Moody's Investors Service found that “rapid increases” in house prices had been accompanied by higher leverage, and started from levels which were higher than those experienced by countries such as Spain and the US “even at the peaks of their respective housing market cycle”.
“Higher household debt levels increase the risk of consumer retrenchment in an adverse scenario and imply higher likelihood of stress in the banking system, all else equal,” the company said.
Household leverage relative to a household’s liquid assets is also particularly high when retirement assets are excluded, Moody’s said, and is even at a level “comparable to that observed in Ireland on the eve of its housing market crisis”.
“Including retirement assets brings the ratio down to levels comparable to Canada's, but the illiquid nature of these assets limits the buffer role,” the research house said.
Moody’s said that while there are a number of superannuation clauses that would permit members to access these funds “in case of heightened financial pressure”, these would apply only to severe cases and might not help in the event of adverse conditions causing a 'retrenchment' in consumption.
“Moreover, having drawn on their superannuation funds, Australian households would likely attempt to rebuild them as soon as possible, which would weigh on consumption,” the company said.
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