Mortgage delinquencies by postcode

Moody’s has produced its annual report into Australian mortgage arrears. Below is their findings. Below that find the reports themselves, including a list of the 300 most delinquent post codes. For a bit of fun you can surf around and compare the newspaper reports that have reproduced the press release with…ahem…very little alteration. These are long documents, all comments and observations will be welcome.

Moody’s Investors Service says the ability of Australian homeowners to keep up with their mortgage payments has declined over the past year, despite the strength in the economy, or more specifically the boom in the mining sector.

“Mortgage performance has shown a material deterioration since our last regional delinquency report in October 2010. Indeed, between March 2010 and June 2011, while the national delinquency rate — as calculated by Moody’s — rose to 1.67% from 1.36%, regions performing poorly or very poorly increased fourfold to 28 from seven,” says Arthur Karabatsos, a Moody’s Vice President and Senior Analyst.

“Of Australia’s 65 regions, those performing very poorly, that is, with more than 2.5% delinquencies, increased to 11 from two, and those performing poorly increased to 17 from five,” adds Karabatsos.

Karabatsos was speaking on the release of a special Moody’s report on residential mortgage performance over the last 12 months, and which projects regional delinquencies onto “heat maps” for ease of analysis. At the same time, Moody’s released a supplementary report which looks at delinquencies according to postcode, and which highlights the 20 worst performing postcodes and lists the 300 worst.

“In our primary report on performance, we classified 11 regions as performing very poorly, and six were from New South Wales (NSW), four from Queensland (QLD) and one from Western Australia (WA),” says Karabatsos. “NSW remains the worst performing state overall with six of its regions performing very poorly.”

At the same time, the biggest declines in mortgage performance have been experienced in QLD and WA, the two states which have been the biggest beneficiaries of Australia’s ongoing mining boom, the report says. Previously, all QLD regions performed satisfactorily or better, but now four regions are performing very poorly. And before, only one of WA’s seven regions was performing poorly. Now it is four performing poorly and one very poorly.

“This apparent paradox is partly explained by the fact that non-mining jobs still account for most of the employment in both states, and such sectors lag the mining sector in growth. For example, the strong Australian dollar has weakened the tourism industry, which accounts for more than 5% of employment in QLD,” says Karabatsos.

“Overall, mining accounts for just 1.8% of employment in Australia, and then 2.4% in QLD and 7.1% in WA. Now QLD’s tourism-dependent Gold Coast region not only has Australia’s third worst mortgage performance with 3.11% delinquencies, but also contributes the most delinquent loans outright with 6.9% of such loans in Australia located in the region,” adds Karabatsos.

“And, previously, while all of Victoria’s (VIC) regions were satisfactory or better, two now perform poorly. By comparison, South Australia (SA) is the best performing state with all of its regions performing satisfactorily,” says Karabatsos.

And when each of Australia’s 65 region’s current ranking is compared to their March 2010 ranking, what is revealed is that even if a region improved its ranking, it did not necessarily mean that it had performed better, just that its performance had not deteriorated as much those others which moved down. Only three regions recorded improvements on last year, but their gains were only marginal.

Within each housing market, the level of equity a borrower has in their home is a key predictor of their ability to maintain mortgage repayments. Each market’s heat map reveals that the performance of mortgage deteriorates as they radiate away from city centers and home equity decreases. Home buyers in the more expensive housing areas have more home equity, due to larger down-payments than regions with cheaper housing, and where borrowers with less financial means borrow more against their home. Even though houses within the more expensive regions have experienced the greatest year-on-year declines in prices, they are performing relatively better.

In the supplementary report, Moody’s explains that for each postcode, it calculates the number of borrowers who have failed to make at least one or more mortgage repayment (30 plus days delinquent), and highlight the 20 worst performing postcodes as well as list the 300 worst.

The supplementary report shows that the worst performing postcode is in WA, one of the states to benefit most from the mining boom. Postcode 6168 (encompassing suburbs such as Rockingham, Hillman, Garden Island and Peron), some 30 km south of Perth, has a delinquency level of 5.31%, more than three times the national average of 1.67%, as calculated by Moody’s.

WA also has the 5th worth performing postcode — 6167, (encompassing suburbs such as Bertram, Kwinana Beach and Parmelia) with 5% delinquencies.

Report-Aussie Mortgage Delinquencies Sep2011

Report-Aussie Mortgage Delinquencies by Postcode Sep2011

Houses and Holes
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  1. Their title is ignorant and presumptive – “Australian Mortgage Delinquencies Increasing Despite Mining Boom”

    Last time I checked, not every mortgage holder in this country is working in the mining industry nor benefiting from its boom!

