By way of background, we have been tracking stress for years, and in 2014 we set out the approach we use. Other than increasing the sample, and getting more granular on household finance, the method remains the same, and consistent. We can plot the movement of stress over time.
Remember that the recent RBA Financial Stability review revealed that 30% of households were under pressure with no mortgage buffer, and a recent Finder.com.au piece suggested more than 50% were unable to cope with a $100 a month rise. So we are not alone in suggesting households are under greater financial pressure.
For this analysis we plot the number of households in mild stress (making mortgage repayments on time but tightening their belts so to do); severe stress (insufficient cash flow to pay the mortgage), and also an estimation of the number of households who may hit a 30-day default within the next 12 months. This is calculated by adding in a range of economic overlays into the stress data. This is all done in our core market model, which contains data from our rolling surveys, private data from lenders and other sources, and public data from the RBA, APRA and ABS. This model is unique in the Australian context because it runs at a post code and household segment level, allowing us to drill into the detail. This is important because averaging masks significant variations.
The analysis shows that there are more severely stressed households in NSW than other states, and that around 13,000 households risk default in the next year, a similar number to VIC. WA is third on this list, with the number of defaults lower elsewhere.
Another lens is by the locations of households, in the residential zones around our major cities. The highest risk of default resides in the our suburbs, where a higher proportion of households are in severe stress. Households in inner regional Australia are next, followed by the inner suburbs, where again more households are in severe stress.
Our core household segmentation shows that the highest count of defaults are likely among the suburban mainstream, then the disadvantaged fringe, followed by mature stable families and young growing families. It is also worth noting that the young affluent and exclusive professional, the two most affluent segments contain a number of severe stressed households. This have larger mortgages and lifestyles, but not necessarily more available cash.
Finally, for today, here is the mapping across the regions. No surprise that the largest number of stressed households are in the main urban centres of Melbourne and Sydney.
Can’t vouch for the modelling but that first chart scary if true. I wonder why the mortgage stress trend did not register the pain in the eastern states in 2010/11.
ooooh next time postcodes!!! Who’s #1 do we reckon? Somewhere in WA?
Edit: last graph tells us it is likely to be SydMel?
C.M.BurnsMEMBER
whichever suburbs in melbourne are close enough to the car manufacturing plants (many workers live close to their work) cross-referenced which whichever has the highest rate of negatively geared property ownership
rafio
are there any other (more accurate) analysis on mortgage stress and defaults, out there?
haroldusMEMBER
Ironically, as a renter, that first graph makes me feel less stressed!
scootytootyMEMBER
me too
NikolaMEMBER
Same.
OMG
I’d believe the data if it related to buyers that bought in the last two years
Are people that bought in 2008 included here? People that have seen IR halve since they bought
As I note. Not our numbers. But you should perhaps read it before dismissing. It clearly shows that the stress is in a minority of households which more than accounts for your stupid question.
TailorTrashMEMBER
Perhaps a few equity funded Range Rovers or Beemers in those numbers too ………the “wealth effect” ?
NikolaMEMBER
My thoughts..
Baruch Spinoza
As noted, the data has been collected for a LONG period of time and is finely granular – so holy your cognitive dissonance at bay.
Interest rates now – are back where they have been for most of the time period in this graph – and rising at a very sharp clip. The only time rates were higher, as you can see, was during the 2008 GFC, when they immediately caused all those that bought at the peak (price and rate) to lose their shirts.
So there probably are very few left with those rates from that time, therefore they would be contributing almost nothing to this stress level.
Further Australians are notorious for their 100% loans and interest only loans – its almost ubiquitous at this point. People have been fundamentally relying on wage-flation to deflate their loans, unfortunately this has not occurred, see bottom indices. Therefore the loans, repayments and everything else has remained very static with people simply handing over great wads for nothing but bankers delight.
The only real change has been the ever inflation mortgage values / house prices generating ever greatest stress.
Quite frankly the graph reads perfectly well for anyone with an objective view on things – of course if you want to cherry pick data to assuage your cognitive bias then yes, things will seem out of whack – that’s what bias does, please see global warming denialists and anti-vaxxers for further proof.
This may come as a shock to you, and others who are now accustomed to an average home prices being $1.6 Million – but the $800-900k average homes prices being paid back in 2008 were / are in fact 3-4 times more than any other comparable city on earth, and even worse for income ratios.
