residential - value we have elsewhere stated as $1.8 trillion, so around $900B in lost value - resulting in only $6B losses to the banks' mortgage lending programme. It doesn't pass the smell test.
Table 2 in the stress test doc shows an allowance for 1.9% (cum…
To be specific, on the stress testing, I am surprised at a modeled 47% drop in residential - value we have elsewhere stated as $1.8 trillion, so around $900B in lost value - resulting in only $6B losses to the banks' mortgage lending programme. It doesn't pass the smell test.
Table 2 in the stress test doc shows an allowance for 1.9% (cumulative loss rate) on residential. This is optimistically low, all the while predicted to occur under conditions more severe than the GFC.
Thanks Duane. The key thing is the LVRs are so low. There is a big hit taken first by households, and in theory that wealth effect is taken account of in the ensuing slump in GDP growth and higher unemployment...rinse and repeat...
True that low LVRs help. The banks are doing 10% of their business at 80% LVR or higher. My fear would be that at 47% drop in value those and a lot of others (the 10% from last year, and the year before, and the year before that) walk, and don't take the hit. A lot of them can't take the hit - unemployment 9.3% !! interest rates 8.4% !! It's an admittedly bleak set of conditions I hope never come to pass. Curious that they want to test it.
To be specific, on the stress testing, I am surprised at a modeled 47% drop in residential - value we have elsewhere stated as $1.8 trillion, so around $900B in lost value - resulting in only $6B losses to the banks' mortgage lending programme. It doesn't pass the smell test.
Table 2 in the stress test doc shows an allowance for 1.9% (cumulative loss rate) on residential. This is optimistically low, all the while predicted to occur under conditions more severe than the GFC.
Thanks Duane. The key thing is the LVRs are so low. There is a big hit taken first by households, and in theory that wealth effect is taken account of in the ensuing slump in GDP growth and higher unemployment...rinse and repeat...
True that low LVRs help. The banks are doing 10% of their business at 80% LVR or higher. My fear would be that at 47% drop in value those and a lot of others (the 10% from last year, and the year before, and the year before that) walk, and don't take the hit. A lot of them can't take the hit - unemployment 9.3% !! interest rates 8.4% !! It's an admittedly bleak set of conditions I hope never come to pass. Curious that they want to test it.