Australian households could easily withstand any dramatic drop in property prices.
According to a recent Fitch Ratings report, Australian households could easily navigate any downturn despite ongoing speculation that the market will not be able to withstand rising residential property prices.
In the report, Fitch ratings tested outstanding Fitch rated Resdientail Mortgage Backed securities against four different market downturn stresses.
The analysis shows that 'AAAsf' rated tranches are well positioned to withstand all 4 stresses.
"While the low level of potential downgrades can be explained by conservative underwriting and the transaction structure, the most compelling reason for performance in the stress tests is the strong seasoning of the transactions, which benefit substantially from house price appreciation since origination," director with Fitch's structured finance team Ben Newey said.
Fitch does not give credit for house price appreciation in rating transactions under its current Australian RMBS criteria.