With no wage inflation – these things remain. Graph is perfect – check your dissonance.
.
OMG
Thanks BS (Baruch Spinoza)
So tell me who they included in the survey?
“Interest rates now – are back where they have been for most of the time period in this graph – and rising at a very sharp clip. ”
Are they really? Well I must have been paying well over what I should have. Considering I now pay 4.30% variable, compared to 7.10% in 2011? How stupid of me. Also I was paying 6.10% in 2009 and 8.8% in 2008, over 7% in the early 2000s
What a dummy huh?
DanMEMBER
OMG
Did you actually look at the chart? It seems to be saying that 77% of mortgagees are NOT in mortgage stress, so guess those people were surveyed too huh?
But the proportion of those who are is only going to rise as prices remain elevated, rates aren’t going lower and wages stopped growing in real terms. And guess what? That’s exactly what the chart shows.
paulF
You are wrong about Interest rates.You’d be nuts if you are paying more than very low 4% interest rates even now and they have been this way for many years now. You can still negotiate high 3% rates with some lenders too.
As for 100% interest only loans, they mostly come with offset accounts and the RBA/ABS acknowledged that they are at almost their highest level meaning people are saving and not wasting their money. Also, APRA’s MP has limited those 100% loans but you can still get them at low doc lenders. Most new loans people are borrowing between 60 per cent and 80 per cent of the value of their places. You can check the above from APRA’s numbers: http://www.apra.gov.au/adi/Publications/Pages/Quarterly-ADI-Property-Exposures-statistics.aspx
CAn’t disagree much with the graph but i would still take their results with a grain of salt. Who knows what/how their algorithm is scoring these results.
Baruch Spinoza
I wonder why the mortgage stress trend did not register the pain in the eastern states in 2010/11.
This – is a really interesting quote. And the answer is obvious – there was plenty of mortgage stress, just not as much as there was during the GFC.
Which should make that graph even scarier than you first thought, as the mortgage stress now, is considerably higher than during the GFC, which makes sense – but is entirely terrifying.
.
DanMEMBER
What pain? We had unemployment declining towards 5%, wages rising 3.5-4%, house prices stagnating, falling in real terms, strong AUD to buy cheap imports, and still quite low rates as hangover from GFC.
dumpling
“the mortgage stress now, is considerably higher than during the GFC, which makes sense”
What makes you think that it makes sense for the mortgage stress in a first world country to be higher today than it was in the middle of the greatest financial crisis in the last half century?
Oh, I know!!! You meant that Australia is different!!!
mark777MEMBER
My brother talks about his mortgage stress, and they are going to sell their apartment in Rockdale, that they live in, but still hasn’t started the process. $1500 a quarter on strata plus interest only repayments, this would be all too common I think
Ino
$1500/qtr on strata – man – that’s got to burn like barbed wire pulled through the ass…
dumpling
There is no such thing as mortgage stress.
Oh, you meant BBQ stress?
armchair economist
Meaningless graphs…..whats the % by value that is affected, are banks taking asset write downs?
Who cares ppl are “stressed” as long as they keep working harder and keep paying up!
Ino
>Who cares ppl are “stressed” as long as they keep working harder and keep paying up!
Yes – because jerbs are oh-so abundant.. and there are enough hours in a day you can do 2 – even 3 FT jobs if you forego that useless sleep… Oh wait – I nearly forgot that Do-nothing Trimbull promised us “Jerbs and Growf”.. that must be it!
Also – I love your callousness. That faint veneer of “f*ck you, I got mine” and the blatant disregard of causes which may lead to potential unrest… it’s mwah! Export Quality! Keep it up! Love your work!
PS: If you’re being sarcastic – your sarcasm tags didn’t show up properly then…
dumpling
If they are indeed stressed (which I have some doubt about), they should just sell – that would ease the buying pressure. In any case, they consciously made the choice to buy in the first place, did they not?
dumpling
You have great wisdom,armchair economist. Become my apprentice. Learn to use the Moron Side of the Force.
But I got the gist of it, basically if you work that way you’ll burn out and be sick and overweight in the long term… This is why I haven’t committed to a mega mortgage. I have always said to myself, put your health first and all else follows.
dumpling
I never understood what makes people wanting to sacrifice so much for so little – almost masochistic obsession – Garth in Canada calls it property horny, perhaps fittingly.
