Jobs key to property prosperity through any price decline: CBA's Ian Narev

Commonwealth Bank of Australia chief Ian Narev has said that the housing market would be able to withstand a dip in prices - as long as there is enough employment to service debts.

“This idea that if property prices dip 10% suddenly everything is underwater and even if it is people will walk away from houses isn’t right," Narev told a Commonwealth Bank fixed income conference in Sydney.

"The key question is can people service the debt. And the key [question] there is do they have a job.”

“The number one thing we look at is the unemployment rate.”

He suggested risks in the housing market were an inevitable consequence of historic low rates, adding that Reserve Bank of Australia deputy governor Philip Lowe’s fresh warning on Tuesday about property investors taking on risks was an example of a macroprudential tool.

“By talking about the risks in the housing market, [Lowe] is already exercising macroprudential tools, which is making people aware of it,” he was reported as saying in the Australian Financial Review.

Narev agreed with the RBA and Australian Prudential Regulation Authority that a further macroprudential tool of limiting low deposit loans via caps on loan to value ratios was not appropriate.

At CBA, the average loan-to-value ratio was 48%, compared to around 20% over the whole economy and a figure in the 60s for the origination of mortgages. It was also important to remember that banks in Australia had full recourse to other assets, which reduced the incidents of default, Narev said.

Narev recently said the bank was satisfied it was holding appropriate levels of equity to withstand any housing market shock after stress-testing the bank’s $400 billion mortgage book.