Commonwealth Bank CEO Matt Comyn is said to talk about rising Australian house prices and debt levels

The boss of Australia’s largest mortgage lender has admitted he is concerned about the rapid rise in house prices.

Commonwealth Bank CEO Matt Comyn has become the first head of a major bank to sound the alarm about unsustainable debt as property values ​​rise at their fastest rate in 32 years.

During a parliamentary hearing, Liberal MP Tim Wilson had asked him if he was concerned about mortgage stress, a situation where borrowers cannot meet their monthly mortgage obligations.

With the Reserve Bank of Australia spot interest at a record low of 0.1 percent, Australia’s major banks offer mortgage rates as low as 2 percent.

But Mr Comyn admitted he was concerned about mortgage stress as more borrowers struggled to pay off their home loans.

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Commonwealth Bank chief executive Matt Comyn has become the first major bank head to sound the alarm over unsustainable debt as property values ​​rise fastest in 32 years

“If you were to ask that question a little differently in terms of rising housing debt and rising house prices, I would say we are increasingly concerned,” he told the House of Representatives Economic Committee on Thursday.

In August, real estate values ​​in Australia rose 18.4 percent, the fastest annual growth rate since July 1989, when interest rates were 17 percent, CoreLogic data shows.

Sydney’s median home price rose at a more dramatic annual rate of 26 percent to an even more prohibitive $1,293 million, despite Australia’s largest city in lockdown.

By comparison, Australian wages rose just 1.7 percent in the past fiscal year.

This means that even more borrowers would have risky debt-to-income ratios above six, while owing the bank six times more than they earned.

Wilson praised Comyn for being the first bank boss to admit there was a link between rapidly rising house prices and debt.

In August, property values ​​in Australia rose 18.4 percent, marking the fastest annual growth rate since July 1989, when interest rates were 17 percent.  Sydney's median home price rose at an even more dramatic annual rate of 26 percent to an even more prohibitive $1,293 million (pictured are new homes for sale in Kellyville in Sydney's northwest)

In August, property values ​​in Australia rose 18.4 percent, marking the fastest annual growth rate since July 1989, when interest rates were 17 percent. Sydney’s median home price rose at an even more dramatic annual rate of 26 percent to an even more prohibitive $1,293 million (pictured are new homes for sale in Kellyville in Sydney’s northwest)

“That’s quite a statement. I agree with you, but many other banks that have appeared before this committee have not given that answer, and neither has the Reserve Bank,’ he said.

Despite signs of an overheated housing market, Reserve Bank governor Philip Lowe last week was adamant that spot rates would be maintained until 2024.

Finally, I want to talk about house prices, as some analysts have suggested that we could raise cash rates to cool the property market, he said.

“I want to make it clear that this is not on our agenda.

“While it is true that higher interest rates, all else equal, would result in lower house prices, they would also lead to fewer jobs and lower wage growth.”

Mr Comyn said that while the housing market was resilient, the rise in property prices far outweighed the rise in wages and that this would be a concern if interest rates were to be raised later.

During a parliamentary hearing, Liberal MP Tim Wilson had asked him if he was concerned about mortgage stress, a situation where borrowers cannot meet their monthly mortgage obligations.

During a parliamentary hearing, Liberal MP Tim Wilson had asked him if he was concerned about mortgage stress, a situation where borrowers cannot meet their monthly mortgage obligations.

“It’s much harder to trade when the market is accelerating than to intervene to avoid too much acceleration,” he said.

We would all have a shared concern to ensure Australian households are in a strong position to continue to repay, but also to support broader consumption in the economy in the second half of this decade as interest rates rise and if they might rise faster.’

Before the pandemic, property prices in Sydney fell 14.9 percent between 2017 and 2019 after the Australian Prudential Regulation Authority, the banking regulator, introduced stricter rules on interest-only and investor loans to cool an overheated housing market.

The market rebounded again until the 2020 pandemic hit, only to accelerate again late last year when interest rates were cut and professionals who could work from home either relocated to regional areas or moved to larger homes in the capital’s markets.

Mr Comyn said that while the housing market had been resilient, the rise in property prices has far outstripped wage growth and would be a concern if interest rates were raised later (pictured is a house under construction in Kellyville in Sydney's northwest)

Mr Comyn said that while the housing market had been resilient, the rise in property prices has far outstripped wage growth and would be a concern if interest rates were raised later (pictured is a house under construction in Kellyville in Sydney’s northwest)

Property prices hit record highs in August in 69 of Australia’s 78 submarkets, based on a grouping of suburbs and cities.

Michele Bullock, an assistant governor at the Reserve Bank, also pointed out this week that borrowers who pay off more debt were less likely to spend money, which would hinder an economic recovery.

“A housing boom, accompanied by a rise in housing debt, could therefore make the economy more prone to downturn,” she said.

Australia’s debt-to-income ratio of 183.8 percent in the June quarter of 2021, measured by the Reserve Bank, was the second highest in the world after Switzerland.

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