Perhaps they felt they became rich or they made money the moment they bought a house? I am just imagining this, because there is no way I would *know* for certain. Perhaps, they get elated in a similar way as I would feel rich when I bought distressed assets at bargain prices……
GavinMEMBER
Property horny is a good analogy, after all if you’ve had blue balls for weeks almost anyone starts to look attractive. I imagine that’s what missing out on buying into a booming market (not just real estate) is a bit like. You’re seeing all these other people winning (or getting laid) and you’re left with blue balls. I’d imagine the euphoria of buying is in many cases soon met with regret of “what have I just done?” like if you shag the wrong person out of desperation.
“War is Peace, Freedom is Slavery, Ignorance is Strength”
rafio
I like your philosophy, Gavin.
Mining BoganMEMBER
Just be the weird bloke who doesn’t give a flying what others think or do. Works for me. An office girl once tried to counsel me by saying I enjoy being different just a little too much. Always odd man out. Pfft…that’s why we love our dogs. They’re weird and just let it out. They don’t care. Oh, my dogs are rashist too. One don’t like darkies and the other yaps at Asians. Loveable scamps.
Anyhow, I digress. I’m doing the opposite of everyone around me. Not chasing money. Not chasing hours. Couldn’t care less about owning a home. Chasing the three things I just mentioned will have you in a mental home…if the funding is still there.
You know, the bonus system where I used to work reminds me of Australia. One used to have to strive to attain what was deemed unreachable. Unless you sucked cock. Madness to attempt it.
Robert
Is there a version of these charts that eschews the horrible black background, labels the x-axis for categorical values in a font size larger than an amoeba and has a slightly easier to look at colour scheme in general?
DFA have such interesting data – but it’s combined with some of the world’s most horrible graphs.
Over six thousand people decided to sell their GTA properties in the last seven days. Of those 6,050 new listings roughly 1,500 were condos, which might suggest a whole mess of locals have decided to cash in their detached lottery ticket before this gig is up.
No wonder. The angst and heebeejeebees this pathetic blog has been wallowing in for the last few weeks has finally made into what’s left of the MSM. Like this story in today’s Toronto Star:
It is like a tap has been switched off. That’s how realtor Louise Sabino describes the housing market in the wake of the Liberal government’s provincial plan aimed at cooling Toronto’s scorching property prices.
“I think it’s shocking that it did make the impact so fast,” the Royal LePage Signature Realty agent said.
That’s the funny thing about bubbles. Everybody’s horny to get their hands on rising assets – until they’re not. It always happens fast, whatever the asset and no matter the trigger. Greed is a powerful emotion, but it wilts before the dominance of fear. If enough people fear houses will stop rising (prices don’t even need to decline), they’ll cease making the Herculean sacrifice required to buy one. And down she goes. … read more via hyperlink above …
Only problem is the Animal Spirits here are so strong it seems nothing can keep prices stable or flat for long enough to give the punters pause for thought!
mild colonialMEMBER
That’s right, kangaroos and emus can’t move backwards.
ooooh next time postcodes!!! Who’s #1 do we reckon? Somewhere in WA?
Edit: last graph tells us it is likely to be SydMel?
whichever suburbs in melbourne are close enough to the car manufacturing plants (many workers live close to their work) cross-referenced which whichever has the highest rate of negatively geared property ownership
are there any other (more accurate) analysis on mortgage stress and defaults, out there?
Ironically, as a renter, that first graph makes me feel less stressed!
me too
Same.
I’d believe the data if it related to buyers that bought in the last two years
Are people that bought in 2008 included here? People that have seen IR halve since they bought
These figures are total BS
Come on MB, lift you game
As I note. Not our numbers. But you should perhaps read it before dismissing. It clearly shows that the stress is in a minority of households which more than accounts for your stupid question.
Perhaps a few equity funded Range Rovers or Beemers in those numbers too ………the “wealth effect” ?
My thoughts..
As noted, the data has been collected for a LONG period of time and is finely granular – so holy your cognitive dissonance at bay.
Interest rates now – are back where they have been for most of the time period in this graph – and rising at a very sharp clip. The only time rates were higher, as you can see, was during the 2008 GFC, when they immediately caused all those that bought at the peak (price and rate) to lose their shirts.
