Mortgage Stress Up Again In April

The latest DFA mortgage stress data, derived from our rolling household surveys reveals than an additional 100,000 households joined the cash-flow stressed in April, bringing the percentage of households to more than 38%, which equates to more than 1.4 million.

The trajectory is still set to reach more than 41% by August. Our estimates take account of the enhanced JobSeeker, JobKeeper and Bank mortgage repayment holidays. Given the ABS reported around 650-700,000 employed people have lost work since mid-March, we expected these increases to track close to our estimates.

A reminder, we define mortgage stress in cash flow terms, rather than a set proportion of income. One other factor in play is that many households relied on multiple incomes and the loss of just one is sufficient often to push people into stress. Defaults are likely to follow, but not immediately, as people draw on savings, put more on credit, or simple hunker down for a time.

Across our segments, young growing families, at more than 70%, are at risk, follower by those battling on the urban fringe. But we continue to see a growth in more affluent households also being hit.

Across the states, Tasmania contains the highest levels of mortgage stress, thanks to the over-reliance on tourism and recent price rises relative to income. Some lenders have become more cautious here, with many investors unable to secure a mortgage repayment holiday.

Across the regions we see pockets rising in regional areas, as well as the main urban centres. Mortgage stress is not just a big-city disease.

By postcode, Melbourne post code 3806, Berwick and Harkaway now leads the way with more than 7,000 households in the district under pressure. VIC figures strongly with the top 5, with 3350 Ballarat, 3030 Werribee and 3037 Sydenham all impacted. Second though behind 3806 is WA code 6030 which includes Clarkson and Tamala Park. Most of these areas are high growth development corridors, where prices and incomes are above average. Within these areas there are also a sizable number of property investors.

Finally, there are 1.7 million households in rental stress – defined again in cash flow terms. This equates to nearly 40% of all renting households. The regional variations are again quite stark with stress peaking in Canberra and the South Coast (where bush fire damage remains).

Melbourne post code 3000 recorded the highest count of rental stress, thanks to large numbers of high-rise units being built there, the loss of student and AirB&B clients and simple oversupply. But post codes in Queensland and NSW are also badly hit.

Given the trajectory of the economic downturn, we expect stress to continue to build. The most significant question is the impact of the “cliff” in September where mortgage repayments and rental default freezes, at the same time when Government support schemes all are expected to terminate. Given that the June unemployment figure will likely to 10% (the true figure much higher) and according to the RBA unemployment will remain elevated through 2021, there is little prospect of the trends reversing anytime soon, even at current low interest rates.

Individual households will need to consider cutting their losses in these circumstances and as a result we expect the supply of rental property will rise, and a hike in property to list will follow later.

This has the hallmark of a long slow” U” not a “V” shaped recovery.

China’s Silent Invasion – With Professor Clive Hamilton

Clive’s controversial new book, Silent Invasion: China’s Influence in Australia, almost went unpublished after three publishers pulled out citing fears of reprisals from Beijing. His warning that the Chinese Communist Party is engaged in a systematic campaign to exert political influence in Australia seemed vindicated before the book appeared. Published in February, Silent Invasion quickly became a best-seller and is being read in countries around the world that face a similar threat from a rising China under an increasingly authoritarian state.

Some Thoughts About House Prices: With Tarric Brooker

Journalist Tarric Brooker and I discuss the vexed question of home prices in the context of the current political and economic backcloth to the lock down. Tarric uses the handle @AvidCommentator on Twitter.

Tarric’s Article:

https://medium.com/@avidcommentator/unemployment-tsunami-to-wash-over-australian-property-market-5e71c07b8681

The Elephant In The Room – Podcast With DFA

The Elephant In The Room Property Podcast is run by Veronica Morgan & Chris Bates. I had a chat with them the other week. Now released as Episode 123 | To buy, or not to buy: that is the question.

Their introduction:

Sensationalist media, conflicting reports and anecdotal evidence, but what does the data say?


After Chris’s numerous appearances on Martin North’s ‘Walk The World’ Youtube channel we finally have brought Martin to our own turf. Martin is the founder of Digital Finance Analytics, a boutique research, analysis and consulting firm, he is one of the most regarded authorities in the research space with several media contributions such as ABC new, AFR and 60 minutes. In this data driven episode, we get down to the question at hand: do you buy or do you sell, what is the data showing, and is it reliable? Find out if people are borrowing too much, what properties are beating the downturn and how are individuals discovering the opportunity.

Here’s what we covered:

  • How are the 1000 households surveyed every week reflective of Australia?
  • How did Martin enter into the finance commentary arena?
  • What patterns are showing which suburbs are going up and which are going down.
  • How are the 250,000 first home buyers (per year)  finding ways to enter the market?
  • Why newly built properties are at the greatest risk.
  • How is the data segmented to better reflect real profiles?
  • Will there be low or high capital growth over the coming years?
  • Are we reaching our ‘peak debt’?
  • How many properties are vacant in Australia?
  • Why is there simultaneous oversupply and undersupply in the market?
  • What happens now since migration is zero?

https://www.theelephantintheroom.com.au/podcasts/123

Household Financial Confidence Off The Mat – Just!

Our latest household financial confidence index improved a little in April, up from 73.2 in March to 75.8 in April. That said, it is still well below the 100 which is a neutral setting, meaning that households are extremely cautious about their finances. 

Across our wealth segments, those free affluent households recovered the most mainly thanks to the recovery in stock markets over the past month. Those renting are benefiting from falling rents (though many have income shocks to deal with) while those with a mortgage showed little evidence of a recovery in confidence, thanks to rising debt concerns.

Across the age bands, those aged 50-60 showed the strongest bounce, while those aged 20-30 reported a further fall – not least because younger households tend to be more exposed to zero hour contracts, and part time employment not supported by JobKeeper.

The recovery in confidence was evident across all the states, with NSW and VIC on average more positive relatively speaking than SA and WA.

Across our property segmentation, owner occupied households improved, as did those not holding property, but property investors fell again, thanks to less support from banks in terms of mortgage repayment holidays and falling rents and occupancy. Around 8% of property investors are seriously looking to sell their property if they can. More on that in a future post.

The true state of play is best shown when we look at the moving parts of the index. 67% of households now feel less secure regarding their job prospects than a year ago, a rise of 28% from last month.

There was a 14% rise in those feeling less comfortable with their savings, to 56% of households. There was a clear intent to try to save more in the months ahead, given current economic uncertainties.

65% of households are less comfortable with their ability to service debt, a rise of more than 20% of households, this despite falling interest rates and bank support schemes. Around $160 billion of loans received some leniency from the banks, but that is a small share of the $1.7 trillion mortgage sector and the $280 billion SME sector.

Income pressures are mounting, with 14% saying their incomes had fallen – to 66% of households, while under 1% saw any rise in income – including some who will benefit from higher incomes under JobKeeper than they would normally receive.

Costs of living continue to drive higher – despite the fall in oil prices – with many households incurring greater costs because they are spending more time at home. 94% said their costs were higher than a year ago.

Finally, household net worth was lower for 65% of households, reflecting stock market and property price adjustments, and rising debt levels. There was a drop of 11% in households claiming net worth had risen over the past year to 18%.

So we think the longer terms impacts on households are yet to be fully understood. Certainly, our data suggests households will be cautious, as income pressures, costs of living and rising debts bite. If home prices slide further as we expect they will, then household net worth will put a further brake on the wealth effect and will also adversely impact many households.  This does not suggest a V shaped recovery to me.