Dumb bubble RMBS delinquencies jump

From Moody’s today, first auto ABS:

Looks like we’re headed for 2010 highs though there is some reassurance in the decent performance of 2014/15 vintages. Auto ABS are good leading indicator for mortgages because the loans are non-revolving and interest rates fixed.

If so, RMBS is going to get worse than the current seasonal jump:

Although delinquency rates are still low, the dumb bubble vintages of 2012-2015 do not look well.

Last week Moody’s released a geographic report on 2015 delinquency patterns:

Australia-wide delinquencies steady: The proportion of Australian residential mortgages more than 30 days in arrears (30-plus delinquency rate) was 1.20% in November 2015, compared with 1.19% in November 2014.

» NSW delinquencies at lowest since 2005: The 30-plus delinquency rate in New South Wales (NSW) declined to the lowest level since we started collecting such data in 2005. Regions and postcodes from NSW dominate the list of areas with the lowest mortgage delinquencies in the country. Delinquencies also improved in Queensland, but increased in all other states and territories. Western Australia, where the economy is reliant on the resources sector, had the highest delinquency rate.

» Delinquencies to increase over 2016: We expect the Australia-wide delinquency rate to increase in 2016, but remain at a low level. Strong house price growth was a supportive backdrop for mortgages borrowers in 2015, helping to keep nationwide delinquencies steady at low levels. We expect the pace of house price growth to slow in 2016, leading to the increase in mortgage delinquencies.

» Mining regions perform worst: A high proportion of the worst performing regions in Australia were in areas where employment is highly reliant on industries directly or indirectly related to mining and resources.

» Sydney regions perform strongly: Sydney dominates the list of areas with the lowest delinquencies. Eight of the 10 best performing regions and 14 of the 22 best performing postcodes in Australia were in Sydney, where house prices have increased significantly.

No surprises there but it is yesterday’s news. I expect the pattern to partly invert with Sydney climbing this year as we repeat the 2003 pattern of a bust in the Western Sydney mortgage belt.

That rather suggests that Moody’s is underestimating what is coming.