So there probably are very few left with those rates from that time, therefore they would be contributing almost nothing to this stress level.
Further Australians are notorious for their 100% loans and interest only loans – its almost ubiquitous at this point. People have been fundamentally relying on wage-flation to deflate their loans, unfortunately this has not occurred, see bottom indices. Therefore the loans, repayments and everything else has remained very static with people simply handing over great wads for nothing but bankers delight.
The only real change has been the ever inflation mortgage values / house prices generating ever greatest stress.
Quite frankly the graph reads perfectly well for anyone with an objective view on things – of course if you want to cherry pick data to assuage your cognitive bias then yes, things will seem out of whack – that’s what bias does, please see global warming denialists and anti-vaxxers for further proof.
This may come as a shock to you, and others who are now accustomed to an average home prices being $1.6 Million – but the $800-900k average homes prices being paid back in 2008 were / are in fact 3-4 times more than any other comparable city on earth, and even worse for income ratios.
With no wage inflation – these things remain. Graph is perfect – check your dissonance.
.
Thanks BS (Baruch Spinoza)
So tell me who they included in the survey?
“Interest rates now – are back where they have been for most of the time period in this graph – and rising at a very sharp clip. ”
Are they really? Well I must have been paying well over what I should have. Considering I now pay 4.30% variable, compared to 7.10% in 2011? How stupid of me. Also I was paying 6.10% in 2009 and 8.8% in 2008, over 7% in the early 2000s
What a dummy huh?
OMG
Did you actually look at the chart? It seems to be saying that 77% of mortgagees are NOT in mortgage stress, so guess those people were surveyed too huh?
But the proportion of those who are is only going to rise as prices remain elevated, rates aren’t going lower and wages stopped growing in real terms. And guess what? That’s exactly what the chart shows.
You are wrong about Interest rates.You’d be nuts if you are paying more than very low 4% interest rates even now and they have been this way for many years now. You can still negotiate high 3% rates with some lenders too.
As for 100% interest only loans, they mostly come with offset accounts and the RBA/ABS acknowledged that they are at almost their highest level meaning people are saving and not wasting their money. Also, APRA’s MP has limited those 100% loans but you can still get them at low doc lenders. Most new loans people are borrowing between 60 per cent and 80 per cent of the value of their places. You can check the above from APRA’s numbers:
http://www.apra.gov.au/adi/Publications/Pages/Quarterly-ADI-Property-Exposures-statistics.aspx
CAn’t disagree much with the graph but i would still take their results with a grain of salt. Who knows what/how their algorithm is scoring these results.
This – is a really interesting quote. And the answer is obvious – there was plenty of mortgage stress, just not as much as there was during the GFC.
Which should make that graph even scarier than you first thought, as the mortgage stress now, is considerably higher than during the GFC, which makes sense – but is entirely terrifying.
.
What pain? We had unemployment declining towards 5%, wages rising 3.5-4%, house prices stagnating, falling in real terms, strong AUD to buy cheap imports, and still quite low rates as hangover from GFC.
“the mortgage stress now, is considerably higher than during the GFC, which makes sense”
What makes you think that it makes sense for the mortgage stress in a first world country to be higher today than it was in the middle of the greatest financial crisis in the last half century?
Oh, I know!!! You meant that Australia is different!!!
My brother talks about his mortgage stress, and they are going to sell their apartment in Rockdale, that they live in, but still hasn’t started the process. $1500 a quarter on strata plus interest only repayments, this would be all too common I think
$1500/qtr on strata – man – that’s got to burn like barbed wire pulled through the ass…
There is no such thing as mortgage stress.
Oh, you meant BBQ stress?
Meaningless graphs…..whats the % by value that is affected, are banks taking asset write downs?
Who cares ppl are “stressed” as long as they keep working harder and keep paying up!
>Who cares ppl are “stressed” as long as they keep working harder and keep paying up!
Yes – because jerbs are oh-so abundant.. and there are enough hours in a day you can do 2 – even 3 FT jobs if you forego that useless sleep… Oh wait – I nearly forgot that Do-nothing Trimbull promised us “Jerbs and Growf”.. that must be it!
Also – I love your callousness. That faint veneer of “f*ck you, I got mine” and the blatant disregard of causes which may lead to potential unrest… it’s mwah! Export Quality! Keep it up! Love your work!
