For those genuinely interested in understanding housing risk

The ever-precise Steve Bartho offers up a revealing little analysis of the risk of ANZ's mortgage book in Business Spectator today. It is well worth a read here. I have previously written about this subject many times before (ie, default rates, dynamic LVRs, and housing risk). The headline take-aways for the time-poor are loss rates of just 0.02% of the value of ANZ’s $160 billion worth of home loans. To be clear, this is the value of the losses ANZ’s actually expects to realise, which compares with an overall lending loss rate of 0.62%. Ipso facto, banks suffer much higher loss rates on business loans, a point conveniently forgotten by the commentariat (note to Matthew Drummond). Also, ANZ’s current outstanding loan-to-value ratio across their entire book is just 47%. Very simply put, that means that, on average, house prices would have to fall by 53% before ANZ suffered any loss. I know, this is but the “portfolio average”— in truth, house price falls of 53% would generate much larger losses. But the fact that there is so much collateral protection underpinning these loans explains why APRA and the RBA are relatively sanguine on current housing risk (to be distinguished from perceptions of future risks).