According to the OECD report, “Australia’s housing market is a source of vulnerabilities due to elevated prices and related household debt. A direct hit to the financial sector from a wave of mortgage defaults is unlikely... However, if house prices collapse consumer spending could suffer, via negative impact on wealth, including from exposures to bank shares, which would encourage deleveraging. Together with reduced housing-related expenditures, this would put pressure on the whole economy.”

According to the latest CoreLogic data, house prices in Sydney have fallen by 10 percent from their peak in July last year. The first week of December alone saw prices drop by 0.5 percent, as the rate of house price falls continues to accelerate. The current rate of decline is worse than the previous record set between 1989 and 1991 when house prices fell by 9.6 percent. Other data points towards a similar outcome, with auction clearance rates falling below 45 percent for the sixth consecutive week and foreclosures having risen by 600 percent in Sydney's west.

60 Minutes recently looked into the possibility of a housing market crash in its segment 'Bricks and Slaughter', with claims that the market could plummet by 40 percent over the next 12 months. While lots of people are saying this is unrealistic, the situation in Australia is unique and very worrying. According to 60 Minutes reporter Tom Steinfortthe, “There’s $1.7 trillion held by the banks in mortgages for owner-occupies and investors. And that’s about 65 per cent of their total lending... That’s higher than any other country in the Western world by a long way... There’s probably no country in the world more susceptible to the ramifications of a housing crash than Australia. We are uniquely exposed at the moment.”

According to the Paris-based OECD global forum, the situation is bad but not completely dire. While saying the “current trajectory” of house price declines “would suggest a soft landing", they also mentioned that "soft landings are rare... and some risk of a hard landing remains.” The OECD report recommends putting contingency plans in order to avoid a crisis in the financial sector: “Stress tests conducted by APRA (Australian Prudential Regulation Authority) show banks’ capital remains above regulatory minimum levels under a scenario centred on a housing-market downturn... Nevertheless the possibility of financial-institution crisis should not be discounted entirely.”

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