PS: If you’re being sarcastic – your sarcasm tags didn’t show up properly then…
If they are indeed stressed (which I have some doubt about), they should just sell – that would ease the buying pressure. In any case, they consciously made the choice to buy in the first place, did they not?
You have great wisdom,armchair economist. Become my apprentice. Learn to use the Moron Side of the Force.
Pretty sure it’s good old sarcasm.. but I was reading this article yesterday (very long) so didn’t quite finish it.
http://www.abc.net.au/news/2017-05-01/mental-health-in-the-age-of-overtime-the-conversation/8486054
But I got the gist of it, basically if you work that way you’ll burn out and be sick and overweight in the long term… This is why I haven’t committed to a mega mortgage. I have always said to myself, put your health first and all else follows.
I never understood what makes people wanting to sacrifice so much for so little – almost masochistic obsession – Garth in Canada calls it property horny, perhaps fittingly.
Perhaps they felt they became rich or they made money the moment they bought a house? I am just imagining this, because there is no way I would *know* for certain. Perhaps, they get elated in a similar way as I would feel rich when I bought distressed assets at bargain prices……
Property horny is a good analogy, after all if you’ve had blue balls for weeks almost anyone starts to look attractive. I imagine that’s what missing out on buying into a booming market (not just real estate) is a bit like. You’re seeing all these other people winning (or getting laid) and you’re left with blue balls. I’d imagine the euphoria of buying is in many cases soon met with regret of “what have I just done?” like if you shag the wrong person out of desperation.
“War is Peace, Freedom is Slavery, Ignorance is Strength”
I like your philosophy, Gavin.
Just be the weird bloke who doesn’t give a flying what others think or do. Works for me. An office girl once tried to counsel me by saying I enjoy being different just a little too much. Always odd man out. Pfft…that’s why we love our dogs. They’re weird and just let it out. They don’t care. Oh, my dogs are rashist too. One don’t like darkies and the other yaps at Asians. Loveable scamps.
Anyhow, I digress. I’m doing the opposite of everyone around me. Not chasing money. Not chasing hours. Couldn’t care less about owning a home. Chasing the three things I just mentioned will have you in a mental home…if the funding is still there.
You know, the bonus system where I used to work reminds me of Australia. One used to have to strive to attain what was deemed unreachable. Unless you sucked cock. Madness to attempt it.
Is there a version of these charts that eschews the horrible black background, labels the x-axis for categorical values in a font size larger than an amoeba and has a slightly easier to look at colour scheme in general?
DFA have such interesting data – but it’s combined with some of the world’s most horrible graphs.
… Canada … Big Bubble Trouble …
Garth Turners Greater Fool Blog … ‘MAYDAY ?’
… h/t PH …
http://www.greaterfool.ca/2017/05/01/mayday-2/
Over six thousand people decided to sell their GTA properties in the last seven days. Of those 6,050 new listings roughly 1,500 were condos, which might suggest a whole mess of locals have decided to cash in their detached lottery ticket before this gig is up.
No wonder. The angst and heebeejeebees this pathetic blog has been wallowing in for the last few weeks has finally made into what’s left of the MSM. Like this story in today’s Toronto Star:
It is like a tap has been switched off. That’s how realtor Louise Sabino describes the housing market in the wake of the Liberal government’s provincial plan aimed at cooling Toronto’s scorching property prices.
“I think it’s shocking that it did make the impact so fast,” the Royal LePage Signature Realty agent said.
That’s the funny thing about bubbles. Everybody’s horny to get their hands on rising assets – until they’re not. It always happens fast, whatever the asset and no matter the trigger. Greed is a powerful emotion, but it wilts before the dominance of fear. If enough people fear houses will stop rising (prices don’t even need to decline), they’ll cease making the Herculean sacrifice required to buy one. And down she goes. … read more via hyperlink above …
About Garth Turner … Greater Fool Blog
http://www.greaterfool.ca/about-garth-turner/
Google News Search ‘Home Capital Canada’
https://www.google.co.nz/?gws_rd=ssl#q=home+capital+canada&tbm=nws&spf=731
Only problem is the Animal Spirits here are so strong it seems nothing can keep prices stable or flat for long enough to give the punters pause for thought!
That’s right, kangaroos and emus can’t move backwards.