      • Yes, 1.8% in QLD but what really drives agg demand at present is the massive investment in mining capacity. This is not considered mining but construction work.

        Mining itself will not see a mass of unemployment when the investment pipeline is shut off when prices of minerals fall, construction will see this unemployment. Indeed mining jobs will continue to grow as mines open up even after the prices have fallen as capacity continues to come on line.

        Construction is a bigger industry than mining and especially in WA, mining construction is a dangerously big part of the economy.

    • I think the point of the title is to point out that despite the apparent growth of the overall economy, mortgages are sinking – emphasising the point that the mining boom isn’t broad based.

      • I don’t agree. I’m quite critical of how we measure economic growth (does it improve our quality of life for example) and how much of it actually accrues in the end to Australians. I do think part of the puzzle could be while the whole mining profit is being measured in GDP production figures in reality Australia isn’t really benefiting all that much from it. Think I need to see how GDP is actually calculated taking into account the foreign sector. Terms of trade means nothing if people other than Australians actually benefit from it,

        • Simple formula for GDP:
          GDP = private consumption + gross investment + government spending + (exports − imports)

          I’m not sure what foreign sector you’re referring to there.

  2. Is there any benchmark by which we can tell is these numbers are good/bad/indifferent? Also, any comparisons to international markets that have crashed?

  3. Brilliant, and thanks a lot for sharing it. I see there is some impact in Canberra, but I guess there are non PS families there as well under similar pressure as in other states.

    I’ve gone through Victoria, and my part of Melbourne has done pretty well. Still early days of the continuing financial crisis IMO to draw too many conclusions.

    • Regarding Melbourne, I do note that several of the worst LVT ratios are from Melbourne and surrounds, including some that are >100%. Ouch!

      Doesn’t really bode well I feel….

      • Some LVT > 100%

        You don’t need to know much else to be concerned. That’s not a healthy sign for the market.

    • That’s true. Canberra is starting to wobble. As I mentioned on another post, the number of auctions getting passed in seems to be increasing.

      What Canberra really needs is large scale PS purge. Joe says that he wants to do it, but for both Joe and Tony, I reckon their bark is far worse than their bite. I predict that when Joe and Tony will nurse the housing ponzi scheme with as much tender love and care as Julia has done before them, and Little Johnny before her and so on and so on.

  4. The saddest thing I get from the report is that this is going to hurt the people that can afford it least. Good article, it also points to the fact that buying in an area where the average LVT exceeds 60% increases the probabilty of poor capital growth prospects.

  5. Aussie housing bubble using Boombustology 5 lenses:

    Microeconomic – Reflexive, higher prices induced buyers.
    Macroeconomic – Tax policy (negative gearing) promotes financial structuring to claim losses as “smart way to avoid taxman”
    Psychology – New era of prosperity, mining boom, Australia financial fortress of world
    Politics – Build up of Liberal surplus suddenly means a rock solid Federal balance sheet that Labor can use inject money whenever needed, return of Keynes to ride out speedhumps
    Biology – Amateur investors (Housing mania” get in or die homeless) Silent Leadership (RBA – property not overpriced 4 times multiple)

    An amateur attempt to use the framework, but would be keen to see what others think.

  6. “Even though houses within the more expensive regions have experienced the greatest year-on-year declines in prices, they are performing relatively better.”

    This is a key counter to the bull statement, only the rich houses yoyo – bread and butter bricks and mortar is safe as houses……

  7. There is something wrong with these numbers. How can you have Sydney’s Eastern Suburbs with average mortgages of $258k, an LTV of 56%, yet have median prices of $1.3 million?

    They are clearly not from the same source, the 56% LTV must only represent those that have any mortgage (even a $2,000 outstanding balance), while the average mortgage value must include those that have no mortgage.

  8. This report – I think the biggest thing I can take from it is that the mining boom really isn’t the big end everyone seems to make of it. The fact that the places that should be benefiting from mining aren’t actually doing so would suggest that a lot of our growth in fact the main thing driving house prices and economic activity isn’t being driven all too much by mining money. We are still predominately a services economy as much as people think we aren’t.

  9. There is no mortgage stress issue. The banks have merely been pushed down the list of creditors for the modern day mortgage holder. There are new cars to buy, nice clothes, cafe meals, i-phones, spray tans, hair foils, holidays, private schooling and the best furniture money can buy. People are choosing life in the absence of a real financial shock that hasn’t been seen for 20 years. Cut interest rates at our own peril.