Price slump in Australian homes could hurt economy

Household consumption could suffer amidst stricter lending standards.

Bloomberg reported that Australian home prices sank for 12 straight months amidst tighter lending rules and stretched affordabilities.

The price slump has triggered the possibility of debt downgrades for the country’s big banks, a study by Pacific Investment Management Co. (PIMCO) found.

“We have grown more cautious with the external credits of Australian banks,’’ according to a note to clients from Pimco. “The probability of a market-moving agency downgrade that causes major banks to lose their AA- rating for the first time in history is now higher than before.’’

Moreover, household consumption could bear the brunt of tighter credit and the slower housing market, PIMCO said.

Data from the International Monetary Fund (IMF) revealed that more than 60% of bank loans in Australia are in residential properties, making it the highest proportion in developed countries and more than double compared to the US.

Here’s more from Bloomberg.