By all recent accounts, Australian house prices are starting to cool.
And as the effect of macro-prudential measures and out-of-cyle rate hikes take hold, most analysts agree Sydney and Melbourne's red-hot housing markets are unlikely to maintain their recent rate of growth.
Those market conditions have led some analysts to downgrade their forecasts for Australian banks, after the sector outperformed in recent years.
In September, Citi analysts outlined four factors which they expect will form a "boxed quartet" to weigh on bank earnings. That followed research from the UBS, where the banking team recommended that investors cut back on Australian bank stocks.
In particular, UBS cited risks around the ratio of household debt to disposable income in Australia, which is approaching 200%.
In addition to the banking sector, the extended debt-to-income ratio of many households has been cited as a key risk for the Australian economy, with consumers facing a "consumption crunch" from refinancing mortgages with low wage growth and rising energy costs.
In that context, the chart below from Morgan Stanley provides an interesting backdrop for how each of Australia's major banks approach their lending practices with respect to customer income.
It shows the average loan-to-income (LTI) ratio of Australian mortgage holders is around 4.9 times, but among the major banks, the numbers vary quite considerably.
ANZ leads the way and is materially higher than its competitors, with an average loan size of $624,000 at an LTI ratio of 6.3 times.
Here's the chart
Morgan Stanley said that ANZ's higher LTI ratio is reflective of a recent push to grow its loan-book for residential mortgages, with a focus on the NSW market.
As part of that strategy, the bank has issued a higher number of mortgages within the last two years -- around 45% of its loan-book compared to the industry average of 35%.
Research from Commonwealth Bank last month showed that Sydney has the highest average loan size in Australia, with average monthly loan payments of $3,031 per month.
Conversely, the lower LTI of Bendigo & Adelaide Bank reflected a focus on regional Australia, where property prices are generally lower.
Looking at the figures across the industry, Morgan Stanley expects housing loan growth to slow in 2018, as regulators place more scrutiny on rising household debt levels.
"Regulators are increasingly concerned about household debt growing ahead of incomes and have indicated that LTI should become part of loan underwriting criteria," Morgan Stanley said.
As cited by UBS, this chart from the RBA last week shows that Australian household debt is approaching double the amount of disposable income:
The LTI figures were derived from Morgan Stanley's AlphaWise survey on the strength of household finances.
The survey revealed some concerning trends around the outlook for domestic consumption, with around 40% of respondents saying they had zero or negative savings rates over the past year.
A pending "consumption crunch" for Australian consumers forms part of a negative economic backdrop which Morgan Stanley expects will weigh on bank earnings in 2018 and 2019.
"We have a negative stance on the banks given a challenging outlook for 2018-19 with a weaker domestic economic cycle, re-emerging headwinds to margins, fundamental change in the mortgage market, increased political and regulatory scrutiny, and an increase in non housing loss rates," Morgan Stanley said.
Westpac is the only major bank in which Morgan Stanley is overweight. It has a neutral weighting on ANZ and is underweight NAB and CBA.
"Relative to peers, Westpac is a bigger beneficiary of loan repricing, has a lower credit risk profile, and offers better risk / reward at current multiples, so it is our preferred major bank," Morgan Stanley said.