"One of those reasons is potentially underemployment."

Financial shock

AMP Capital chief economist Shane Oliver said when unemployment and underemployment is combined, the rate is above 14 per cent in Australia, higher than the level in the US, which is around 9 per cent. At ANZ Banking Group's full-year results earlier this month, chief executive Shayne Elliott also called out high underemployment as a rising macroeconomic risk.

"That is a bit of a concern and if we move more to under-utilised labor, that does put pressure on mortgage portfolios and generally would be negative for consumer debt," Mr McCarthy said.

Tally Dewan, a senior fixed income strategist in the institutional banking and markets division of Commonwealth Bank of Australia, the country's largest home loan lender, pointed delegates to the ASF to a recent chart in the financial results of Genworth, a mortgage insurer for higher LVR loans.

It shows that loans written before the global financial crisis had steeper rates of delinquency after origination than vintages written after the GFC, when interest rates were cut, making it easier for borrowers to service loans.

Bankers are asking whether delinquency rates from more recent vintages keep increasing, and "my hunch is going forward, we might see them still increasing given the softer economic and unemployment rate conditions and slowdown in the mining sector," she said.

Lisa Claes, managing director of CoreLogic, said non-settlement was a growing risk for the unit sector. Using CoreLogic valuation data, "we can see a large proportion of valuations for off-the-plan apartment settlements are coming in under the contract price," she said.


"As the unit pipeline progresses and a large number of off-the-plan move through to the construction phase, there is a possibility that the low valuations relative to the contract price could create some form of financial shock for buyers where they need to top up the deposit in order to meet the banks LVR ratios."

However, presenters to the session on Australian asset quality said they are not expecting these risk factors to cause any dislocation in the housing markets in the short term.

Ms Claes said "in spite of the headwinds, our affair with housing, with all its complications, is a healthy one" given it is a driver of household wealth and has a significant multiplier impact on broader economic growth.

Fitch's Mr McCarthy said the ratings agency's "view of the near term is that a lot of the things that have been in place that have made house prices rise – low interest rates, a stable economy, stable employment – are still in place.

"Our expectation is, certainly in the near term, house prices will continue to rise above incomes," he said. "So affordability is likely to get worse but in saying that we expect performance – if the economy stays the way it is – to continue to sail along."

Nevertheless, Fitch is worried by rising levels of household debt, an issue recently called out by the Reserve Bank of Australia.

The household debt to income ratio has hit 186 per cent – which Mr McCarthy said was the highest in world and three times higher than its level 20 years ago.

As a result, "the sensitivity to interest rates is much more significant now and borrowers can get into trouble much more quickly. Our concern is if there is a downturn it might be much more severe than it has been in the past, and we have to take that into account in our models."