06:27

Housing Woes in Australia

06:11

China'sAustralia's economies showing danger signals-Marc Faber PART 1

05:45

China'sAustralia's economies showing danger signals-Marc Faber PART 2

02:18

Robert Shiller suspects Australia is in a housing Bubble

10:00

In Australia, Tax as a Contagion

Australia: The Land Down Under(water in mortgage debt

As an extension of the Chinese macroeconomic discussion at BoomBustBlog throughout 2010, there may be an “Asian Contagion” spreading as a result of a Chinese investment slowdown.  Those at risk are the countries and regions that have supplied China with the commodities necessary to build empty cities.  While the (comparatively, in terms of GDP) enormous Chinese stimulus package from the first part of the financial meltdown in 2008 has generated incredible growth in GDP and asset prices, the game appears to be over for flipping 1000 square foot apartments in Shanghai.  After the direct hit taken to China, the picture looks very grim for Australia, where a bursting Chinese housing bubble could drive industrial commodities lower, sparking higher unemployment in one of the nation’s largest sectors, and in turn pop their domestic housing and property bubble.  In the near to medium term, Australia is showing some major red flags.

Australia: The Land Down Under(water in mortgage debt), pt. Deux: Which Banks to Short?

We looked into the four largest Australian banks – Australia and New Zealand banking Group Limited, Commonwealth bank of Australia, National Australia Bank Limited, Westpac Banking Corporation. All the banks, except Commonwealth bank of Australia, have ADR.

The banks are trading at very high multiples when compared with their US counterparts. The current average price-to-tangible book value of the four Australian banks is 2.5x against the current multiples of less than 1.5x for US banks. The Australian banks are enjoying a premium largely owing to lower charge-off rates, delinquency levels and the NPL levels than their US counterparts. While the housing loans account for a substantial portion of the total portfolio of Australian banks, the housing bubble in Australia is yet to burst to result in defaults in this sector. Also, the Australian banks have additional shelter from two factors:

• The housing loans in Australia are recourse loans (borrowers are personally liable to pay even after foreclosure)
• The loans given in excess of LTV (Loan-to-value) of 80% have Lender Mortgage Insurance which covers the losses of the lending bank